Tax Newsletter OCTOBER 2016

DLO’S Tax Newsletter

Issue 70 October 2016

Inside this Issue

Tax Laws Update

1.         Income Tax Exemptions for Debt Released by a debtor of Financial Institution;

2.         The Criteria and Conditions of Income Tax Exemptions for Buying Long Term Equity Fund (LTF);

3.         Extension for writing off Bad Debts on Accounts Receivable of Financial Institution; and

4.         Rules, Procedures and Conditions for the Exemption on Income Tax of Venture Capital’s Investor;

Tax News

1.         UpdateLand and Building Tax;

2.         Revenue Department Persuades Business Operators to be subject to Corporate Income Tax System;

3.         Bangkok Metropolitan Administration taxes on rented condominium because of its lower-than expected collected revenue; and

4.         Tax Reduction to Promote the Investment in Southern Border

Interesting Dika (Supreme Court) Judgment

Dika (Supreme Court) Judgment No. 314/2559, in re:

Tax Laws Update

1. Income Tax Exemptions for Debt Released by a debtor of Financial Institution

Royal Decree (No.623) B.E. 2559 has prescribed that a debtor of a Financial Institution including Guarantors will receive an income tax exemption for income received from a debt release from a Financial Institution in accordance with the criteria of debt restructuring of Financial Institution as specified by the Bank of Thailand, for debt which have been released since January 1, 2015.

This Royal Decree has been effective since September 8, 2016.

For more details please see: http://goo.gl/RwSqzc

2. The Criteria and Conditions of Income Tax Exemptions for Buying Long Term Equity Fund (LTF)

Ministerial Regulation No.317 (B.E.2559) has modified the criteria for holding a LTF by providing that a natural person must buy and hold a LTF for at least 7 calendar years (previously it was 5 calendar years), in order to receive an income tax exemption.

The Notification of the Director – General of Revenue Department (No.276) B.E. 2559 stipulates the criteria, methods and conditions for exemption of income that is equal to expenses on LTF, these are as follows:

1)      A taxpayer must be a natural person;

2)      The LTF purchased by a person must not exceed 15 percent of their assessable income received which is subject to personal income tax in that accounting period. However, in any case such LTF purchase must not exceed 500,000 Baht;

3)      The LTF must be held by the person for at least 7 calendar years, except in cases where the person becomes disabled or dies; and

4)      The LTF must be purchased between January 1, 2016 through until December 31, 2019.

These criteria have been effective since January 1, 2016.

For more details please see: https://goo.gl/ilwRb6 and http://goo.gl/10j35c

3. Extension for writing off Bad Debts on Accounts Receivable of Financial Institution

Ministerial Regulation numbers 186 (B.E. 2534) and 306 (B.E. 2557) have prescribed rules, procedures and conditions regarding the write off of bad debts on accounts receivable of financial institution that expired on December 31, 2014.

Ministerial Regulation No. 321 (B.E. 2559) prescribes the extension for such write off of bad debts which has been effective since January 1, 2015.

For more details please see: https://goo.gl/DXbKHR , https://goo.gl/TBrh5c and https://goo.gl/bhxv0Q

4. Rules, Procedures and Conditions for the Exemption on Income Tax of Venture Capital’s Investor

Royal Decree (No. 597) B.E. 2559 prescribes the applicable exemptions on income tax incurred from share transfers in a venture capital company or which arise from the transfer of trust units of a trust for venture capital which invests in target companies.

The Notification of the Director-General of Revenue Department on income tax (No. 279) B.E. 2559 has prescribed rules, procedures and conditions for the exemption on income tax for investors with respect to their share transfers and transfer of trust units, as follows:

1) In relation to investor derived dividends from a venture capital company:

1.1) The investor will receive a full income tax exemption on such dividend if it is paid from net profit of a business that is exempt from income tax; and

1.2) If a dividend fails to specify whether it was paid from net profit of an exempted business or not, then the investors must average such dividend proportionally.

2) With respect to investor derived dividends from a trust for venture capital:

1.1) The investor will receive a full income tax exemption if such dividend is paid from net profit of the investment in the target company; and

1.2) If a dividend fails to specify whether it was paid from net profit of a target companies or not, then the investor must average such dividend proportionally.

This exemption has been effective since February 25, 2016.

For more details please see: http://goo.gl/Zo61CM and http://goo.gl/KoXRH1

Tax News

1. Update Land and Building Tax

The Permanent Secretary of the Ministry of Finance has released a draft of the Bill of the Land and Building Tax Act, which is now in the process of consideration by the Council of State. It may be presented to the Cabinet and the National Legislative Assembly within October, 2016. It is expected that the Bill will be passed into Law and will become effective in 2017.

For more details, please see https://goo.gl/zYWe1M

2. Revenue Department Persuades Business Operators to be subject to Corporate Income Tax System

The Director – General of the Revenue Department has stated that this year, the Revenue Department aims to expand the tax base in accordance with the policy provided by the Government and the Ministry of Finance. In accordance with this stated objective, an increasing number of individual business operators will be invited to register as a company or juristic partnership. A single account is recommended with the Revenue Department promoting greater knowledge and understanding of issues relating to access to the E-Payment system. The Director – General of the Revenue Department noted that based on the preliminary discussions, all pharmacies had consented to being registered as a company or juristic partnership.

With respect to tax collections from online business operators involved in E-Commerce, the Revenue Department, Ministry of Commerce, Ministry of Information and Communication Technology (ICT) and Bank of Thailand (BOT) are working together to gather information and seek collective guidelines on this matter, it is anticipated that this process of information gathering will take some time to complete.

For more details, please see: http://goo.gl/FRdUUJ and http://goo.gl/e0PkHj

3. Bangkok Metropolitan Administration taxes on rented condominium because of its lower-than expected collected revenue

The Director of the Finance Department in the Bangkok Metropolitan Administration has revealed that an urgent directive has been issued to 50 District Offices requiring taxes to be comprehensively collected in relation to certain areas and that the tax base for the Land and Building tax has recently been expanded to now include condominiums which are provided for rent or are not used for residential purposes.

For more details, please see: http://goo.gl/JGo25A

4. Tax Reduction to Promote the Investment in Southern Border

On September 27, 2016 the Cabinet has accepted several tax measures in order to promote investment in Thailand’s three southern border provinces namely Yala, Pattani and Narathiwat. These tax measures are as follows:

1) Capital expenditure on additional, alternation, extension or betterment of property regarding the manufacturing or sale of goods or services in such provinces can be applied as a double capital expenditure deduction, however such deduction excludes capital expenditure relating to the preservation of property;

2) A tax exemption on net profit for 5 accounting periods; and

3) Providing an option for employees in these provinces to pay income tax received from hire of service at the rate of 3 percent provided that they do not include such income with other assessable income when calculating their personal income tax.

However, please note that these tax measures must comply with the criteria, methods and conditions which will be provided later under the law.

For more details please see: http://goo.gl/uxWU79

Interesting Deka (Supreme Court) Judgment

Dika (Supreme Court Judgment No. 314/2559), in re:

In this case, the plaintiff was a company incorporated under Thai law. In the accounting period of October 1, 2006 – September 30, 2007, the plaintiff held shares in A Public Company and A Public Company held shares in the plaintiff’s company representing over 25 percent of its voting rights. On September 1, 2007 the plaintiff’s company distributed a dividend to the shareholders.

On November 1, 2007 the plaintiff sold all of its shares in A Public Company. Then, on November 25, 2007 the plaintiff closed the transfer book for the shares in order to declare the dividend to A Public Company in the amount of 15,988,800 THB

The defendant assessed that the plaintiff had the duty to withhold tax from such dividend. The plaintiff was the shareholder of the recipient company in the period of distribution of such dividend, however the defendant argued otherwise by making reference to KorPorOr No. 9/2535 dated November 24, 1992, which prescribed a prohibition on companies that paid a dividend to hold shares in the recipient company whether directly or indirectly,  thus it contended that the company paying the dividends did not hold any shares in the recipient company in the accounting period in which the dividends were paid.

The Central Tax Court decided to revoke such assessment and appealed decision of the defendant

The Supreme Court held that KorPorOr overrules Section 65Bis (10) of the Revenue Code) thus, it cannot be applied to the plaintiff in a negative way. Furthermore, at the time the plaintiff closed the transfer book of shares in order to declare the dividend, the plaintiff did not hold shares in the recipient company whether directly or indirectly. A Public Company which is the recipient company held shares not less than 25 percent of voting right in the plaintiff company; therefore the dividends which A Public Company received were exempt with respect to  its CIT computation according to Section 65Bis (10). Hence, the Supreme Court decided that the plaintiff was not subject to withholding tax with respect to Article 5 of the Revenue Department’s Ruling no. Tor. Por. 4/2528.

Legal Opinion

This case is about problems arising from interpretation of legal issues re: prohibition of the limited company paying dividends, from holding shares in the limited company receiving the dividends, whether directly or indirectly according to Section 65 Bis (10) of the Revenue Code. The Supreme Court viewed that KorPorOr’s resolution No. 9/2535 prescribes additional criteria apart from the scope of Section 65 Bis (10). For this reason, KorPorOr’s resolution could not be used against the plaintiff. In this case, I, the writer agree with the aforesaid decision of the Supreme Court because the Revenue Code is regarded as a public law which limits people’s rights and is enforceable against people’s property. Consequently, it is prohibited to interpret such issue in a manner that adversely affects people, thereby causing them being liable for paying additional taxes in excess of what the Revenue Code prescribes.

In relation to KorPorOr’s resolution, I am of the opinion that such resolution is beneficial to the taxpayer and should be carefully applied per the Supreme Court’s Ruling No. 2638/2530 where the Supreme Court ruled that KorPorOr’s resolution is not the Revenue Department’s Directive but is a general practice; and that it is merely an application to a certain issue. I would also contend that even though the above resolution is beneficial to one taxpayer, in other cases where the facts and circumstances of a taxpayer are different, such resolution may not be applied.

Moreover, in this case, the defendant referred to the letters Gor.Kor.0802/443 dated 12 January 1993 and Gor.Kor.0802 (Gor Mor)/155 dated 7 February 1995 which referred to the above KorPorOr resolution. As such KorPorOr resolution cannot be applied in a negative way to taxpayers, therefore these letters can no longer be relied upon as guidelines for tax payment. Therefore, it is necessary for taxpayers and anyone whose job is related to tax to constantly keep up with changes in tax laws and their enforcement.

Mr. Montree Atchariyasakulchai

Should you require any legal advice on tax law then please contact us at Dharmniti Law Office Co., Ltd. 2/2 Bhakdi Building 2^nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok, Tel : (66) 2680 9751, (66) 2680 9760 Email: budhimak@dlo.co.th or chatwaleem@dlo.co.th