Tax Newsletter SEPTEMBER 2017

DLO’S Tax Newsletter

Issue 81 September 2017

Inside this Issue

Tax Laws Update

1. Additional measures promoting “ordinary partnership or non – juristic body of persons” transferring property for the purpose transforming a business to being a juristic person
2. Extending the Period for Income Exemption for Community Enterprises
3. Amendment of the time period specified for paying duty in cash instead of stamp duty for an instrument which is not created in the form of electronic data, for the purpose of  company registration

Tax News

1. Extending the period for collecting VAT at 7 percent by one additional year
2. Tax aid measures for persons who suffered from the floods in 2017

Interesting Deka (Supreme Court Judgment)

Dika                    (Supreme Court Judgment) No.6693/2559, in re:

Between             Company W.                                                                  Plaintiff

Revenue Department                                                    Defendant

Issue:                  Should immovable property that has been expropriated be treated as the sale of immovable properties in a commercial manner or for profit and should proceeds received by the Plaintiff under the expropriation be subject to specific business tax (SBT)?

Tax Laws Update

1. Additional measures promoting “ordinary partnership or non – juristic body of persons” transferring property for the purpose transforming a business to being a juristic person

Royal Decree (No.644) B.E. 2560 has amended Royal Decree (No.630) B.E. 2560 by providing an exemption for income tax, value added tax (VAT), specific business tax (SBT) and stamp duty when transforming a business from a natural person including ordinary partnership or non – juristic body of persons to be a juristic person. However, such juristic person must be established and registered between August 10, 2016 – December 31, 2017.

For more details, please see: https://goo.gl/iwb9ev and https://goo.gl/a9bnsC

2. Extending Period for Income Exemption for Community Enterprise

Ministerial Regulation (No.330) B.E. 2560 extends the 3 year period for income exemption for community enterprises in accordance with the law on promotion of community enterprise, which previously expired on December 30, 2016. This Regulation extends the income exemption until December 30, 2018, however, it is only applicable to ordinary partnerships and non – juristic bodies of persons who have received income exceeding 1.8 million Baht per year.

For more details, please see: https://goo.gl/oHo8RP

3. Amendment of time specified for paying stamp duty in cash for an instrument which is not created using electronic data for the purpose of company registration

The Notification of Director – General of Revenue Department regarding stamp duty (No. 57) provides an extension of 1 month for paying  stamp duty in cash for an instrument which is not created using electronic data for the purpose of company registration. The starting date shall be postponed from August 1, 2017 until September 1, 2017.

For more details, please see: https://goo.gl/JfxGFc and https://goo.gl/sw5hAV

Tax News

1. Extending Period of Reduced VAT rate

On August 15, 2017, the Cabinet agreed to extend the effective period for the current reduced VAT rate  which is VAT of 6.3 percent (7 percent after including local tax). Previously the reduced rate was due to expire on September 30, 2017, however, it will now be extended until September 30, 2018.

For more details, please see: https://goo.gl/fTN4yL

2. Tax aid measures for supporting persons who suffered damage as a result of  floods in 2017

On August 1, 2017, the Cabinet agreed to an income exemption for donations made to help flood victims in Thailand in 2017. This measure gives a right to donors who donate between July 5, 2017 – October 13, 2017 to receive an allowance or deduction of expenses in the amount of 150 percent of money or asset donated in the computation of their income tax. However, a natural person will only receive such benefit if he/she donates in cash.

Furthermore, the Cabinet has also agreed to help affected people to recover from the floods during July 5, 2017 – December 31, 2017, by giving rights to a natural person, who suffered from flood, to be able to use the actual cost of repairing real estate as an allowance subject to the condition that such cost must  not exceed 100,000 Baht. Moreover, actual car repairing cost for damage sustained in the floods are also an expense available to natural persons but such costs cannot exceed 30,000 Baht.

For more details, please see: https://goo.gl/7aPqbN

Interesting Deka (Supreme Court Judgment)

Dika                    (Supreme Court Judgment) No.6693/2559, in re:

Between             Company W.                                                                  Plaintiff

Revenue Department                                                    Defendant

Issue:                  Should immovable property that has been expropriated be treated as the sale of immovable properties in a commercial manner or for profit and should proceeds received by the Plaintiff under the expropriation be subject to specific business tax (SBT)?

With respect to this expropriation of the Plaintiff’s property, the plaintiff had only one plot of land to use which contained its office, it used such office and leased part of it to other parties. The plaintiff’s land and building were immovable properties that were being used to run its business rather than for the purpose of selling. The Plaintiff’s Land was expropriated in accordance with the law governing land expropriation; such transaction was not made in accordance with the Plaintiff’s will or for the plaintiff’s benefit or for the Purpose of the Plaintiff’s business. Therefore, the Court determined this sale of this immovable property was not done in a commercial manner nor for profit hence the Plaintiff should not be liable to pay SBT on the expropriation proceeds.

Therefore, the plaintiff is not liable to pay SBT and has no duty to file a tax return, a complaint for claiming a tax refund is not under the time limit which is 3 years from the due date of the filing of tax return according to Section 91/11 and Section 27 Ter of the Revenue code. Therefore, the Court held that the Plaintiff has the right to claim such tax refund back from the Revenue Department.

Legal Opinion

An important issue from the above Supreme Court Judgment is the sale of immovable properties in a commercial manner that are liable to specific business tax will affect the time to claim specific business tax refund. In the case where it is liable to pay specific business tax, the time to claim a specific business tax refund is within 3 years from the due date of the filing of the tax return according to Section 91/11 and 27 Ter of the Revenue code. In another case where it is not liable to pay specific business tax such as an expropriation’s case, the Revenue Code does not stipulate the time to claim a tax refund, therefore the prescription period for the right to claim a tax refund is within 10 years from the date of the tax payment that is not required to be paid in accordance with Section 193/30 of Thai Civil and Commercial Code which stipulates that the period of prescription for which no other period is provided by law is ten years.

The word “Sell” in Section 91/1 (4) of the Revenue Code in the chapter covering specific business tax, is defined to include an agreement to sell, sale with the right of redemption, exchange, gift, hire-purchase, or distribution, disposal and transfer with or without consideration. This shows that an expropriation is considered as the sale of immovable property according to the said law. Moreover, Section 91/2 (6) stipulates that the sale of immovable property for a commercial or profit based purpose, regardless of the manner by which such property is acquired, shall be subject to specific business tax, hence in order to determine if SBT will apply it is necessary to determine whether the sale of the immovable property is for a commercial or profit based purpose.

In this case, the Plaintiff had used the land and building on it as its office and it had also leased part of the land to other parties, this means that the Plaintiff had only used the land and building to run their business, they had not used the land for a speculative or sale purpose. Furthermore, the writer would like to point out that an expropriation is a forced sale and purchase whereby the state/Government purchases property from its owner for public use or benefit, it is not a sale made according to the will of the owner of the property. In the writer’s opinion, the money received by the Plaintiff under the expropriation is similar to compensation for losing the benefit to use the land for running its business given that the Plaintiff was forced to sell the property against its will. The Court decided that this transaction should not be considered as the sale of immovable property for a commercial or profit based purpose and therefore the monies received by the Plaintiff should not be subject to specific business tax. Thus, the Plaintiff has the right to claim the tax refund on the SBT paid within 10 years from the date of its SBT tax payment that was not required to be paid.

For this reason, the writer agrees with the Supreme Court’s Judgement that this transaction is not to be considered as the sale of immovable property for a commercial or profit based purpose and that as a result the proceeds received by the Plaintiff from the expropriation are not subject to SBT.

Therefore, if you were a juristic person that had immovable property expropriated and you paid specific business tax on the proceeds of the expropriation monies more than 3 years from the due date of the filing of tax return but not more than 10 years, then you could claim a refund of the specific business tax paid because you have no duty to pay and file a specific business tax return. However, the Revenue Department may contest the return of such SBT paid by arguing that the money received under the expropriation is a sale of immovable property for a commercial or profit based purpose and is therefore subject to SBT. However, if this occurs then the writer recommends that such juristic person or entrepreneur should appeal such administrative order using the precedent set by the Supreme Court in the above mentioned case.

Ms. Chatwalee Maitri

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