Tax Newsletter NOVEMBER 2017

DLO’S Tax Newsletter

Issue 83 November 2017

Inside this Issue

Tax Laws Update

1. Value added tax (VAT) exemption for services of tax auditors.
2. Amendment of the regulation regarding personal withholding tax paid by target industry businesses (located in specified provinces in Eastern Thailand).

Tax News

1. Tax measures for promoting donations made to the Justice Fund.
2. Tax measures relating to income support from the National Competitive Enhancement for Targeted Industries Fund.
3. VAT exemption for the sale of commemorative coins and offering the income after deducting from expenses to His Majesty King Maha Vajiralongkorn Bodindradebayavarangkun.
4. Ministry of Finance to speed up enactment of the new law relating to the electronic business (E-business).

Interesting Deka (Supreme Court Judgment)

Dika                       (Supreme Court Judgment) No. 6897/2559, in re:

Between                Company T.                                                                   Plaintiff

Revenue Department                                                    Defendant

Issue:                     How to calculate the tax base for special business tax (SBT) for registration and juristic act fees.

Tax Laws Update

1. Additional type of service for value added tax exemption to Certified Public Accountant

The notification of the Director-General of the Revenue Department on VAT (No.217) has prescribed that the services of  tax auditors shall be exempted from VAT.

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

2. Amendment of the regulation regarding personal withholding tax paid by target industry businesses (Eastern Thailand)

The Notification of the Director-General of the Revenue Department on income (No. 306) prescribed the regulation for the reduction of the withholding tax rate for taxpayers (Executive, Specialist, Researcher or Employee) in relation to 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.

The Notification of the Director-General of Revenue Department (No. 306) has been amended by the Notification of the Director-General of Revenue Department (No. 310), in relation to income received under an Employment Agreement with a target industry business in such specified areas. This Notification has changed eligibility conditions to also require the following:

a. The target industry business must be promoted under the BOI in accordance with the Notification of the Board of Investment No. 4/2560; and

b. The Employment Agreement for the individual who receives income arising from performance of work in the target industry business and other businesses must be clearly specified in the contract and must not be less than 200,000 Baht per month.

For more details, please see: https://goo.gl/kfxGwT and https://goo.gl/68xWHS and https://goo.gl/s2PfYh

Tax News

1. Tax measures for promoting donations made to Justice Fund

On October 3, 2017, the Cabinet approved in principle an income tax exemption for donations made to the Justice Fund. This measure gives a right to donors which in the case of a natural person shall receive a deduction of 200 percent of the money donated in the computation of the taxpayer’s income tax provided that such deduction shall not exceed 10 percent of the assessable income of the tax payer after deducting other expenses and allowances. In the case of donations made by a juristic person, they shall be able to deduct 200 percent of the money or asset donated to the Fund in the computation of their corporate income tax provided that such deduction shall not exceed 10 percent of the juristic person’s net profit before deducting expense for charitable purpose in accordance with Section 65 Ter (3) of the Revenue Code. To take advantage of these measures taxpayers will also need to comply with all relevant rules, procedures and conditions as prescribed by law.

For more details, please see: https://goo.gl/4fYe4V

2. Tax measures relating to income support from the national competitive enhancement for targeted industries fund

On October 10, 2017, the Cabinet approved in principle an exemption on income tax for companies or juristic partnerships in relation to income support received from the National Competitive Enhancement for Targeted Industries Fund from February 14, 2017 onwards. To take advantage of these measures applicable companies and juristic partnerships must comply with all relevant rules, procedures and conditions as prescribed by law.

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

3. VAT exemption for the sale of commemorative coins and offering the income after deducting from expenses to His Majesty King Maha Vajiralongkorn Bodindradebayavarangkun

On October 10, 2017, the Cabinet approved in principle an exemption on VAT for the Department of Treasury with respect to the sale of official commemorative coins relating to important occasions and offering the income after deducting expenses to His Majesty King Maha Vajiralongkorn Bodindradebayavarangkun..

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

4. Ministry of Finance speed up to enact the law relating to the electronic business (E-business)

On October 17, 2017, the Permanent Secretary of the Ministry of Finance revealed that the draft of E-business Act will be sent to the cabinet and the National Legislature Assembly (NLA) for their consideration and if approved it will be enforced in Fiscal Year 2017.

Such draft Act prescribes to allow for the collection of tax from entrepreneurs, who are a juristic person registered under a foreign law that carry on business through electronic media. Moreover, the applicable business must earn income in Thailand, which the payer shall have a duty to deduct withholding tax from at the rate not exceeding 15%. Such withheld tax must be submitted to the Revenue Department. Applicable taxpayers will also need to comply with all relevant rules, procedures and conditions as prescribed by law.

For more details, please see: https://goo.gl/xDJuB8

Interesting Deka (Supreme Court Judgment)

Dika                       (Supreme Court Judgment) No. 6897/2559, in re:

Between                Company T.                                                                   Plaintiff

Revenue Department                                                    Defendant

Issue:                     How to calculate the tax base for special business tax (SBT) for registration and juristic act fees.

A real estate purchase agreement between the Plaintiff and the purchaser provided that the purchaser would pay for the registration and juristic acts fees, such consent is related to civil agreement, therefore, the parties can create a mutual consent and as such it does not contravene Section 457 of the Civil and Commercial Code which provides that the costs of a contract of sale shall be borne by both parties equally. As the fees were paid to the land officer and not to the Plaintiff, it was argued by the Plaintiff that such monies should not be consider as income which the Plaintiff received or is receivable from business in accordance with Section 91/1 (1) of the Revenue Code. The Defendant argued that that they followed Clause 6 (4) of the Revenue Department’s Instruction No. Por. 82/2542 which provided that the registration and juristic acts fees should be included in the tax base when calculating the SBT liability. The Supreme Court considered that the Revenue Department’s Instruction is not a law which binds the general public but rather an internal order for use by Revenue officers which is designed to provide a practical guideline; therefore, the Court held that the Instruction should not apply to the Plaintiff, who is a member of the general public. Hence, in conclusion, the Court determined that the assessment officers inclusion of the registration and juristic acts fees in the calculation of the tax base for SBT, which were paid by the  purchaser on behalf of the Plaintiff, was incorrect.

Legal Opinion

The calculation of SBT for real estate purchases conducted in a commercial or profitable manner under the law governing SBT requires that the income before deducting any expenses is to be used as the tax base in accordance with Section 91/5 (6) in conjunction with Section 91/2 (6) of the Revenue Code. Section 91/1 (1) of the Revenue Code defined “income” as cash, property, consideration or any gain with value received or receivable from business carried on whether in or outside Thailand.

Despite the fact that Section 457 of the Civil and Commercial Code prescribes that “The costs of a contract of sale are borne by both parties equally.” such prescription is not related to public order or good morals, hence the parties can determine to apportion the costs otherwise such as having the purchaser paying all of the registration and juristic act fees. Nevertheless, when the purchaser directly paid the registration and juristic acts fees to the land officers, it did not result in income to the Plaintiff, therefore such money should not be considered as income which the Plaintiff received or is receivable from business in accordance with Section 91/5 (6) of the Revenue Code. The writer agrees with the Supreme Court’s Judgement which held that the SBT calculation of the Plaintiff should excluded the registration and juristic acts fees from the tax base.

The real estate purchase agreement contained a condition prescribing that the purchaser would pay the withholding tax, SBT and stamp duty (hereinafter called “taxes”) on behalf of the seller, despite the fact that the seller had a direct duty to pay such taxes. Hence, given that the seller does not need to pay the taxes in accordance with the agreement, the paid taxes shall be deemed to be the income which the Plaintiff received or is receivable from business in accordance with Section 91/5 (6) and Section 91/2 (6) of the Revenue Code.

The next issue of the Supreme Court’s Judgement is whether the Revenue Department’s Instruction No. Por. 82/2542 is a valid law or not; the writer also agrees with the Judgement because the Revenue Department’s has two types of Instruction which are detailed below:

1.  The Revenue Department’s Instruction No. Tor. Por. are issued by virtue of the Revenue Code, therefore, this type of instruction shall be deemed to be subordinate legislation which means that the Revenue Department’s Instruction is be legally binding on the general public.

2.  The Revenue Department’s Instruction No. Por. are not issued by virtue of the Revenue Code but are instead a practical guideline for use by the Revenue Department’s Officers. This type of instruction does not give sufficient power to the Director-General of the Revenue Department to issue the Revenue Department’s Instructions which shall be legally binding on the general public, rather this type of instruction shall only bind the Director-General’s subordinates. Moreover, if the Revenue Department’s Instruction No. Por. contravenes the Revenue Code, it shall not legally bind a taxpayer and the taxpayer shall not be required to follow such Instruction.

For this reason, the writer agrees with the Supreme Court’s Judgement that the Revenue Department’s Instruction No. Por. 82/2542 is not a law but just a practical guideline for the Revenue Department’s officers to follow in accordance with the above explanation.

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 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330 Tel: (66) 2680 9777 Fax: (66) 2680 9711  Email: budhimak@dlo.co.th