Mr. Picharn Sukparangsee At the Corporate Legal Risk Management - PowerPoint PPT Presentation

TAX PLANNING & RISK MANAGEMENT presented by Mr. Picharn Sukparangsee At the Corporate Legal Risk Management Summit 2019 Arranged by SNP training On 24 May 2019 at Grande Centre Point RATCHADAMRI Hotel Bangkok

TAX PLANNING ➢ Revenue Code of Thailand - Direct taxes – corporate income tax and personal income tax - Indirect taxes – value added tax and specific business tax - Stamp duty ➢ Investment Promotion Act of Thailand provides for tax and non-tax incentives. ➢ National Competitiveness Act of Thailand grants a special tax exemption. ➢ Thailand is a country or a state.

Tax Planning ➢ Revenue Code covers personal income tax, corporate income tax, valued added tax , specific business tax and stamp duty. ➢ Tax Rates Competitor o PIT rates ranges from 5% to 35% of the net income. o CIT flat rate is 20% of the net profits. o VAT current rate is still at 7% of the revenue. o SBT rate is at 3% of the revenue. 3

Tax Planning ➢ Stamp duty is required for instruments. ➢ Taxes under the Revenue Code are collected at the national level. ➢ Land and building tax is collected at a local authority level. ➢ Are provisions of the Revenue Code and regulations simple, precise, clear and fair? Competitor ➢ Revenue tax, customs duties, excise tax should be taken into consideration for trade and investment. ➢ Tax liability and tax exemption should be explored. ➢ Thailand provides a lot of tax benefits. 4

• A tax reduction of up to Baht 200,000 for a purchase of TAX BENEFITS a residential unit value up to Baht 5 million (from April to December 2019) • A reduction of a home transfer fee from 2% to 0.01 % and a mortgage fee from 1% to 0.01 % of value of a real estate at a price lower than Baht 1 million until 31 May 2020.

Other taxes ○ Digital Services Tax is thought of in Thailand. ○ Land and Building Tax is effective in Thailand. ○ E-commerce Tax is imposed in Thailand. Comp Compet etitor itor Federal tax, state tax and local tax should be reviewed if trade or investment would be made in any country NAME OR LOGO 6

Board of Investment (“BOI”)

Boar Board d of of I Investme estment ( nt ( “ BOI BOI ” ) Tax Exemption • ➢ exemption of corporate income tax ➢ reduction of corporate income tax ➢ exemption of import duty on importation of machinery and equipment ➢ exemption of import duty on importation of raw materials. NAME OR LOGO

Board of Investment (“BOI”) › 10 target businesses are promoted by the BOI. › Investment promotion is granted on a project by project basis. › A corporate tax income filing of a company covers all projects of the company. › Under a new notification of the Office of the BOI , profits and losses of all projects must be set off against each other. › BOI and non-BOI › Tax exemption under an investment certificate may have some issues.

East Economic Corridor (“EEC”) Tax privileges are provided for projects located in the EEC consisting of Chachoengsao, Chonburi and Rayong Provinces in the East of Thailand. In International Business Centre ( “ IBC ” ) ) IBC replaces International Headquarters (“IHQ”) and Regional Operating Headquarters (“ROH”) Issues to be considered 10

Issued to be considered

Issues to be considered Should agreements be aggregated or separated? -lease agreement and service agreement -Service agreement and royalty agreement Why are levels of companies required? Land should be transferred from an individual into a company. Why are levels of companies required? Land should be transferred from an individual into a company. Why are levels of companies required? Land should be transferred from an individual into a company. 12

Issues to be considered Either dividend or capital gains should be chosen for an investment in a foreign country by use of a foreign company in a foreign country. Dividend may be exempted from tax at a domestic level or an international level. Capital gains may be exempted from tax at a domestic level or an international level. Is payment for software training considered in Thailand to be a business profit or royalty ? A loss company has its value for tax purpose. Unilateral tax relief is provided for investment in a foreign country provided that conditions have been met. Advantages and disadvantages between share purchase and asset purchase should carefully be taken into consideration. 13

Double Taxation Agreement (“DTA”)

Double Taxation Agreement ( “ DTA ” ) ➢ OECD model tax convention ➢ UN model tax convention ➢ US model tax convention

Double Taxation Agreement (“DTA”) ➢ Tax evasion, tax avoidance , aggressive tax avoidance are interesting to be thought of. ➢ Source state and resident state should be considered. ➢ Allocation of taxes between the source state and the resident state have been seriously reconsidered after BEPS 15 Action Plans. ➢ A third state may be involved as a stepping stone and a treaty shopping may be exploited. ➢ Form may conflict with substance.

Double Taxation Agreement (“DTA”) ➢ Business may be conducted either with a country or in a country. ➢ Double taxation or a double non taxation may occur in an international transaction. ➢ Treaty shopping is related to a legal owner and a beneficial owner. ➢ A non – party to the DTA cannot benefit from by provisions of the DTA. ➢ Income and capital may be classified into - Business profits - Specific income or capital gain - Other income

Permanent Establishment

Permanent Establishment ➢ Business profits paid from a Thai company to a foreign company are taxable in Thailand unless the foreign company is incorporated under law of a foreign country having the DTA with Thailand and has no PE in Thailand. ➢ Interest paid by a Thai company to a foreign company is generally subject to withholding tax in Thailand unless any exemption or deduction of tax is provided. ➢ Front-end fee, management fee, standby fee and guarantee may be regarded as service fee or interest. ➢ Dividend paid by a Thai company to a foreign company is generally subject to withholding tax in Thailand unless any exemption or deduction of tax is provided. ➢ Royalties may be subject to a different rate of withholding tax under a DTA. ➢ Capital gains may be exempted from tax in Thailand. ➢ Any certain income may be deemed to arise in a source country by use of the principal of Force of Attraction.

Issues on quasi-equity instruments such as convertible bonds or exchangeable notes

Issues on quasi-equity instruments such as convertible bonds or exchangeable notes ➢ Thailand has no law on CFC, GAAR or SAAR. ➢ Thailand has no tax law on Thin capitalization ➢ The Revenue Department of Thailand may have its own way of interpretation of taxation laws in certain issues. ➢ Judicial review plays an important role interpretation of laws.

Base Erosion and Profit Shifting (“BEPS”)

Base Erosion and Profit Shifting (“BEPS”) ➢ The Inclusive Framework on Base Erosion and Profit Shifting (“Inclusive Framework”) ➢ Global Forum on Transparency and Exchange of Information for T ax Purpose (“Global Forum”). ➢ In 2017, Thailand is the 139th member of the Global Forum.

Base Bas e Er Eros osion ion an and Pr d Profit ofit Shifting Shifting (“BEPS”) Forms of Exchange of Information set by the Global Forum Preparation of files ○ Exchange of Information on Request ○ Local file (EOIR) ○ Master file ○ Spontaneous Exchange of Information on ○ Country-by-Country Reporting ( “ CbCR ” ) Request (“SEOI”) ○ Automatic Exchange of Information (“AEOI”) NAME OR LOGO 24

Base Bas e Er Eros osion ion an and Pr d Profit ofit Shifting Shifting ( “ BEPS BEPS ” ) Two sets of information are exchanged: ○ Financial information reported under the ○ Local file Common Reporting Standards ( “ CRS ” ) ○ Master file and ○ Country-by- Country Reporting (“ CbCR ”) ○ CbCR Tax and non-tac issues should be aware if tax benefits under Treaty of Amity between the U.S.A. and Thailand are used while a foreign business license requires a direct shareholding by a US corporation , not indirect shareholding in a third country, in a company incorporated under law of Thailand. NAME OR LOGO 25

Base Erosion and Profit Shifting (“BEPS”) ➢ The Inclusive Framework on Base Erosion and Profit Shifting (“Inclusive Framework”) ➢ Global Forum on Transparency and Exchange of Information for T ax Purpose (“Global Forum”). ➢ In 2017, Thailand is the 139th member of the Global Forum.

Issues Cases • Marketing and royalty case • Provisions of laws and regulations may be similar or slight different but • BOI and non- BOI case interpretation of laws and regulations • An international M&A and tax case may be totally different from one jurisdiction to another jurisdiction. 27

Chart on Purchase, royalty and management Country C Co C shareholding loan Country B Co B shareholding loan Country A purchase payment to Co D Co A royalty payment to Co E management fee to Co F