Tax Newsletter MAY 2016

DLO’S Tax Newsletter

Issue 65 May 2016

Tax Law Update

Corporate Income Tax Exemption for Target Industry Business in SMEs

Royal Decree (No.602) B.E. 2559 has stipulated that corporate income tax for a juristic person that has income from the sale of goods and services from a Target Industry shall be exempt from such tax for five accounting periods subject to the following conditions:

1. The legal entity must be registered as a juristic person from October 1^st 2015 through until December 31^st 2016;
2. The juristic person must have paid-up capital not exceeding 5,000,000 Baht and have income from the sale of goods and services not exceeding 30,000,000 Baht in an accounting period;
3. The juristic person must have income from a Target Industry which is not less than 80% of the total income in an accounting period;
4. SMEs that perform in a Target Industry Business must be approved by the Director-General of the Revenue Department;
5. The juristic person must not use tax exemption benefits from the Board of Investment;
6. The juristic person must comply with the rules of the Director General of the Revenue Department.

However, with respect to the performance of business, rules of the exemption benefits and withdrawal, juristic persons must comply with the Royal Decree and the Notification of the Director General of the Revenue Department.

This Royal Decree shall be effective from April 22^nd 2016.

For more details, please see; https://goo.gl/zAJrQ9, https://goo.gl/cvW4TB

Reducing Corporate Income Tax for SMEs

Royal Decree (No.603) B.E. 2559 has amended Royal Decree (No.530) B.E. 2554 by reducing the corporate income tax for companies or juristic partnerships which have paid-up capital on the last day of an accounting period that does not exceed 5,000,000 Baht and which have income from the sale of goods and services in an accounting period that does not exceed 30,000,000 Baht. The details of such corporate income tax reductions for (SMEs) are as follows:

However, the portion of net profit that does not exceed 300,000 Baht shall continue to be exempt according to Section 7(2) of Royal Decree (No.530) B.E. 2554.

This change has been effective since April 22^nd 2016.

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

Tax Benefit for a Capital Expense of an Asset

Royal Decree (No.604) B.E. 2559 has stipulated that corporate income tax shall be exempted on expenses on investment, addition, change, expansion or improvement of an asset of the business excluding repair, in the amount of 100% of the expense that is spent during the period from November 3^rd 2015 through until December 31^st 2016

However, the condition of an asset that shall be exempt must comply with the said Royal Decree and the Notification of the Director General of the Revenue Department (No.266).

This exemption has been effective since April 22^nd 2015.

For more details, please see:https://goo.gl/44S5i0, https://goo.gl/nGJWun and https://goo.gl/86HUqH

Personal Income Tax Exemption for an expense on National Savings Fund (NSF)

The Minister of Finance has issued Ministerial Regulation No.314 (B.E. 2559) for Royal Decree (No.604) B.E. 2559 in order to stipulate the following as assessable income for the purpose of granting a tax exemption and calculating applicable income tax:

1. Any income that members of the NSF have paid for saving into the NSF but not exceeding 500,000 Baht in a single tax year;
2. Money or others benefits received from the NSF due to its member’s becoming disabled or having their membership expire.
3. The above exemptions must comply with the said Ministerial Regulations and Notification of the Director General of the Revenue Department.

These Regulations shall be effective for assessable income from 2015.

For more details, please see: https://goo.gl/rP8nnK

Prescribing the Criteria for Income Tax Exemption for Expenses Relating to Research and Developing Technology and Innovation

The Ministry of Finance has issued a Notification regarding income tax (No.391), dated March 25, 2016, in order to impose certain criteria, methods and conditions with respect to income tax exemptions for expenditure on researching, developing technology and innovation in accordance with Royal Decree (No.598) B.E. 2559. The Notification provides as follows:

1. The expenditure must be for researching and developing technology and innovation for government agencies or private agencies which have been determined by the Director – General of the Revenue Department.
2. The research and development of technology and innovation must have features that are prescribed by this Notification.
3. The research and development of technology and innovation projects must be submitted to the National Science or Technology Development Agency or other agencies as prescribed by the Minister, in order for such agencies to review and decide whether such project should receive this tax exemption benefit.
4. A Company or Juristic Partnership may receive this benefit without requiring review and approval under No.3 if such Company or Juristic Partnership has features in accordance with the conditions prescribed.

This criteria has been effective since January 1, 2016

For more detail please see: https://goo.gl/hn5AIb

Prescribing the Criteria of Receiving Tax Exemptions for Donations that support and promote Sports

In accordance with Royal Decree (No.596) B.E. 2559, which provides an exemption on income tax, value added tax (VAT), Special Business Tax (SBT) and Stamp Duty regarding donations that support and promote sports, the Director – General of the Revenue Department has issued the Notification of the Director – General of Revenue Department in order to provide certain criteria, methods and conditions for receiving an additional tax exemption. This Notification provides as follows:

1. In the case of a natural person, a taxpayer must donate only in cash.
2. In the case of a company or juristic partnership, such legal entities can donate in cash, property or goods.
3. A taxpayer, who wants to receive this benefit, must provide documentation/evidence given by the recipient. For example, a receipt, Thank you letter, certificate, etc.

The donation must comply with the conditions prescribed by the Royal Decree which has been effective since January 1, 2016.

For more detail see:https://goo.gl/SrfD99

Prescribing the Criteria for Submitting a Request to be a Recipient for Research and Developing Technology and Innovation

The Royal Decree (No.598) B.E. 2559 provides rights to bring an expenditure on researching and developing technology and innovation for a government agency or a private agency as prescribed by the Director – General and to record a triple deduction for such expenditure.

The Director – General of the Revenue Department has issued the Notification of Director General of Revenue Department to prescribe certain criteria and methods for submitting a request to be a recipient of research and development of technology and innovation. Furthermore, agencies, that want to be a research recipient, must submit their request to the Large Business Tax Administration Office (LTO) of the Revenue Department or the Revenue Department Region Office where the research recipient office is located.

The features of researching and developing technology and innovation, the application form, required documentation and other conditions must comply with the conditions prescribed by this Notification.

For more details please visit: http ://goo.gl/E7q4W8

Amendment of the regulation of a registered entrepreneur who sells goods to people traveling out of the Kingdom who have the right to a tax refund

The Director- General of Revenue Department issued the Notification of The Director- General of Revenue Department on Value Add Tax (No. 209), in order to amend the regulation of VAT registrants that sell products to people who travel out of the Kingdom which have the right to a tax refund provided that the VAT registrant is a company or juristic partnership. The conditions relating to registered capital, continuous stability in operations and the taxpayers’ background are not to be considered in future anymore.

This shall be effective since April 12^th 2016.

Statement of Revenue Department on Value Add Tax in case of payment to SME which registered under Emergency Decree of Exception and Supporting for Tax Operation under Revenue Code B.E. 2559

A company or juristic partnership is an SME if it has paid-in capital in the final accounting period which does not exceed 5 million Baht and which earns income from goods and services which does not exceed 30 million Baht (SME), a SME must register under the terms and conditions of Emergency Decree in order to be entitled to such tax exemptions under the Royal Decree (No. 595) B.E. 2558.

The Revenue Department has issued a statement providing that any person paying such income to an SME is still subject to Withholding tax for all payments because the time of the payment is still unclear on whether such SME is entitled to receive the exemption right under the Royal Decree or not.

Tax News Update

The government preparing to issue Seize and Attach Law for Tax Dodger

On 26 April 2016, the Cabinet approved an amendment of the Revenue Code to endorse its compliance with international standards to counter Money laundering and against financial support to terrorism of Financial Action Task Force (FATF) by authorizing the Director- General of the Revenue Department to seize and attach assets temporarily if there is evidence to prove that such Value Add Tax avoidance or tax refund is a pretence.

Interesting Dika (Supreme Court) Judgments

Dika (Supreme) Court Judgment No. 687/2550, in re:

Issue: A business with regular transactions similar to commercial banks

Company A                             Plaintiff

The Revenue Department     Defendant

The plaintiff increased its registered capital by issuing new shares and recorded its financial budget stating that the whole price of the new shares was paid in 1990 but in fact it wasn’t. In the financial budgets for 1992 and 1993, the plaintiff had shown the record that the directors and others borrowed the amount of the whole price of the new shares every year. However, the amount of such loans, provided on several occasions, came from increasing its capital by issuing new shares only once. Hence, it cannot be proved that the plaintiff provided the loans to the directors and others regularly. Therefore, the Court found that plaintiff did not carry on a business with regular transactions similar to that of a commercial bank, thus the plaintiff was found not to be subject to Specific Business Tax in accordance with section 91/2(5) of the Revenue Code.

Legal Opinion

According to the above mentioned lawsuit, the issue in question was whether the plaintiff in providing loans to the directors and others on several occasions , should be deemed to be carrying on a business with regular transactions similar to a commercial bank which is subject to Specific Business Tax (in accordance with section 91/2(5) of the Revenue Code). In this case, the Supreme Court considered that even though there were several loans, the cause of the loan (the debt from increasing its capital) occurred on only one occasion. The plaintiff recorded that they provided the loan to the directors and others on several occasions, hence the Court found that it cannot be deemed that the plaintiff was carrying on a business with regular transactions similar to that of a commercial banks which is subject to Specific Business Tax.

The defendant claimed that the plaintiff provided loans to the directors and others on several occasions and as such should be deemed to be conducting a business with regular transactions similar to those conducted by a commercial bank and therefore should be subject to Specific Business Tax. The author notes that when determining whether the loaning shall be deemed as a business with regular transactions similar to those conducted by commercial banks it is necessary to consider two issues – firstly whether the lender provides loans on a regular basis and secondly, whether the loaning is based on a single or a multiple number of obligations. Guidance on the definition of “Regular” has been given by the Supreme Court in judgment No. 702/2552 when the Court states that” “Regular” means the operations should have been performed customarily”. Hence, when applying this definition to the business of making loans it should mean that the lender provides loans on several times. With respect to the wording “Several Times”, the author suggests that it means that the cause of borrowing (obligation) occurs on many occasions because section 91/2(5) of the Revenue Code) states that loaning should be similar to that conducted by commercial banks moreover, the nature of loaning of the commercial banks should occur as a result of several obligations. Hence, in this case given that such loan occurred only from one obligation, such transactions do not qualify as a business with regular transactions similar to those conducted by commercial banks which is subject to Specific Business Tax. Therefore, the Supreme Court judgment is correct in its application of the law.

Mr. Taradol Chantarasap
Lawyer

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 9753 Email: budhimak@dlo.co.th or sureelukt@dlo.co.th