Tax Newsletter NOVEMBER 2018

DLO’S Tax Newsletter

Issue 95 November 2018

Inside this Issue

Tax Law Update
1. Extending the duration of the current reduction of the Value Added Tax (VAT) rate.

Tax News
1. Tax measures to support the auction of land with buildings and condominiums for residential use in the welfare state project of the Legal Execution Department.
2. Improvement of tax measures on Headquarters.
3. Information exchange on international requests and international automatic data exchange.

Interesting Deka
Dika               (Supreme Court Judgment) No. 1577/2561, in re:
Between Aor L.P.                Plaintiff
Revenue Department        Defendant
Issue :            Did the juristic person need to register for specific business tax?

Tax Law Update
1. Extending the duration of the current reduction of the VAT rate.
The Royal Decree (No. 669), BE 2561, has extended the period for the reduction of the VAT rate under Section 80 of the Revenue Code such that it continues to levy such tax at the rate of 6.3 percent (including local tax equal to 7 percent overall) for the sale of goods and services or import in all cases. This extension to the reduced VAT rate shall apply from October 1, 2560 through until September 30, 2019.
For more details, please see: https://goo.gl/FRNPQU

Tax News
1. Tax measures to support the auction of land with buildings and condominiums for residential use in the Welfare State Project of the Legal Execution Department
On October 10, 2018, the Cabinet approved the principle of exempting stamp duty with respect to the issuer of the transfer of immovable property, in the case of the sale of land with buildings as well as apartments for living, under the Welfare State Project of the Legal Execution Department. However, such exemption shall only apply to transfers to a purchaser of the auction market who have a valid state welfare certificate. This exemption shall apply from October 1, 2017 onwards.
For more details, please see: https://goo.gl/yFhzLw

2. Improvement of tax measures for Headquarters
On 10 October 2018, the Cabinet approved the revision of the four head office tax measures, consisting of:
1. Draft Royal Decree on tax measures for ROH 1 and ROH 2
2. Draft Royal Decree on tax measures for IHQ
3. Draft Royal Decree on tax measures for ITC
4. Draft Royal Decree on tax measures for IBC
The four drafted Royal Decrees provide for the improvement of taxation measures that are applicable to the Headquarters, these measures provide for the abolition of tariffs on Regional Operating Headquarters (ROH1), Regional Operating Headquarters (ROH2), Headquarters (International Headquarters or IHQ) and International Trade Corporation (International Trading Center or ITC)
In addition, the newly issued tax measures also promote the establishment of an international business center which falls in line with the Organization for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) program. Thailand has joined the OECD on its Inclusive Framework on BEPS which has caused Thailand to abolish and improve all tax measures that erode the tax base of other countries.
For more details, please see: https://goo.gl/yFhzLw

3. Information exchange on international requests and international automatic data exchange.
On 30 October 2018, the Cabinet approved the principle of the draft amendment to the Revenue Code. The essences are as follows:
1. The Director-General of the Revenue Department shall order an authorized person to collect and send tax information and other information as requested by the competent authorities or by agreement by the Government of Thailand which is made with a foreign government or an international organization or under an agreement which the Office of Trade and Economic Affairs has made with foreign agencies. Such authorized person must collect and submit the information in accordance with the rules, procedures and conditions as prescribed in the Ministerial Regulations.
2. The Director-General of the Revenue Department shall have the power to disclose and exchange information obtained under contract which the Government of Thailand has made with foreign governments or international organizations or which is made under an agreement which the Office of Trade and Economic Affairs has made with foreign agencies.
3. If anyone happens to knows the information due to the exchange of information between countries, it shall be prohibited to leak such information to other parties unless the disclosure or exchange of information is made in accordance with the agreement(s) made by the Thai Government with a foreign governments or international organizations or such disclosure/ exchange is made in accordance with the agreement(s) concluded by the Office of Trade and Economic Affairs with foreign entities or such disclosure is made according to the authority and duty as prescribed by law.
4. The Amendment to the Revenue Code stipulates penalties for violators who fail to comply with the orders of the competent authorities or who deliberately communicate false messages/information or who share information with others where such action is not authorized.
For more details, please see: https://goo.gl/xZqxsx

Interesting Deka

Dika                    (Supreme Court Judgment) No. 1577/2561, in re:
Between            Aor L.P.                              Plaintiff
Revenue Department      Defendant
Issue :                a business that is not subject to specific business tax registration.

Facts: The Plaintiff registered as a juristic person which had the objective of operating a real estate business but such juristic person had not started its business operation yet. On May 20, 2008, the Plaintiff purchased 4 plots of land with buildings (that were still unfinished) for a total price of 1,000,000 baht, once the buildings were completed, they were to be used as an operating building and as the Plaintiff’s place of storage. Later, on March 9, 2010 the Plaintiff sold the land and buildings (the buildings were still in unfinished and in their original condition) at a price of 1,000,000 baht, and paid Specific Business Tax (SBT) on the sale transaction.

Issues to consider: Did the Plaintiff have an obligation to register for SBT?

Judgment of the Supreme Court: A business that sells real estate in a commercial or profitable manner is required to pay SBT but does not need to register a specific business tax if the sale of immovable property is used directly for the purpose of the business of such juristic person in accordance with Section 77/1 of the Revenue Code. In this case, the Plaintiff bought land with an abandoned unfinished building which it planned to complete and then use such building for its business operations and warehouse. Thereafter, as noted in the facts, the Plaintiff sold the land with the building (which was still in its original condition) at the same price that it originally bought it for and it also paid SBT on the transaction. The sale of immovable property used for the purpose of operating the business by the seller under Section 4 (5) of the Royal Decree (No. 342), B.E. 2541, and such sale is not the sale of an immovable property by licensees under the law governing control of land subdivision, the sale of condominium units by traders who are condominium registrants under the law governing condominiums, the sale of an immovable property that are buildings constructed for sale including the sale of land on which such buildings are situated, and sale of an immovable property which do not mentioned previously. Furthermore, the mentioned immovable property is divided up and sold or subdivided for sale with the arrangement of road or other infrastructure facilities or a promised to provide such facilities, but operates as a temporary business under Section 91/13 of the Revenue Code. Hence, the assessment officer of the Revenue Dept. assessed the Plaintiff to pay fines for operating its business without having registered for SBT given that such failure to register resulted in an unlawful tax assessment.

Legal Opinion
The author agrees with the Supreme Court’s judgment because Section 91/13 of the Revenue Code stipulates that “an operator shall be exempt from specific business tax registration as follows:
(2) operator of temporary business;
The Director-General shall have the power to prescribe rules and conditions for determining the characteristics of a temporary business in accordance with (2).”

According to Notification of Director-General of Revenue Department on specific business tax regarding the prescription of businesses which are exempt from SBT registration as follows:
(1) The sale of immovable property where the seller used such immovable property for the businesses purpose as specified under Section 4 (5) of the Royal Decree (No. 342), BE 2541; whereby the sale of such immovable property is not the sale of immovable property under Section 4 (1) (2) (3) and (4) of the Royal Decree regarding sale of an immovable property in a commercial or profitable purpose (No. 342) BE 2541

According to the Royal Decree issued under the Royal Decree regarding sale of immovable property for a commercial or profitable purpose (No. 342) BE 2541 Section 4 provides that “The sale of an immovable property as listed below shall be treated as the sale of an immovable Property for a commercial or profitable purpose which is subject to specific business tax under Section 91/2 (6) of the Revenue Code:
(1) the sale of an immovable property by licensees under the law governing control of land subdivision;
(2) the sale of condominium units by traders who are condominium registrants under the law governing condominiums;
(3) the sale of an immovable property that are buildings constructed for sale, including the sale of land on which such buildings are situated;
(4) the sale of an immovable property which does not fall under (1) (2) or (3), but only where such immovable property is divided up and sold or subdivided for sale with the arrangement of road or other public utilities or according to a promise to arrange the same;
(5) the sale of immovable property where the sellers possess such property to operate a business of a juristic person under Section 77/1 of the Revenue Code;
(6) the sale of an immovable property not falling under (1) (2) (3) (4) or (5) which is made within five years from the date of acquisition thereof, except for…”

Therefore, the facts of the case show that although the Plaintiff registered to operates a real estate business in fact the Plaintiff did not actually start its business. In this case the Plaintiff only sold its real estate, which was purchased for the purpose of running its business as it planned to use the building (situated thereon) as its office and storage facility. In this case, the Plaintiff was considered to be a temporary business operator; therefore, the Court held that it was not necessary for it to register for SBT under Section 91/13 of the Revenue Code, in conjunction with the Notification of the Director-General of Revenue Department on SBT regarding the determination of a business that is not subject to SBT.

Author: Warinthorn Saruno

Should you require any legal advice on Thai tax law then please contact us at Dharmniti Law Office Co., Ltd.
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