Tax Newsletter APRIL 2018

DLO’S Tax Newsletter

Issue No. 88, April 2018

Inside this Issue

Newest Laws

1. Exclusion of income from other types of income to be included in the computation of tax
2. Exemption of personal income tax  for the disabled who are foreigners and residents in Thailand
3. Exemption of personal income tax on income paid as a service fee for conducted tour business and as an accommodation cost in a secondary tourism province

Tax News

1.       Tax measure to support the development of state welfare card holders

1. Measure to tax digital assets
2. Tax measure to support undertakings of the Land Bank Administration Institute (Public Organization)

Interesting Dika (Supreme Court) Judgment

Dika (Supreme Court) Judgment No. 5552/2560 in re:

Company Thor.                                     Plaintiff

VS.                     The Revenue Department                                   Defendant

Subject:             Liability (Tax Point) for value added tax payment in the writing-off of bad debts

Newest Laws

1. Exclusion of income from other types of income to be included in the computation of tax

The Royal Decree (No. 653) B.E. 2561 (A.D. 2018) provides that an income-earner receiving a gratuity paid by the government service pursuant to the Project for the Provision of Knowledge and the Promotion of Use of Electronic Transactions under the National e-Payment Master Plan, on having computed withholding income tax under Section 50 (4) of the Revenue Code and incurred no amount of tax withheld or incurred an amount of tax withheld of less than 5 percent of the sum received, shall have the right to exclude such money from the computation of tax if the income-earner receiving such gratuity consents to the income payer withholding tax at source at the rate of 5 percent of such income. This entitlement applies to a gratuity received on and after June 1, 2017.

This entitlement is in accordance with the rules, procedures and conditions stipulated by the Director-General.

For more details, please see: https://goo.gl/4bG5zg

2. Exemption of personal income tax of the disabled who are foreigners and residents in Thailand

Ministerial Regulation No. 336 (B.E. 2561 / A.D. 2018) provides that a disabled income-earner who is a foreigner and resident in Thailand bearing a certificate of disability issued by the Department for Empowerment of Persons with Disabilities, Ministry of Social Development and Human Security, and being not older than 65 years of age, shall be granted exclusion of only the portion of income not exceeding 190,000 Baht. This entitlement applies to income received on and after January 1, 2017.

This entitlement shall be in accordance with the rules, procedures and conditions stipulated by the Director-General.

For more details, please see: https://bit.ly/2EBSCDv

3. Exemption of personal income tax on income paid as a service fee for conducted tour business and as an accommodation cost in a secondary tourism province

Ministerial Regulation No. 335 (B.E. 2561 / A.D. 2018) provides that income paid as a service fee to a conducted tour business operator under the laws governing conducted tour and tour guide business or as a hotel accommodation cost to a hotel business operator under the hotel laws or as a cost of Thai Home Stay accommodation whose Thai Home Stay standards are certified by the Tourism Department, Ministry of Tourism and Sports, for a trip for pleasure in any locality in a secondary tourism province or in any other area of tourism notified by the Director-General, is granted exclusion according to amounts actually paid, which, however, do not exceed 15,000 Baht in aggregate. This entitlement applies to only service fees or accommodation costs paid from January 1, 2018 to December 31, 2018.

This entitlement shall be in accordance with the rules, procedures and conditions stipulated by the Director-General.

For more details, please see: https://bit.ly/2JyJzH7

Tax News

1. Tax measure to support the development of state welfare card holders

On March 6, 2018, the Council of Ministers resolved to grant approval in principle, providing that an employer, who is a juristic company or partnership and pays wages of 15,000 Baht max per month from January 1, 2018 but no later than December 31, 2019 to an employee with a state welfare card or to an employee with a state welfare card whose assessable income to be included in the computation of income tax in the previous tax year does not exceed 100,000 Baht, can deduct as expenditure such expenses of 1.5 times the wages actually paid.

This measure shall be in accordance with the rules, procedures and conditions stipulated by the Director-General.

For more details, please see: https://bit.ly/2ILDS79

2. Measure to tax digital assets

On March 13, 2018, the Council of Ministers resolved to grant approval in principle to tax digital assets, specifying the definition of the digital assets and 2 types of income to be derived from the digital assets, that is, one under Section 40 (4) (h), which is a pecuniary share in profits or any other benefits derived from the digital assets, and one under Section 40 (4) (i), which is benefit derived from a transfer of only those digital assets valued as income in excess of their investments, and providing that withholding income tax at the rate of 15 percent of such income shall be deducted.

This measure is in accordance with the rules, procedures and conditions stipulated by the Director-General.

For more details, please see: https://bit.ly/2qiyBNR

3. Tax measure to support undertakings of the Land Bank Administration Institute (Public Organization)

On March 20, 2018, the Council of Ministers resolved to approve an exemption of specific business tax for business normally carried on by the Land Bank Administration Institute (Public Organization) like a commercial bank, with receipts earned on and after July 15, 2016.

This measure is in accordance with the rules, procedures and conditions stipulated by the Director-General.

For more details, please see: https://bit.ly/2HsuR3N

Interesting Dika (Supreme Court) Judgment

Dika (Supreme Court) Judgment No. 5552/2560 in re:

Company Thor.                                              Plaintiff

VS.                    The Revenue Department                                   Defendant

Subject:               Liability (Tax Point) for value added tax payment in the writing-off of bad debts

The Plaintiff derived revenue from the construction of a building for Company Sor., whereupon the Plaintiff had the duty to pay value added tax because it is a business operator providing a service in the Kingdom, on service having been used in proportion to the provision of the relevant service, applying as the base for value added tax computation the total value which the Plaintiff had derived or would have derived from the construction, exclusive of a discount offered at the time of the provision of the service. When Company Sor. incurred a construction debt due to the Plaintiff, the Plaintiff provided for a doubtful debt in accounting terms for such debt. Thereafter, the Plaintiff made a memorandum of agreement granting a reduction in the cost of construction to Company Sor. without including such debt in the computation of value added tax because it had not yet received the cost of construction. The Supreme Court, Division of Taxation Lawsuits, after due consideration, is of the opinion that such agreement did not qualify as a discount offered by the Plaintiff to the employer at the time of the provision of its service, which discount was to be indicated on each tax invoice issued. Therefore, the tax base value to be included in the computation of value added tax is the total cost of construction to which the Plaintiff was entitled as a result of the provision of its service.

In addition, given that the Plaintiff entered in its accounts the allowance for a doubtful debt, expecting that it could not be collected, and that the Plaintiff had not yet written off a bad debt from its accounts receivable in the accounting period during which it made the memorandum of agreement granting a reduction in the service fee, it could be believed that the employer’s debt had not yet gone bad in such accounting period. It had not yet been treated as expenditure in the computation of net profits for income tax payment, nor had the Plaintiff been deemed to have earned a receipt on which value added tax must be computed. Later on, the Plaintiff wrote off the bad debt from its accounts receivable and calculated the bad debt portion for the purpose of deducting output tax. Therefore, liability for value added tax payment must also be deemed to have been incurred in the accounting period of the writing-off of the bad debt.

Legal Opinion

A business operator who provides a service in the Kingdom has the duty to pay value added tax on having received the payment of a service fee or issued a tax invoice or provided the service in person or via other person, as the case may be. Since the provision of the service by the business operator in person or via other person, is, by the spirit of law, intended to include a case of service provided with an intention to collect no service fee, liability for paying value added tax on the service fee for which it is eligible must be specified immediately on the service having been provided by the business operator in person or via other person. The business operator must include in the base for the computation of value added tax the total value which have been or would have been derived from the provision of such service, according to Sections 77/2 (1), 78/1 (2) and 79 of the Revenue Code. From this case, the Plaintiff had provided the service to Company Sor. but there was a dispute regarding a delay in the delivery of the works, which caused Company Sor. to pay no service fee. Therefore, the Plaintiff had not yet incurred liability for paying value added tax on the unpaid service fee even though the service had been received by Company Sor. This is because the service had been provided with an intention to collect the full amount of the agreed service fee.

The Plaintiff’s agreement to offer the discount to Company Sor. after the provision of the service did not qualify as a discount offer clearly shown at the time of the issue of the tax invoice immediately on the service having been provided. It was not required to be included in the tax base under Section 79/1 of the Revenue Code. Therefore, the Plaintiff had no right to apply the discount so offered to the reduction of the base of revenue to be included in the computation of value added tax for remittance.

However, in the case of the debt outstanding, the Plaintiff entered in its accounts an allowance for a doubtful debt and wrote it off as a bad debt later. The action resulted in the termination of the service fee payment under the contract and in a burden of value added tax payment, with the date of the debt reduction or the writing-off of the bad debt being treated as the date on which the Plaintiff was eligible for the service fee payment. Therefore, the Plaintiff must pay value added tax on the total value it derived from the provision of the service of contracting for construction, with such bad debt to be applied to the calculation of output tax for the purpose of later computation of value added tax. In this regard, I, the author, agree with the Supreme Court, Division of Taxation Lawsuits, for the following reasons:

1. A law has been clearly prescribed regarding the writing-off of a bad debt, which can be deducted from output tax according to Section 82/11 of the Revenue Code. Furthermore, the Notification of the Director-General of Revenue on Value Added Tax (No. 85) provides that after including output tax on the sale of goods or the provision of a service in the computation of value added tax the business operator will then have the right to deduct the output tax calculated on the bad debt at the time of the writing-off of the bad debt. The case under the dispute did not conform to this rule because the Plaintiff had not yet included the output tax in the computation on the ground that it had not yet received the service fee payment. In this case, the Plaintiff had no right in any way to deduct from the base of revenue for the computation of value added tax for remittance to the Revenue Department the bad debt written off from its accounts receivable.
2. Following the taking of evidence in the case in dispute, the Plaintiff was unable to adduce that damages had been recorded following the imposition of a penalty under the contract on it to the extent that an arrangement was made to reduce the service fee. Consequently, in my opinion, since the Plaintiff had no right to deduct the output tax at the time of the writing-off of its bad debt but contrariwise reduced its service fee and since it was unable to adduce that there had been a reasonable ground for granting such reduction, in such a case the Plaintiff was probably deemed to no longer intend to collect that service fee. The case qualifies as the provision of a service, which is used by other person. Therefore, given that the revenue officer held that the liability for value added tax payment had been incurred in the year of the debt reduction or the writing-off of the bad debt as aforesaid; such treatment was of great benefit to the Plaintiff.
3. If there actually was an offset between the penalty and the service fee as alleged by the Plaintiff, with a deduction of the penalty for the delay in the delivery of the works from the construction service fee, the penalty resulting from a breach of contract is not deemed to be incurred for the provision of a service or for the sale of goods, which penalty is subject to value added tax according to Section 79 in conjunction with Section 77/2 of the Revenue Code. Hence, in such a case the Plaintiff must be deemed to have received the service fee payment by offsetting it against the penalty and the Plaintiff still had the duty to pay the full amount of value added tax under the service contract before the penalty was deducted.

Author: Budhima Kerdsiri

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