Tax Newsletter OCTOBER 2017

DLO’S Tax Newsletter

Issue 82 October 2017

His Majesty, King Bhumibol Adulyadej, has ascended into the sky and shall never return.

The people below have endured grief and tears.

Sad rain has fallen to the ground for more than a year.

The last rites with burning fire cannot burn down the people’s yearning.

Budhima Kerdsiri – Author

Hatairat Sukprasert – Translator

Inside this Issue

Tax Law Update

1. Additional measures for the reduction of the withholding tax rate for a taxpayer who receives income from a Juristic Person carrying on a target industry business (Western Thailand).
2. Personal income tax exemption for expenses for repairs or materials used for repairs of immoveable property which have been damaged due to flooding.
3. Personal income tax exemption for expenses for repairs or materials used for repairs of vehicles which have been damaged due to flooding.
4. Amending the rules for tax exemption on interest from fixed deposit accounts (in Thailand) with a term of 1 year or more.
5. Income exemption for donations made to assist recent Thailand flood victims.
6. Extending the period for collecting VAT at 7 percent by one additional year.

Tax News

1. Draft of the Double Taxation Agreement between Thailand and Cambodia.
2. Draft of the Ministerial Regulations for exemptions on health insurance premiums.
3. Extension Period consideration of Land Tax.
4. Revenue Department confirmed using prompt-pay unrelated to tax verification.

Interesting Deka (Supreme Court Judgment)

Dika                       (Supreme Court Judgment) No. 5560/2559, in re:

Between               Company S.                                                   Plaintiff

Revenue Department                                    Defendant

Issue:                    What are the legal grounds for the valid issuance of a credit note.

Tax Laws Update

1. Additional measures for reduction of the Withholding Tax rate for a taxpayer who receives income from a Juristic Person carrying on a target industry business (Western Thailand).

Royal Decree (No. 641) B.E. 2560 provides for the reduction of the withholding tax rate for taxpayers (manager, expert or employee) of up to 17 percent of income that is derived from a corporation or a juristic partnership, that carries on a target industry business that is located in the provinces of Chachoengsao, Chonburi or Rayong. Thereafter, the notification of Director General of Revenue Department regarding income tax (No. 306) has provided additional regulation i.e. overseas working experience and a corporation or a juristic partnership, that carries on a target industry business which paid salary in an amount of not less than 200,000 THB per month.

For more details, please see: https://goo.gl/kfxGwT and https://goo.gl/68xWHS

2. Personal income tax exemption for expenses for repairs or materials used for repairs of immoveable property which have been damaged due to flooding.

Royal Decree No.331 (B.E.2560) and the Notification of the Director General of the Revenue Department (No. 298) provide an exemption on income tax according to the amount actually paid but not exceeding 100,000 Baht for repairs or materials used for repairs on immovable property, namely buildings or condominiums which have been damaged as a result of flooding which occurred between September 5, 2017 and December 31, 2017. However, the persons who are entitled to take advantage of this tax exemption must retain evidence of their payments which relate to such repairs and materials.

For more details, please see: https://goo.gl/TLrmF8 and https://goo.gl/iXH34T

3. Personal income tax exemption for expenses for repairs or materials used for repairs of vehicles which have been damaged due to flooding.

Royal Decree No. 331 (B.E.2560) and the Notification of the Director General of the Revenue Department (No. 308) provide an exemption on personal income tax according to the amount actually paid but not exceeding 30,000 Baht for repairs or material used for such repairs or for facilities provided for vehicles which have suffered damaged due to the flooding which occurred during September 5, 2017 through until December 31, 2017. Individuals who wish to take advantage of this tax exemption must retain evidence of their payments relating to such repairs and materials.

For more details, please see: https://goo.gl/TLrmF8 and https://goo.gl/U9Cn4t

4. Amending the rules for tax exemption on interest from fixed deposit accounts (in Thailand) with a term of 1 year or more.

The notification of the Director General of the Revenue Department (No.137) is subject to the rules, procedures and conditions for personal income tax exemption on interest of bank deposits in Thailand which specifically applies to fixed term deposit accounts where the term is 1 year or more. The notification of the Director General of the Revenue Department (No.309) has amended articles 5 and 6 from “Taxpayers who received the interest need to give their ID number and their information according to the requesting letter for personal income tax exemption” to instead be “the taxpayer needs to give his information according to the requesting letter only.”

For more details, please see: https://goo.gl/H8wztZ and https://goo.gl/2bLPbz

5. Income exemption for donations made to assist recent Thailand flood victims.

Royal Decree (No. 645) B.E. 2560 exempts income for donations made to help the victims of the recent floods in Thailand. Taxpayers are able to deduct as an allowance or an expense 1.5 times the amount of money or value of an asset which they donate during the period September 5, 2560 until October 31, 2560.

For more details, please see: https://goo.gl/niEN9Y

6. Extending the period for collecting VAT at 7 percent by one additional year.

Royal Decree (No.646) B.E.2560 extends the effective period for the current reduced VAT rate which is VAT of 6.3 percent (7 percent after including local tax). The reduced VAT 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/9qxgiy

Tax News

1. Draft of Double Taxation Agreement between Thailand and Cambodia

On September 5, 2017, the Cabinet approved the Draft of the Double Taxation Agreement between Thailand and Cambodia, this step was done in accordance with the Minister of Finance’s recommendation to the Ministry of Foreign Affairs under International Law.

For more details, please see: https://goo.gl/PZRU5U

2. Draft of Ministerial Regulations for exemption on health insurance premiums

On September 19, 2017, the Cabinet approved the draft of Ministerial Regulations for an income tax exemption on health insurance premiums according to the actual amount paid provided that such premium payments do not exceed 15,000.

However, for health insurance premiums including the allowance of health insurance premiums under Section 47 (1) (d) of the Revenue Code and the income tax exemption for life insurance as provided under clause 2 (61) paragraph 1 and bank deposit (94) of Ministerial Regulation No. 126, B.E.2509 which is issued under the Revenue Code, the income tax exemption cannot exceed 100,000 Baht.

For more details, please see: https://goo.gl/xav816

3. Extension Period for consideration of Land Tax

The Deputy Minister of Finance has revealed that the consideration period of the draft Building and Land Tax Act by the board of committees of the National Legislature Assembly (NLA) has been extended for a period of 60 days. The Deputy Minister has confirmed that this draft Bill (if passed by the NLA) will be effective in 2019.

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

4. Revenue Department confirms that using prompt-pay is unrelated to tax verification

The Revenue Department has explained that prompt pay is a payment gateway that is the same as E-banking or transfers through a commercial bank counter. The Department clarified that information provided on prompt pay will not be reported to the Revenue Department. However, in cases where there is a reasonable cause, the Revenue Department has the power to issue a summons request a bank to submit financial information to the Revenue Department.

For more details, please see: https://goo.gl/M6aUWw

Interesting Deka (Supreme Court Judgment)

Dika                       (Supreme Court Judgment) No. 5560/2559, in re:

Between               Company S.                                                   Plaintiff

Revenue Department                                    Defendant

Issue:                    What are the legal grounds for the valid issuance of a credit note.

Background:

The purchase agreement between the Plaintiff and the client (employer) qualified as a purchase that can calculate the price before settling the purchase. In this case, the Plaintiff discounted the price for the client as a result of an agreement whereby the price would change depending on the cost. Regardless of whether the agreement was formed before or after the purchasing of the goods or services, the purpose of the contract was to change the price based upon the cost in the future. The purpose of the agreement was to discount the price when the cost was decreased, thus, it was not an erroneous calculation which resulted in a higher price than normal. Moreover, the Plaintiff could not provide a suitable reason justifying each erroneous calculation with respect to the issuance of the credit note; therefore, the issued credit note was held by the Court to be illegal in accordance with Section 82/10 (1) of the Revenue Code.

Legal Opinion

The law provides that a VAT registrant, who sells their goods or renders a service, has a duty to issue a tax invoice to the purchaser of the goods or service. If later on, there is an increase or decrease in the value of the goods or services and there is a reason to increase or decrease the price of the goods or services in accordance with the law, then the VAT registrant, is obligated to issue a debit note or credit note to the purchaser of the goods and services (as the case may be); such debit note or credit note is one of the tax invoices which must be included when calculating the applicable amount of VAT. The writer will only examine the situations where a VAT registrant can issue a credit note so that the reader can understand the reasons provided in the Supreme Court Judgment in its judgment.

If a VAT registrant issues a credit note it can only be issued in accordance with the law in certain cases as prescribed under Section 82/10 (1) of the Revenue Code, such cases include:

1. Where there is a decrease in the price of goods because the goods are not as agreed, the goods are damaged or shortage, there is a miscalculation in relation to the price of the goods resulting in a price that is higher than the actual price or other causes as prescribed by the Director-General;
2. Where there is a decrease in service fees because of the provision of the services is not as agreed, shortage of the service, miscalculating of the service fees thereby resulting in a price higher than the actual price or other causes as prescribed by the Director-General;
3. Where the received goods are returned because of damage, or the goods are different from the samples or description given, or any other causes as prescribed by the Director-General;
4. Where there is a termination of a service contract according to the causes and conditions as prescribed by the Director-General.

The cases where a credit note can be issued in accordance with the Notification of the Director-General of the Revenue Department on VAT (No. 82) by virtue of Section 82/10 (1) (2) (3) (4) of the Revenue Code are as follows:

1.    If the VAT registrant has the duty to pay compensation or other money of a similar nature to the purchaser or the service receiver under the condition of the law (example compensatory damages awarded by court);

2.    If the VAT registrant returns the money in the terms of an advance, guarantee, deposit, reserve, or other money that the registrant has contacted of a similar nature, to the purchaser or service receiver under a trade agreement;

3.    If the goods are returned or exchanged under a trade agreement between the VAT registrants;

4.    If the goods are returned and exchanged under a trade agreement between the VAT registrant and the purchaser, but only if the return or exchange is made within a reasonable period;

5.    If the service is faulty or contrary to the agreement regarding the provision of the services;

6.    If there is no service rendered as specified in the agreement regarding the provision of the services.

The Revenue Code together with the Notification of the Director-General of the Revenue Department on VAT (No. 82) detail the 10 cases where the VAT registrant can issue a credit note, in other cases such issuance of a credit note shall be illegal. Furthermore, if any person issues an illegal credit note such person shall be liable to value added tax for the amount shown in credit note, in addition to a surcharge of 200 percent of the amount of tax, plus a fine of between 2,000 – 200,000 Baht and such person may also be subject to a term of imprisonment of up to 7 years.

In relation to this Supreme Court Judgment, the Plaintiff discounted the price for the purchaser due to the agreement that the price will change based upon the cost, thus, it was not an error in calculating the price of selling the goods or services. In this case, the reason for the issuance of the credit note was due to the discount agreement and as mentioned above such reason is not one of the legal reasons for the issuance of a credit note therefore, the issued credit note was held by the Court to be illegal; the writer agrees with the Supreme Court’s judgment in this case.

However, readers should be aware that a seller can still discount their goods or services in circumstances outside the above-mentioned 10 cases and still can issue the credit note but it cannot decrease the VAT of the former tax invoice by issuing the credit note in the VAT system.

Mr. Thaninrath Leongthavornpot

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 10330 Tel: (66) 2680 9777 Fax: (66) 2680 9711 Email: budhimak@dlo.co.th