Newsletter JUNE 2018

DLO’s Tax Newsletter

                                                                                                                        Issue 90 June 2018

Inside this Issue

Tax Laws Update

1. Adding types of assessable income which are derived from holding digital tokens or transferring cryptocurrency or digital tokens as assessable income under Section 40 (4) of Thai Revenue Code.

2. Amending the rules relating to donations made to support educational institutions, including exemptions on income tax, value added tax, specific business tax and stamp duty for donors to educational institutions.

3. Income tax exemption for Companies or Juristic Partnerships by allowing the deduction of expenses paid out by corporate entities for training seminars held in second-tier tourism provinces of Thailand, with the deduction set at the rate of twice the actual amount paid out.

4. Income tax exemption for Companies or Juristic Partnerships which permits them to deduct expenses paid out for implementing a Palung Pracharath project or for supporting Sarn Palung Pracharath projects by donating to the Commercial Aid foundation, with the deduction set at the rate of 1 time the amount of such expenses.

5. Income tax exemption on net profits for 5 accounting periods for target industrial SMEs for assessable income related to their business.

6. Income tax exemption for Companies or Juristic Partnerships which permits them to deduct expenditure paid to establish a childcare center for their employee’s welfare, with the deduction set at the rate of twice the amount of expenses.

Tax News

1. Draft Proposed Rule Amendment to the Revenue Code (No. …) BE …. to support the tax system and electronic transaction documents in accordance with the National Strategic Plan for the Development of National Electronic Payment Systems, open for public comment.

Interesting Supreme Court Judgment

Dika                   (Supreme Court Judgment) No. 7323/2560 in re:

Between            Company Dor.                           Plaintiff

Revenue Department                  Defendant

Issue:    Rule in relation to the calculation of net profit under section 65 term of Revenue Code

Tax Laws Update

1.  Adding types of assessable income which are derived from holding digital tokens or transferring cryptocurrency or digital tokens as assessable income under Section 40 (4) of Thai Revenue Code.

The Royal Decree amending the Revenue Code (No. 19), BE 2561, provides that assessable income which is derived from buying, selling, or exchanging cryptocurrency or digital tokens is assessable income that shall be included in calculations for the purpose of determining personal income tax liability, moreover it also stipulates that withholding tax shall be made at the rate of 15% of such income earned by the taxpayer.

This Act shall come into force from 14 May 2018 onwards.

For more details, please see: https://bit.ly/2KZTfuW

2.  Amending the rules relating to donations made to support educational institutions, including exemptions on income tax, value added tax, specific business tax and stamp duty for donors to educational institutions.

The Royal Decree (No. 655), BE 2561, amends the type of institutions that donors can donate to where such donation will be exempt from income tax, value added tax, specific business tax, and stamp duty. This Royal Decree adds institutions that are approved by the Board of Educational Development by Higher Education Commission from abroad, and also approved by the Council of Ministers under the order of the head of the National Council for Peace and Order (NCPO) no. 29/2560.

In relation to personal income tax, the expenses for this tax deduction have been adjusted to be twice the amount donated to support the specified educational institutions as an allowance. This tax amendment shall also apply to companies and juristic partnerships which donate. Taxpayers wishing to take advantage of these changes will also need to comply with the rules, procedures, and conditions as prescribed by law.

This Decree will be applicable to donations made from 1 January 2018 onwards.

For more details, please see: https://bit.ly/2KLhGer

3.  Income tax exemption for Companies or Juristic Partnerships by allowing the deduction of expenses paid out by corporate entities for training seminars held in second-tier tourism provinces of Thailand, with the deduction set at the rate of twice the actual amount paid out.

The Royal Decree (No. 656), BE 2561, provides an exemption on corporate income tax equal to 100% of expenses paid out by corporate entities (juristic persons) for staff training seminars held in second-tier tourism provinces or in other provinces prescribed by the Director-General through the advice of Ministry of Tourism and Sports, from 1 January 2018 to 31 December 2018, however this tax exemption shall only apply to the following expenditure:

     (1) Seminar Room costs, accommodation costs, transportation costs, and other costs related to staff training seminars that are paid by companies or juristic partnerships.

(2) Service fee costs paid to tour operators registered under the governing law in tourism business and guide for staff training seminars, in accordance with the rules, procedures, and conditions prescribed by the Director-General of the Revenue Department.

Corporate tax payers wishing to utilize this tax exemption will also need to comply with the rules, procedures, and conditions as prescribed by the Director-General.

For more details, please see: https://bit.ly/2x3F6tF

4. Income tax exemption for Companies or Juristic Partnerships which permits them to deduct expenses paid out for implementing a Palung Pracharath project or for supporting Sarn Palung Pracharath projects by donating to the Commercial Aid foundation, with the deduction set at the rate of 1 time the amount of such expense.

The Royal Decree (No. 657), BE 2561, provides an exemption on corporate income tax for companies or juristic partnerships on assessable income equal to the expenses paid out to implement a project under a Sarn Palung Pracharath project or for the purpose of supporting Sarn Palung Pracharath projects by donating to the Commercial Aid foundation. The exemption shall be equal to the amount actually paid, but it shall not exceed 5% of the net profits in the accounting period that starts on or after 1 January 2018 but not after 31 December 2018.

Companies and juristic partnerships wishing to take advantage of this tax exemption will also need to comply with the rules, procedures, and conditions prescribed by the Director-General of the Revenue Department.

For more details, please see: https://bit.ly/2IDGc0x

5.  Income tax exemption on net profits for 5 accounting periods for target industrial SMEs for assessable income related to their business.

The Royal Decree (No. 658), BE 2561, provides an exemption on corporate income tax on net profits for 5 accounting periods for target industrial SMEs operating businesses relating to such sectors as food industry, medical, tourism, or research.

SMEs wishing to use this exemption will need to follow the rules, procedures, and conditions prescribed by the Director-General of the Revenue Department.

For more details, please see: https://bit.ly/2IZsIj7

6.  Income tax exemption for Companies or Juristic Partnerships which permits them to deduct expenditure paid to establish a childcare center for their employee’s welfare, with the deduction set at the rate of twice the amount of expenses.         

The Royal Decree (No. 659), BE 2561, provides an exemption on corporate income tax equal to 100% on expenses paid out by a company or juristic partnership for the establishment of childcare centers established in accordance with the law of child protection, or a childcare center which is registered with the Department of Children and Youth or the Provincial Social Development and Human Security office for the purpose of employee welfare of the company or juristic partnership. The allowable expenses under this tax exemption shall only be for actual establishment costs but shall not exceed 1,000,000 baht; moreover, such expenses must be paid by eligible companies/ juristic partnerships from 1 January 2018 -31 December 2020.

Companies and juristic partnerships wishing to use this tax exemption will also need to follow the rules, procedures, and conditions prescribed by the Director-General of the Revenue Department.

            For more details, please see: https://bit.ly/2kfd9pk

Tax News

1. Draft Proposed Rule Amendment to the Revenue Code (No. …) BE …. to support the tax system and electronic transaction documents in accordance with the National Strategic Plan for the Development of National Electronic Payment Systems, open for public comment.

From April 5 – 10, 2018, the Revenue Department opened for public comment and suggestions the Proposed Rule Amendment to the Revenue Code which would support the tax system and electronic transaction documents in accordance with the National Strategic Plan for the Development of the National Electronic e-Payment Master Plan which would requires Thai banks to send transaction data to the Revenue Department for tax inspection, in the following cases:

1. Accounts with more than 3000 deposits or transfers per year, and
2. Accounts with equal to or more than 200 deposits or transfers per year and with a total transactional value of 2 million baht or more.

For more details, please see: http://www.rd.go.th/publish/27837.0.html

Interesting Supreme Court Judgment

Dika                   (Supreme Court Judgment) No. 7323/2560 in re:

Between            Company Dor.                           Plaintiff

Revenue Department                  Defendant

Issue:                Rule in relation to the calculation of net profit under section 65 term of Revenue Code

            The Plaintiff is a company incorporated under Germany laws, with its head office located in Germany which also had regional offices in Singapore. The Plaintiff also has a permanent establishment in Thailand, which is operated by Mr. S and Mr. J which is allowed to carry on business in Thailand. Moreover, as background the author would like to point out that Thailand and Germany have entered into a Double Tax Agreement (“DTA”) regarding income tax and investment.

In the accounting period between 1st January – 31st December 1998, the Plaintiff calculated the net profit for the permanent establishment in Thailand by using items which were not allowable as expenses in the calculation of net profit; as well as the head office’s allocated expenses and the regional office’s allocated expenses. The defendant disagreed with the actions of the Plaintiff by arguing that it violated the provisions of section 65 Ter (14) under the Revenue Code because it did not deemed as expense which is not for the purpose of business in Thailand.

            The Tax Division of the Supreme Court made a decision which held that the actions of the Plaintiff in this case did not violate the provisions of the Revenue Code. The Supreme Court justified its decision by pointing out that Section 3 of the Royal Decree issued under the Revenue Code Regarding Revenue Tax Exemption (No. 18), B.E. 2505 (1962) provides that taxes and duties under the Revenue Code shall be exempted for persons in accordance with the agreement on avoidance of double taxation which the government of Thailand has entered into or shall enter into with the governments of foreign countries.

Therefore, when determining the profits of a permanent establishment, there shall be allowable deductions for expenses which are incurred for the purpose of the permanent establishment including executive and general administrative expenses so incurred, whether in the state in which the permanent establishment is situated or elsewhere in accordance with Section 7 (3) of the DTA between Thailand and Germany. Hence, the Court found that the Plaintiff’s actions didn’t violate the provisions of the Revenue Code.

Legal Opinion

The writer agrees with the Supreme Court’s Judgement because despite the fact that even the expenses allocated by head office and the regional office could not be proved whether such expenses are for the purpose of business in Thailand or not, these shall not be allowed as expenses in the calculation of net profit in accordance with Section 65 Ter (14), however in this case it is permitted given the fact that in accordance with Section 3 of the Revenue Code in conjunction with Clause 7 (3) of the DTA between Thailand and Germany provide that all expense, including executive and general administrative expense, not only incurred in Thailand but also incurred elsewhere, would be deductible because in the operation of business which the entrepreneur has many establishments around the world, it is untreatable to have incurred profits and expenses from management the business. Such incurred expenses, whether incurred in the contracting state in which the permanent establishment is situated or elsewhere shall be deemed to be expenses which are incurred from the same company. Therefore, the writer agrees that all of the relevant expenses should be allowed as deductions in the calculation of net profit.

Therefore, in summation, the writer would like to point out that when determining the profits of the permanent establishment under the DTA, the Plaintiff was legally entitled to calculate the net profit of the permanent establishment in Thailand by using deductions for all expense whether incurred in Germany or Singapore.

Author: Tiprawee Khudkham

Should you require any legal advice on Thai tax law then please contact us at Dharmniti Law Office Co., Ltd. 2/2 Bhakdi Building 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330 Tel: (66) 2680 9777 Fax: (66) 2680 9711 Email: budhimak@dlo.co.th