Tax Newsletter FEBRUARY 2018

DLO’S Tax Newsletter

Issue 86 February 2018

Inside this Issue

Tax Laws Update

1. The Revenue Department issues a new regulation regarding personal income tax (PIT) exemptions for paid health insurance premiums.

Tax News

1. Extending the period for tax measures supporting new Small and Medium Enterprises (SMEs) (10 types of targeted industries).
2. Tax measures supporting tourism and for the holding of training seminars in second-tier tourism provinces.
3. Progress in the enforcement of the Local Maintenance Tax.
4. Transfer pricing measures between companies or juristic partnerships that have a legal relationship.
5. PIT exemption for disabled persons who do not have Thai nationality.
6. Tax measures supporting childbirth.
7. Tax measures supporting establishment of Day-Care-Centers whereby such centers shall be welfare for employees in companies or juristic partnerships.
8. Tax measures supporting donations for health facilities under the Health Facility Act B.E.2541.

Interesting Deka (Supreme Court Judgment)

Dika                       (Supreme Court Judgment) No. 9882/2559, in re:

Between                 Mr. Chor.                                                                 Plaintiff

Revenue Department                                               Defendant

Issue:                     PIT assessment by the assessment officers

Tax Laws Update

1. The Revenue Department issues a new regulation regarding PIT exemptions for health insurance premiums.

Clause 2 (97) of Ministerial Regulation No. 126 (B.E.2509) has been amended by Ministerial Regulation No. 334 (B.E. 2560) thereby providing a PIT exemption for insurance premiums that a taxpayer actually paid for health insurance.

The notification of the Director-General of the Revenue Department on income tax (No. 315) has prescribed an income tax deduction for health insurance premiums paid to life-insurance companies or non-life insurance companies that carry on the business in Thailand for insurance covering medical fees due to sickness, injury, compensation for disability and loss of an organ from sickness or injury, accident, deadly disease or long-term care. However, in order to use the exemption right from year 2018 onwards, taxpayers must inform their insurance companies and to take advantage of this deduction for premiums paid in 2017, taxpayers must provide the Revenue Department with their receipt or certificate from their insurance companies in accordance with the prescribed details according to the law.

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

Tax News

1. Extending the period for tax measures supporting new Small and Medium Enterprises (SMEs) (10 types of targeted industries)

On December 12, 2017, the Cabinet approved in principle a corporate income tax (CIT) exemption for 5 accounting periods for companies or juristic partnerships, which operate businesses in one of 10 targeted industries that have the potential to support the country’s economic growth. To be eligible, such businesses must use technology as a base for designing and developing processes of production or service systems. To be eligible, corporate taxpayers must have income related to such targeted industry which is not less than 80 percent of its total income from all of its business of each accounting period. Moreover to be eligible, corporate taxpayers must not use this CIT exemption under the investment promotion law, whether in part or whole. Furthermore, for those companies or juristic partnerships which are registered between January 1, 2018 to December 31, 2018, that wish to take advantage of this exemption, they must have fully paid-up registered capital on the last day of an accounting period that does not exceed 5 million Baht and must receive income arising from such business that does not exceed 30 million Baht in an accounting period. For more details, please see: https://goo.gl/8Cj8En

2. Tax measures supporting tourism and the holding of training seminars in second-tier tourism provinces.

On December 26, 2017, the Cabinet approved in principle an exemption on CIT in the amount of 100% of expenses that are related to holding training seminars or expenses that are paid by companies or juristic partnerships to entrepreneurs whose business is the tourism business under the tourism business and guide law for their employees for the period January 1, 2018 to December 31, 2018. However, to be eligible, such expenses must be incurred in second-tier tourism provinces (initially this is set at 55 provinces).

Furthermore, the Cabinet has approved in principle an exemption on PIT in the amount of 100% of expenses that are paid to entrepreneurs whose business is in second-tier tourism provinces or expenses that are paid for tourism in second-tier tourism provinces together with other provinces according to the tourism route which has been certified by the Ministry of Tourism and Sports. However, this tax exemption shall be based on actual expenses and shall not exceed 15,000 Baht, furthermore, such exemption is limited to expenses incurred from January 1, 2018 through until December 31, 2018.

To be eligible, the taxpayer must also comply with all relevant rules, procedures and conditions as prescribed by law.

For more details, please see: https://goo.gl/8Cj8En

3. Progress in the enforcement of the Local Maintenance Tax.

On December 26, 2017, the Cabinet approved in principle the use of the average price of land as used in the assessment of annual local maintenance tax between 1978 through until 1981 for the purpose of conducting  the assessment of the local maintenance tax in 2018. The law shall henceforward be enforced from January 1, 2018.

For more details, please see: https://goo.gl/8Cj8En

4. Transfer pricing measures between companies or juristic partnerships that have a legal relationship.

On December 26, 2017, the Cabinet approved a bill, by adding a new law in the Revenue Code which prescribes that companies or juristic partnerships that have a legal relationship must provide a report explaining such relationship as well as the total value of transactions between them in each accounting period, thereafter, they must submit such report to the assessment officers along with their CIT return form within the specified period. This requirement shall be exempted for those companies or juristic partnerships that have income in one accounting period which does not exceed the amount as prescribed by the Ministerial Regulation, however, such income must not less than 30 million Baht.  If the companies or juristic partnerships violate this new law or if evidence or information contained in a report is made incorrectly or fraudulently, then a penalty shall be applied and the assessment officers shall have the authority to revise the income and expenses of such companies or juristic partnerships such that they are according to the assessment officer’s knowledge or judgment for the purpose of calculating net profit.

This law shall be enforced for the accounting period commencing from January 1, 2018 and affected taxpayers shall also need to comply with all relevant rules, procedures and conditions as prescribed by law.

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

5. PIT exemption for disable persons who do not have Thai nationality.

On January 3, 2018, the Thai Cabinet approved in principle a PIT exemption for taxpayers who are persons with disabilities, aged under 65 and who don’t have Thai nationality, however, to be eligible for this tax exemption such taxpayers must receive a Disability Certificate from the Department of Empowerment of Persons with Disabilities which falls under the Ministry of Social Development and Human Security.

This tax exemption shall only be applied to income that does not exceed 190,000 Baht/year which is received from January 1, 2017 onwards.

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

6. Tax measures supporting childbirth.

On January 3, 2018, the Cabinet approved in principle increasing the income tax deduction for taxpayers who have legitimate children, however, this principle shall only apply from the second child of the taxpayer or the registered spouse of the taxpayer and to be eligible the child must born from 2018 onwards regardless of whether the first child is still alive or is deceased. Under these new measures, taxpayers can deduct an allowance of 30,000 Baht for each eligible child for each tax year starting from tax year 2018 which shall be filed from 2019 onwards.

Moreover, the taxpayer or their registered spouse can use pre-natal expenses or confinement expenses to be an income tax deduction when calculating their PIT. Such tax deduction shall be according to the amount they actually paid per pregnancy but shall not exceed 10,000 Baht.

To claim the above pre-natal expenses or confinement expenses as  an income tax deduction, they must be paid from January 1, 2018 onwards and the taxpayer also needs to comply with all relevant rules, procedures and conditions as prescribed by law.

For more details, please see: https://goo.gl/o21THs

7. Tax measures supporting the establishment of Day-Care-Centers by companies or juristic partnerships which shall be provided as welfare for their employees.

On January 16, 2018, the Cabinet approved in principle a CIT deduction for  companies or juristic partnerships which incur expenses which relate to the setting up of Day-Care-Centers that shall be used by their staff (as staff welfare). The expenses can firstly be deducted according to the amount they actually paid, followed by an additional 100 percent of the amount actually paid provided that such expenses shall not exceed 1 million Baht.

This CIT deduction shall be applied with respect to the accounting period within or after January 1, 2018 through until December 31, 2020.

For more details, please see: https://goo.gl/o21THs

8. Tax measures supporting donations made to health facilities under the Health Facility Act B.E.2541.

On January 16, 2018, the Cabinet approved in principle a tax deduction for donations made by taxpayers to state hospitals, For natural persons they shall be given an income tax deduction amounting to 200 percent of the money which they donate; however, when including such donation with expenses for supporting education in an approved project by the Ministry of Education, these expenses must not exceed 10 percent of the taxpayer’s assessable income after deducting expenses and other deductible allowances. With respect to companies or juristic partnerships, these type of taxpayers shall be able to claim a deduction on their CIT amounting to 200 percent of the money or value of an asset which they donate to state hospitals; however, when including their expenses for supporting education and other charities, such expenses must not exceed 10 percent of their net profit before deducting public charity or for public benefit or expenses for education or sports in accordance with section 65 (Ter) of the Revenue Code.

Moreover, the Cabinet has also approved in principle a tax exemption for income tax, value added tax, specific business tax and stamp duty for natural persons and companies or juristic partnerships with respect to income derived from the transfer of properties, the sale of goods or the execution on an instrument for the purpose of making a donation to the above mentioned state hospitals. However, it should be noted that taxpayers will not be able to use the cost of the asset or goods that are received as an exemption to deduct expenses in the calculation of PIT or CIT.

This tax exemption shall be applied to applicable donations which are made from January 1, 2018 onwards.

For more details, please see: https://goo.gl/o21THs

Interesting Deka (Supreme Court Judgment)

Dika                      (Supreme Court Judgment) No. 9882/2559, in re:

Between               Mr Chor.                                      Plaintiff

Revenue Department                   Defendant

Issue:                      PIT assessment by the assessment officers

The Plaintiff owned and operated a business selling gold ornaments with a shop called ‘N. Gold shop’, the bank accounts of the Plaintiff and his family contained a significant amount of deposits them despite the fact that  the Plaintiff submitted an PIT filing which did not reflect this amount as held in the bank account, this caused the assessment officers to be suspicious and thus issue a summons to the Plaintiff. The assessment officers then asked the Plaintiff or his wife to declare the source of funds held in their bank’s accounts. The officer then separated these funds into two categories; the first was for income that they were able to state the source thereof and the second was for funds in the accounts where they could not provide information on where they were derived from. Following such categorization, the assessment officers made a tax assessment whereby the Plaintiff had to pay such assessed tax along with a fine and surcharge by dividing the assessable income of the Plaintiff into many categories, then, deducting the permitted expenses for such income and deducting the deductible allowances, in accordance with each category. The net income was then calculated for the assessment of PIT. However, for the income of the Plaintiff which he was unable to declare the sources thereof this was regarded as income under section 40 (8) of the Revenue Code by the assessable officers and such income could not be used as deductible expenses due to the fact that the Plaintiff could not prove that the expenses were actually incurred. Such assessment by the assessment officers were conducted in accordance with section 19 to section 27 of the Revenue Code, therefore, it was not conducted using a special method in accordance with section 49 as argued in the appeal of the Plaintiff. For this reason, the Court held that the assessment by the assessment officers and the appealed judgment of the Commission of Appeal were correct.

Legal Opinion

The Revenue Code gives assessment officers the power to interrogate and assess PIT in 2 cases; firstly, for normal assessments made under sections 19 – 27 of the Revenue Code, and secondly, for special assessments conducted under section 49 of the Revenue Code according to the following details:

First case: For normal assessments made under sections 19 – 27 of the Revenue Code such assessments are used where the assessment officers have a reasonable cause to believe that the taxpayers has filed a false or incomplete tax return or where the taxpayer fails to file their tax return, in such case the assessment officers have the power to issue a summons and to call upon the taxpayer to conduct an interrogation and also have the power to order the taxpayer to show accounts, documents or any other evidence. Such method is one of the interrogation techniques used to identify the categories of assessable income, then, the assessment officers shall deduct expenses and deductible allowances, according to law, which shall thereby result in the net income being calculated. The assessment officers shall then use such net income to calculate applicable PIT and inform the taxpayers of the amount of PIT which is payable.

Second case: For special assessments made under section 49 of the Revenue Code, these are used where a taxpayer fails to file a tax return or the assessment officers considers that the taxpayer has underreported the amount of his/her taxable income. The assessment officers (with the approval of the Director-General of the Revenue Department) shall have the power to determine the amount of the taxpayers’ net income and such net income shall be calculated from the net worth, which shall be calculated according to the difference of the taxpayers net worth at the beginning of the tax year when compared with their net worth at the end of the tax year, then add the expenses that are not related to earning income and then deduct such amount with exempted income under section 42 of the Revenue Code without deducting any other expenses. The result is the taxpayers’ net income for PIT calculation. However, the assessment officers (with the approval of the Director-General) must firstly, issue a summons notice upon the taxpayers for the purpose of conducting an interrogation which shall be the same as that for a normal assessment made under section 19 or section 23 of the Revenue Code.

From the above, it is clear that an assessment made using the special method under section 49 is different from the normal method mentioned under sections 19 – 27 of the Revenue Code given that the assessment officers who handle the interrogation and who assess tax must be assessment officers who are appointed by the Director-General of the Revenue Department. Notwithstanding that, the net income calculation is also different as the normal assessment method under sections 19 -27 of the Revenue Code permits the deduction of both expenses and deductible allowances, whereas in comparison a special assessment made under section 49 of the Revenue Code only permits the deduction of the exempted income under section 42 of the Revenue Code. Furthermore, the assessment officers with the approval of the Director-General cannot determine the net income by deducting expenses and deductible allowances from the assessable income unlike in a normal assessment.

As mentioned in the above facts, the assessment officers calculated the PIT liability of the Plaintiff by deducting income from the sale of gold as an expense at the rate of 75 percent under section 46 of the Revenue Code in conjunction with section 8, first paragraph (11) of the Royal Decree (No.11) B.E. 2502. Nevertheless, for that portion of his income where the Plaintiff could not declare its source, he could still apply a deduction on expenses but only if they were necessary for the business and there was reasonable cause based on section 8 Bis of such Royal Decree, which prescribes that deducted expenses must be related or necessary to the Plaintiff’s business in a reasonable amount and must not be a prohibited expenses under section 65 Ter of the Revenue Code. Thus the Plaintiff had a duty to provide evidence of such expenses to the assessment officers to substantiate that such expenses were genuinely incurred. However, the Plaintiff could not prove this, thus the assessment officers could not deduct the expenses for the Plaintiff and after the assessment officers deducted the expenses from income in each applicable category, such income was deducted again according to the deductible allowances which thereby resulted in the net income for the Plaintiff’s PIT calculation. In this case, the Court held that the assessment officers deducted expenses and deductible allowances from the assessable income of the Plaintiff fell under the normal method given that the assessment was not conducted under section 49 of the Revenue Code because the assessment officers would determine net income and would not deduct any expenses or deductible allowances if the assessment was according to Section 49 of the Revenue Code.

For this reason, the writer agrees with the Supreme Court’s Judgement which held that the assessment officers assessed PIT for the Plaintiff was made according to a normal assessment under Section 19 – 27 of the Revenue Code rather than a special assessment made under section 49 of the Revenue Code.

Writer: Wannipa Sanguanrat

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