Tax Newsletter FEBRUARY 2017

DLO’S Tax Newsletter

Issue 74 February 2017

Inside this Issue

Tax Laws Update

1. Tax privileges for juristic person located in a special development zone that make specified investments.

2. Corporate income tax exemption for SMEs that participate in industry fairs in special development zones.

3.  Exemption for income or any privilege that is received from selling investment units back to a retirement mutual fund.

Tax News

1. The Revenue Department announces that it will not require taxpayers to register for promptpay and will still allow tax refunds to be paid by cheque.

2. The Revenue Department clarifies details concerning income tax deductions for donations made to help the victims of the recent floods in Southern Thailand.

3.   Exemption for income or any privilege that is received from selling investment units back to a retirement mutual fund.

4. The Revenue Department provides clarification concerning the permitted extension period for paying tax on investments.

Interesting Dika (Supreme Court Judgment)

Dika                       (Supreme Court Judgment No. 4862/2559), in re:

S.Limited Partnership                                                                                        Plaintiff

Revenue Department                                                                                        Defendant

Issue:                     Issue of tax invoicing resulting from the transfer of products from headquarters to its branch.

Tax Laws Update

1. Tax privileges for  juristic person located in a special development zone that make specified investments.

Royal Decree (issue no. 626) B.E 2559 provides a corporate income tax deduction for income equal to expenses that company pays for investment, increase, change, extension or development of assets of a business which is located in the special development zone (which comprises the provinces of Narathiwat, Pattani and Yala) , however this deduction is subject to the condition that such expenses should not be for maintenance or repairs. Under this tax deduction applicable companies will receive a CIT deduction of 100% of the  expense incurred provided that the expenses are paid within 27 September 2016 to 31 December 2020.

The details relating to assets, rules and conditions under this under this Royal Decree will be announced by the Director General of the Revenue Department.

For more details, please see https://goo.gl/9oiuHZ

2. Corporate income tax exemption for SMEs that participate in industry fairs in special development zones.

Royal Decree (issue no. 627) B.E 2559 prescribes a tax deduction on corporate income tax for juristic persons that operate a business in the special development zone only (which comprises the provinces of Narathiwat, Pattani and Yala) and only for 5 accounting periods. The applicable rules and regulations are as follows:

1. Must be registered as a juristic person from 1 January 2015 through until 31 December 2020. The juristic person must have registered capital not more than 5 million Baht and have revenue from the sale of product and service in one accounting period not exceeding 30 million Baht.

2. Must have revenue from its business or related to its business involving participation in industry fairs of not less than 80% of its total revenue in one accounting period.

3. It must receive approval from the Director General of the Revenue Department

4. It must not claim corporate income tax exemption under the Investment Promotion Act

This tax privilege shall also be subject to the criteria, methods and conditions which will be provided by the government in the future.

For more details, please see https://goo.gl/zAJrQ9 and https://goo.gl/GNJ2kf

 3. Exemption for income or any privilege that is received from selling investment units back to a retirement mutual fund

Ministerial Regulation No. 324 (B.E. 2559) provides an amendment for exceptional income under article 2 (92) of Ministerial Regulation No. 126 (B.E 2509) by prescribing exceptional income as income or any privilege that an individual receives from the sales of investment units back to a retirement mutual fund under the Security and Exchange Act from 1 January 2016. A unit is said to be a unit from a retirement mutual fund that has been received by transfer or related to transfer from a retirement mutual fund under the Provident Fund Act specifically for taxpayers who have sold their investment unit when their age exceeds 55 and they have been members of the retirement mutual fund and have held the fund for not less than 5 years or are otherwise handicapped or deceased.

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

Tax News

1. The Revenue Department announces that it will not require taxpayers to register for promptpay and will still allow tax refunds to be paid by cheque.

The Revenue Department has clarified that they will not force taxpayers to register for prompt-pay in order to receive their tax return. However, in order to receive tax return rapidly, Revenue Department will transfer tax return through prompt-pay system first, after that, they will pay cheque to return tax to taxpayers who have not registered for prompt-pay system.

For more details, please see: https://goo.gl/9sALpa

2. The Revenue Department clarifies details concerning income tax deductions for donations made to help the victims of the recent floods in Southern Thailand.

Cabinet has resolved to approve a tax deduction for donations to the victims of the recent natural disaster in Southern Thailand. This deduction requires that such donation (cash or asset) be made between January 1, 2017 through until March 31, 2017. The taxpayer shall be permitted to deduct as an allowance or deduct as an expense 1.5 times the amount donated. The applicable terms and conditions relating to this are as follows:

1) An individual can only make a donation in the form of cash.

2) A juristic person or juristic partnership can donate either by giving cash or in by giving an asset.

3) The donation must be made within January 1, 2017 to March 31, 2017. The donation must specify that it is a donation to the victims in Southern Thailand and can mention the period of the flood. A cash donation can be evidenced by a transfer to the applicable bank account collecting funds within such period.

Taxpayers wishing to take advantage of this cabinet resolution will need to comply with the rules, procedures, conditions as prescribed by law.

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

3. Exemption for income or any privilege that is received from selling investment units back to a retirement mutual fund.

The Cabinet has resolved to approve tax measures which help to support the victims of the flood disaster which occurred during December 1, 2016 to May 31, 2017. According to a letter issued by the Revenue Department these measures provide that a taxpayer who is an individual can claim a tax deduction on house repairs provided that the actual payment does not exceed 100,000 THB, Moreover, affected taxpayers can also claim a tax deduction for car repairs provided that the actual payment does not exceed 30,000 THB.

Taxpayers wishing to take advantage of tax measures will need to comply with the rules, procedures and conditions as prescribed by law.

For more details, please see: https://goo.gl/VSRTxQ and https://goo.gl/mA98tN

4. Revenue Department clarifies the extension of tax measures for investments

Royal Decree (No. 604) B.E. 2559 has prescribed the deduction on the capital expenditure, renovations, alternations or betterment of assets relating to business but not the refection of 1 times (totally 2 times) to December 31, 2016.

The Cabinet has approved this extension of tax measurement for 1 more year effective from January 1, 2017 through until December 31, 2017 by amending the rules and conditions such as the right to deduct an expense from 1 times (totally 2 times) to be remaining of 0.5 times (totally 1.5 times) only.

For more details, please see:  https://goo.gl/A1JYu5 and https://goo.gl/Vko6P7

Interesting Dika (Supreme Court) Judgment

Dika                      (Supreme Court Judgment) No.4862/2559

                              S.Limited Partnership                                    Plaintiff

                              Revenue Department                                     Defendant

Issue      Issue of Tax Invoicing resulting from the Transfer of Products from Headquarters to its Branch

The facts in the case were that the Plaintiff was a Value Added Tax (VAT) registrant, who had two establishments, namely the headquarter and its branch The Plaintiff transferred oil from the headquarter to its branch then the, headquarter issued a tax invoice to the branch by filing a value added tax return and the branch brought such value added tax return as the input tax in order to calculate value add tax by filing a value added tax return within the period as prescribed by law.

According to sections 82/3, and 77/1(5), (7) and (18) of the Revenue Code, a VAT registrant who pays VAT by bringing input tax to deduct with output tax according to section 82/3 of the Revenue Code must be a natural person, non-juristic body or juristic person according to Section 77/ 1 (1), with input tax and output tax to occur from the sale between the entrepreneur and the other person according to section 77/1 (17) and (18). The Court found that given that the parent company and its subsidiary are the same legal entity, the transfer of oil from the headquarter to its branch was an internal business transaction and did not constitute a sale of goods according to section 82/5 (5) of the Revenue Code.

In relation to the headquarter issuing a tax invoice,  the Court found that it was not authorized to do so according to section 86 of the Revenue Code, hence when the  branch used such tax invoice as input tax for tax calculation according to Section 82/3 of the Revenue Code, it was deemed by the Court to be an unclaimed tax according to section 82/5 of the Revenue Code.

Legal Opinion

The above Court Judgment concerns the issue relating to any person issuing tax invoices without a lawful right to do so. Section 82/5 (5) of the Revenue Code provides that “input tax under a tax invoice issued by a person not authorized to do, shall not be allowed as a deduction in tax computation”. The writer agrees with Supreme Court’s judgment, because in the case of a transfer of goods from a headquarter to its branch it is an internal business transaction. Hence, the headquarter doesn’t have a lawful right to issue a tax invoice to its branch because it is a related company according to the Revenue Code. If the Revenue Code provided a lawful right to issues tax invoice between a headquarter and its branch, it might result in considerable tax evasion which would have a detrimental impact on society. Therefore, the parent company doesn’t have a lawful right to issue tax invoices in this case according to section 86 of the Revenue Code, moreover nor does the branch have the right to take those tax invoices to use for input tax calculation is a over declared purchase. Hence, the Court held that the branch had a VAT liability and was also subject to fines and charges in accordance with sections 86/13 and 88/1 of the Revenue Code.

Thus, the writer is of the opinion that VAT registrants who issue tax invoices must follow the Revenue Code and Department Regulation No.86/1999 “Guideline in the preparation of tax invoice” to ensure that such tax invoices can be used for the purpose of VAT calculation and to reduce any risks to tax assessment such as fines and penalties.

Phagarmas Sa-nguanrat

Should you require any legal advice on Thai 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