Tax Newsletter JULY 2019

DLO’S Tax Newsletter

Issue 102 July 2019

Inside this Issue

Tax Law Update
1. Exemption for dividends or the share of profits derived from the ASEAN Investment Management Program in the calculation of Personal Income Tax (PIT) or Corporate Income Tax (CIT).
2. Tax exemption for donations made to education institutes through specified electronic systems.
3. Income tax exemption of up to 2 times the amount of the donation made to the Equitable Education Fund (EEF).
4. CIT exemption of up to 2 times for investment expenses in the electronics tax system.

Tax News
1. Tax measures to promote biodegradable plastic packaging.
2. Extension of tax measures to encourage SME business operations.
3. Tax measures to support fundraising of state specialized financial institutions (SFIs)
4. Tax measures to support sports.
5. Tax measures for donations made to educational institutions established in Thailand under a treaty or agreement between the Thai government and United Nations Specialized Agencies.
6. Regulation regarding criteria of related companies or juristic partnerships.

Interesting Deka
Dika (Supreme Court Judgment) No. 2376/2561, in re:
Between           Company Aor                       Plaintiff
Revenue Department          Defendant
Issue :               Filing VAT returns without allocating input tax

Tax Law Update

1. Exemption for dividends or the share of profits derived from the ASEAN Investment Management Program in the calculation of PIT or CIT.
The Royal Decree (No. 680), B.E. 2562, stipulates that a taxpayer who earned a dividend or a share of profits which were derived from the ASEAN Investment Management Program (AIMp) (limited to the part offering in Thailand), who allowed an income payer to deduct withholding tax at the rate of 10 percent and shall be permitted to not include such dividend or share of profits as their income in the calculation to pay PIT. However, this shall only apply if the taxpayer does not request a refund from such deducted amount.
To be eligible for this exemption, a taxpayer must comply with the rules, procedures and conditions prescribed by the Director-General of the Revenue Department.
For more details, please see: https://bit.ly/2ZFxlU8

2. Tax exemption for donations made to education institutes through specified electronic systems.
The Royal Decree (No. 681), B.E. 2562, provides for a tax exemption for donations made to approved educational institutes through electronic systems made during the period 1st January 2019 through until 31st December 2019, as follows;
1. For natural person, an exemption for assessable income after deduction of expenses and allowances under Section 47 (1) (2) (3) (4) (5) or (6) of the Revenue Code shall apply for an amount of up to 2 times the amount donated. However, when including this amount with the exempted income on donations made to support education in projects approved by the Ministry of Education, it must not exceed 10% of the taxpayers assessable income after deducting such expenses and allowances.
2. For companies or juristic partnerships, an exemption for assessable income shall apply for an amount of up to 2 times the expenses donated whether paid in cash or in the form of assets. However, when including this exemption amount with expenses for public charity or for public benefit, education expenses, sports expenses or expenses it must be included with such donated expenses and must not exceed 10% of net profit of such company/juristic partnership before the deduction of such expenses.
3. Exemption of income tax, VAT, SBT, and stamp duty on income derived from the transfer of assets, selling products, or instruments due to donations to such education institutes. In addition, the transferor must not include the cost of the asset or goods which are exempt from such tax and deducted as an expense when calculating PIT or CIT (as the case may be)
To be eligible for this exemption, a taxpayer must comply with the rules, procedures and conditions prescribed by the Director-General of the Revenue Department.
For more details, please see: https://bit.ly/2ICXPQA

3. Income tax exemption of up to 2 times the amount of the donation made to the Equitable Education Fund (EEF).
The Royal Decree (No. 682), B.E. 2562, provides an income tax exemption for donations made to the EEF from 14th January 2019 to 31st December 2020 as follows;
1. For natural persons, this Royal Decree provides an exemption on assessable income after the deduction of expenses and allowances under Section 47 (1) (2) (3) (4) (5) or (6) of the Revenue Code for an amount of up to 2 times the amount donated to the EEF. However, when including this amount with the exempted income on donations made to support education in projects approved by the Ministry of Education, it must not exceed 10% of the individual taxpayers’ assessable income after deducting such expenses and allowances.
2. For companies or juristic partnerships, they are provided with an exemption on assessable income of up to 2 times the expenses donated to the EEF regardless of whether they are paid in the form of cash or as an asset. However, when including this with expenses for public charity or for public benefit, education expenses, sports expenses or expenses that must be included with such donated expenses, they must not exceed 10% of net profit before deduction of such expenses.
To be eligible for this exemption, a taxpayer must comply with the rules, procedures and conditions prescribed by the Director-General of the Revenue Department.
For more details, please see: https://bit.ly/31TGWIP

4. CIT exemption of up to 2 times for investment expenses in the electronics tax system.
The Royal Decree (No. 683), B.E. 2562, provides a CIT exemption of up to 2 times the amount of investment expenses in the electronics tax system paid from 30th April 2019 through until 31st December 2019 as follows;
1. Expenses for investing in electronic document management system, purchasing a computer program, electronic certificate storage device, computer, or any other equipment that is used with a computer, in order to use in the business of such company or juristic partnership.
2. Expenses for investing in an electronic tax remitting system, in order to use in the business of a company or juristic partnership responsible for tax remittance and payment service providers.
3. Expenses for electronics data storage service fees, electronic certificate fees, and service fees paid to electronic document delivery services providers that have been paid for the benefit of the business of such company or juristic partnership.
4. Expenses for investment in the cash register machine of a partnership or juristic person which is a VAT registrant.
To be eligible for this CIT exemption, a taxpayer must comply with the rules, procedures and conditions prescribed by the Director-General of the Revenue Department.
For more details, please see: https://bit.ly/2xdR3dm

Tax News

1. Tax measures to promote biodegradable plastics packaging.
On 4th June 2019 the Cabinet passed a resolution giving in principle approval to the CIT exemption on income for 25% of the expenses which have been paid for purchasing biodegradable plastic packaging (that have been approved by the Ministry of Industry) for purchases made from 1st January 2019 through until 31st December 2021.
To be eligible for this CIT exemption a taxpayer must comply with the rules, procedures and conditions which will be prescribed in the future.
For more details, please see: https://bit.ly/2LcPbtU

2. Extension of tax measures encouraging SME’s business operations.
On 4th June 2019 the Cabinet passed a resolution giving in principle approval to a CIT exemption to a company or juristic partnership established under Thai law which has fixed assets (excluding land) exceeding 200 million baht and who hires more than 200 workers, such exemption shall be up to 2 times the expenses paid to promote the business operations of a company or juristic partnership established under Thai law which has fixed assets (excluding land) not exceeding 200 million baht and who hire less than 200 workers. However, when this exemption is combined with exemptions for public charity or for public benefit, education expenses, sports expenses or expenses that must be combined with such expenses, it must not exceed 10% of the eligible company or juristic partnership’s net profit before deduction of such expenses. This tax measure will only apply to accounting periods beginning on or after 1st January 2019 but not later than 31st December 2020.
To be eligible for this CIT exemption an eligible taxpayer must comply with the rules, procedures and conditions which will be prescribed in the future.
For more details, please see: https://bit.ly/2LcPbtU

3. Tax measures to support fundraising of state specialized financial institutions (SFIs)
On 4th June 2019 the Cabinet passed a resolution giving in principle approval to a PIT exemption for income as follows;
1. Interest and lottery prizes of the Government Housing Bank but not including interest where the receiver is not the first holder. Nevertheless, such tax measures will be applicable to the lottery which is set to be launched from 1st August 2019 onwards.
2. Interest earned from a savings account with the Government Housing Bank. However, this tax measure will only apply to interest calculated from 1st July 2019 onwards.
To be eligible for this PIT exemption an eligible taxpayer must comply with the rules, procedures and conditions which will be prescribed in the future.
For more details, please see: https://bit.ly/2LcPbtU

4. Tax measures to support sports.
On 11th June 2019 the Cabinet passed a resolution giving in principle approval to extend the tax benefit period for donors supporting sports in Thailand via donations made to the Sports Authority of Thailand, Provincial Sports Committees, Provincial Sports Associations, Sports Associations that use the word “of Thailand” in their name or the National Sports Development Fund as established under the Sports Act of Thailand and the Department of Physical Education. The resolution extends the period under the original tax measures according to the Royal Decree (No. 596), B.E.2559, which ended on 31st December 2018, by extending the applicable tax measures for 1 more year, from 1st January 2019 to 31st December 2019.
To be eligible for this exemption a taxpayer must comply with the rules, procedures and conditions which will be prescribed in the future.
For more details, please see: https://bit.ly/2J7wjd7

5. Tax measures for donations made to educational institutions established in Thailand under a treaty or agreement between the Thai government and United Nations Specialized Agencies.
On 11th June 2019 the Cabinet passed a resolution giving in principle approval to extend the period of granting income tax, VAT, SBT, and stamp duty exemptions to natural persons or companies or juristic partnerships who make a donation through the electronic donation system of the Revenue Department to an educational institution which is established in Thailand under a treaty or agreement between the Thai government and United Nations Specialized Agencies from 1st January 2019 through until 31st December 2019.
To be eligible for this exemption a taxpayer must comply with the rules, procedures and conditions which will be prescribed in the future.
For more details, please see: https://bit.ly/2J7wjd7

6. Regulation regarding criteria of a related companies or juristic partnerships.
On 18th June 2019 the Cabinet passed a resolution giving in principle approval to income and expense calculation procedures for related companies or juristic partnerships, and other companies or juristic partnerships that are not subject to Section 71 ter of the Revenue           Code as follows;
1. The calculation of income and expenses of related companies or juristic partnerships shall be determined using certain criteria, procedures and conditions to examine the terms of the transaction and this resolution also gives authority to the Revenue Dept. assessment officer to adjust the income and expenses of related companies or juristic partnerships where there are commercial or financial conditions determined in the transaction between each other that are different from what should be determined, if such company or juristic partnership has operated independently.
2. The resolution provides an exemption for reporting and submission of documents or evidence showing the information necessary for analyzing the requirements of transactions between a company or juristic partnership and another company or a juristic partnership that has income derived from its business operations or due to business operations in its accounting period which do not exceed 200 million baht.
To be eligible for this exemption a taxpayer must comply with the rules, procedures and conditions which will be prescribed in the future.
For more details, please see: https://bit.ly/2WWKWVv

Interesting Deka
Dika (Supreme Court Judgment) No. 2376/2561, in re:
Between        Company Aor.                           Plaintiff
Revenue Department               Defendant
Issue:             Filing VAT returns without allocating input tax

Facts: The Plaintiff was an entrepreneur with a business relating to leasing and selling property which is a business that is exempt from the application of VAT under Section 81 (1) (t) of the Revenue Code, as well as  a Value Added Tax (VAT) registrant categorized as an operator of a department stores, hotel, accommodations, and a SBT registrant in the business categories of sale of an immovable property in a commercial or profitable manner.

During the construction of an office building, the Plaintiff filed a VAT Return showing a sales value and an output tax as 0 because there is no income, but showing an input tax according to the construction expense and other actual expenses. Hence, the Plaintiff had an overpayment of tax which had resulted in an accumulated tax credit up until the present. According to the examination carried out by the competent official of the Defendant, it appeared that the Plaintiff had overpaid tax, had no duty to pay additional taxes, and had not allocated input tax which meant that the Plaintiff was deemed to be liable to a fine because of filing an incorrect tax return. Therefore, the Revenue Dept. official assessed the Plaintiff to be liable to the payment of a fine.

Issue to consider: Whether the Plaintiff should be liable to such fine or not?

Judgment of the Supreme Court: In this case, the Plaintiff was a VAT registrant which was carrying on business activities, some of which were subject to VAT while others were not subject to VAT. The Court held that the Plaintiff as a VAT registrant should have allocated input tax in each tax month according to Section 82/3 of the Revenue Code.

The Court further held that when the Plaintiff had constructed a building to use as an office and for renting it out, which comprise both offices, shopping centers, and hotels which are businesses that are subject to VAT in some cases and not subject to VAT (non-VAT) in other cases. The Court noted that the Plaintiff did not submit a report regarding the construction of the building and the use of internal space in accordance with the criteria of the Notification of the Director-General of the Revenue Department. Therefore, the Court decided that the Plaintiff was not permitted to deduct the whole amount of the building construction as input tax from the output tax in the calculation of VAT. Furthermore, in the event that the Plaintiff filed an invalid tax return, despite the fact that the Plaintiff had overpaid tax, it was still liable to the fine due to filing its tax return incorrectly.

Legal Opinion: In the business operation of this VAT registrant, if there is a type of business that is subject to VAT and as well as other parts of the business which are not subject to VAT and the entrepreneur has used the office, buildings, acquired products or services in the operation of its business  for both types of businesses, there are significant issues to be considered as follows;

1. In the case of using products or services in both types of businesses the business operator must be able to clearly distinguish whether the input tax is for a business that is subject to VAT, as such input tax shall only be considered to be the input tax of the business that is subjected VAT.

2. In the case of using products or services in both types of businesses where it is unable to be clearly distinguished as to whether the input tax belongs to which type of businesses (VAT or non-VAT), then the input tax shall be allocated according to the income of each business and only the allocated input tax value of the business(es) that are subject to VAT shall be able to deduct it from output tax.

3. In the case of building construction for use in the operation of businesses that are subject to VAT and other purposes, the input tax shall be allocated based on the use of space for each type of business and only the input tax of the estimated area of the business(es) that are subject to VAT shall be deducted from output tax.

Nevertheless, the above mentioned input tax calculation and allocation must be done in accordance with rules, procedures and conditions prescribed by the Notification of the Director-General of the Revenue Department on Value Added Tax (No.29).
In light of the above mentioned facts, it appears that the VAT registrant who operates businesses that are both partly subject to VAT as well as not subject to VAT, which use offices, buildings, and other properties in the course of both of its businesses which are not able to be clearly distinguished as to whether the input tax belongs to which type of businesses (VAT or Non-VAT), then such VAT registrant, as the case may be, shall be required to allocate the input tax according to the income of each business or otherwise allocated based on the use of space for each business in order to deduct the input tax that is derived from business that is subjected to VAT from the output tax in the calculation when determining VAT liability to file a VAT return.

Therefore, the author agrees with the judgment of the Supreme Court because when the Plaintiff failed to allocate input tax, it was correct to deem it to be an incorrect tax filing, hence the Plaintiff should have been found liable to the fine as held by the Supreme Court in its judgment.

Author: Warinthorn Saruno
Translator: Pia-on Jones
Should you require any legal advice on Thai tax law then please contact us at
Dharmniti Law Office Co., Ltd.
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Email: hatairats@dlo.co.th