Tax Newsletter MAY 2023

Tax Newsletter

Dharmniti Law Office Co., Ltd.

Issue No. 142, in May 2023

Tax Law Updates

1. Corporate income tax exemption for companies and juristic partnerships having net profit arising from the sale of carbon credits in Thailand

The Notification of the Director-General of the Revenue Department regarding income tax (Issue No.433) stipulates the criteria, procedures, and conditions regarding a corporate income tax exemption for businesses operating a project relating to the voluntary reduction in the emission of greenhouse gases which are registered with the Thailand Greenhouse Gas Management Organization (Public Organization).
The exemption shall apply from the 20^th of March 2023 through until the 31^st of December 2027 (three consecutive accounting periods).

For more details, please see https://bit.ly/42XBnsh

2. Personal and corporate income tax exemptions for donations made to the Royal Forest Department via the e-Donation channel

The Notification of the Director-General of the Revenue Department regarding income tax (Issue No.434) stipulates the criteria, procedures, and conditions relating to personal income tax and corporate income tax exemptions for donations made to the Royal Forest Department via the e-Donation channel from 1 January 2023 through until 31 December 2027, to support the Ministry of Natural Resources and Environment with respect to its project on the Creation of Community Forests and the Reduction in Global Warming.

In this regard, the relevant tax exemptions shall be subject to the criteria, procedures, and conditions as stipulated by law.

For more details, please see: https://bit.ly/3Mze3eq

Tax News Updates

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Highlighted Supreme Court Judgment

Supreme Court Judgment No. 5808/2557

Between                       Company A. (Thailand)                 Plaintiff

and                              Revenue Department                   Defendant

Subject: Payment of marketing fee abroad

Disputed issue: Is the Plaintiff required to withhold corporate income tax from assessable income paid under the marketing service agreement?

Abbreviated judgment: The Court found that the relevant marketing service agreement included various brochure samples that illustrated that the goods were designed for industrial, commercial, or large-scale businesses. The purpose of the manufactured goods contained in such brochures was for specific types of business, therefore, it was held that the physical features of such goods were different from household varieties and as such they required the provision of technical information or additional instructions to be presented to customers. To market the goods of Company A. the Court found that it may require the use of technical information relating to such goods, given that Company A. might be the only party that is aware of such information. Apart from this, the Court found that Company A also delivered various types of publications such as brochures, catalogues, and other advertising materials to support its marketing strategy. It was noted that the brochures contained in the marketing service agreement consisted of direct and obvious information on various matters including the goods, the background of Company A.’s subsidiary, the line of manufacture, relevant policies, details on business expansion, the area of expertise with respect to the techniques used in the manufacturing of the goods, statements on medical science, and articles on wool, and other technical articles.

The plaint of Company A. indicated that it had to use its employees to research and gather information on customer behavior, and analyze such data for marketing purposes in order to prepare Company A’s brochures and catalogues and this resulted in Company A incurring significant expenses and costs.
The aforementioned expenditure resulted in Company A. using its funds to perform such actions. The Court also noted that the Company possessed the copyright to the articles as they were regarded as literature work and the images/printing were regarded as artistic works. in addition, some of the brochures were found to contain clauses which reserved copyright. Moreover, the Court found that the marketing service agreement stated that the Plaintiff was the party having the right to advertise and publicize such brochures at its own cost.

The Supreme Court ruled that the service fee which the Plaintiff paid for the purpose of utilizing the right to duplicate and broadcast the copyrighted literature work and images under such marketing service agreement was a royalty in accordance with Section 40 (3) of the Thai Revenue Code together with Article 12 paragraph three of the convention between Thailand and Sweden for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (Thailand-Sweden Double Taxation Agreement). Thus, the Supreme Court held that the Plaintiff was subject to withhold corporate income tax in accordance with Section 70 of the Thai Revenue Code.

Legal opinion: I, the author, agree with the judgment of the Supreme Court. When considering this type of assessable income under the Thai Revenue Code, one has to focus on the facts and the particulars of the provision of the service under the relevant agreement. Given this, when examining the provision of the aforesaid marketing service, one must consider whether there was any actual broadcast or any provision of technical information derived from study, gathering, analysis, or special experiment with respect to the service provider’s copyrighted work. If this is found to be the case, then the receipt of the right to use the information under such copyrighted work and the payment of service fees by the service recipient shall require that such service recipient pays royalties in accordance with Section 40 (3) of the Thai Revenue Code, which stipulates that “(3) Fee of goodwill, copyright or any other rights, annuity or annual payment of income…”.

Extracts of Relevant Laws

Section 70 of the Thai Revenue Code provides that a company or a juristic partnership which is registered under foreign law and does not conduct its business in Thailand but receives assessable income pursuant to Section 40 (2), (3), (4), (5), or (6) paid from or in Thailand must pay tax through the withholding of tax from such assessable income paid according to the income tax rate, which shall be conducted by a payer.

Section 3 of the Royal Decree regarding tax exemption (Issue No. 18) B.E. 2505 prescribes that “The tax under the Thai Revenue Code shall be exempted to a person under the agreement on the exemption of double tax which Thai government has entered into or shall do with a foreign government …”

Article 12 paragraph three of the Thailand-Sweden Double Taxation Agreement prescribes that the term “royalties” as used in this Article means payments of any kind received as consideration for the alienation of, or the use of, or the right to use, any copyright of literary, artistic or scientific work including, cinematograph films or films or tapes used for radio or television broadcasting, any patent, trademark, design, or model, plan, secret formula or process, or for the use of, or the right to use industrial, commercial, or scientific equipment, or for information concerning industrial, commercial, or scientific experience.

Based on the abovementioned provisions, I the writer would contend that it is clear that the law stipulates the provision of service on broadcasting or technical information that is derived from study, gathering, analysis, or special experiment which only has the right to use such work but not any of the ownership is transferred to a service recipient shall be deemed as the provision of the right to use such copyrighted work, which is consistent with Article 12 paragraph three (royalties) of the Thailand-Sweden Double Taxation Agreement. Hence, when a service recipient in Thailand pays a service fee in return for the right to use such copyrighted work or royalty, it shall be deemed as assessable income pursuant to Section 40 (3) of the Thai Revenue Code, to a service provider which is a company registered under the law of Sweden and does not operate its business in Thailand. Thus, such service recipient (in Thailand) is subject to withhold corporate income tax from the assessable income paid at the income tax rate (15%) and they shall also be required to remit it to the Revenue Department in accordance with Section 70 of the Thai Revenue Code, in conjunction with the Thailand-Sweden Double Taxation Agreement.

Please note that the above opinion only reflects the author’s personal view. When considering tax law and its application, it is necessary to carefully consider the individual facts of each case. The application of the aforementioned Supreme Court Judgment is made for the purpose of the readers’ better understanding with respect to Thai tax law.

Author: Mr. Warinthorn Saruno

Translator: Mr. Raqsabhumi Chotmanodham

Dharmniti Law Office Co., Ltd. (DLO)

Address: 2/2 Bhakdi Building, 2^nd Floor, Wireless Road, Lumpini Sub-district, Pathumwan District, Bangkok 10330

Tel: 0-2680-9753, 0-2680-9777

E-mail: warinthorns@dlo.co.th