Understanding Thai Taxes: Corporate Income Tax & Transfer Pricing
PAYING DUES: UNDERSTANDING CLASSIFICATIONS OF VARIOUS BUSINESS TRANSACTIONS (CORPORATE INCOME TAX & TRANSFER PRICING)
The main body of tax law in Thailand is the Revenue Code. Taxes under the Revenue Code are collected under a self-assessment system of taxation, whereby taxpayers assume responsibility for correctly filing their tax returns and paying taxes annually.
The Revenue Department administers the Revenue Code and enforces compliance with the law through regular tax audits. Taxpayers can ask the Revenue Department for a ruling to clarify the Department’s viewpoint in advance of a tax audit.
In recent years, the Revenue Department has invested heavily in information technology (IT) and now provides a number of electronic services, including electronic tax filings. IT systems have played a critical part in the Revenue Department’s ability to improve its collection of tax revenues.
Alongside regular tax administration, Thailand is implementing a number of new tax incentives that will make the country a more attractive location for business when the new ASEAN Economic Community (AEC) is formed by 2015.
Corporate Income Tax: Companies or juristic partnerships established under Thai law are subject to corporate income tax on their worldwide income, while those established under a foreign law and carrying on business in Thailand are subject to corporate income tax only on the net profits arising from their business activities in the country. The term “company or juristic partnership” is defined to include entities such as limited partnerships, registered partnerships, as well as unincorporated joint ventures.
The net profit for tax purposes is calculated by taking all revenue that arises from or in consequence of the business that is carried out in one tax year and then deducting all of the allowable expenses. Revenue and expenses are computed on an accruals basis.
Dividends that are received by Thailand-based companies, either from another Thai company or from a foreign company, may qualify for an exemption from corporate income tax if certain prescribed conditions are met.
In general, expenses incurred for the purpose of acquiring profits or for conducting business in Thailand are deductible. Accordingly, usual business expenses, qualifying bad debts and depreciation are deductible for tax purposes. Deductible expenses must be claimed in the tax year in which they are incurred.
A number of incentives are contained in the tax law that allow for accelerated depreciation and capital write offs in respect of certain types of assets. If an asset is acquired during a tax year, the depreciation allowance must be pro-rated.
Tax losses may be carried forward for a maximum of five years and set off against net profits of any nature. Companies promoted by the Board of Investment (BOI) that receive exemption from corporate income taxes can carry forward tax losses and deduct them as expenses for up to five years after the end of the income tax holiday period.
Transfer Pricing: The Revenue Department has the power to deem a taxpayer to have received market value consideration for the sale of goods, provision of services, or the lending of money, where it determines that the actual consideration received was less than market value without justifiable grounds. The Revenue Department also has the power to deny firms a deduction for any expenditure that is not exclusively expended for the purpose of acquiring profits or for the purpose of the business.
Transfer pricing guidelines have been introduced for determining the market price of cross-border and Thai domestic transactions between related parties. The guideline’s definition of market price is consistent with the “arm’s length” principle used in the OECD’s transfer pricing guidelines. In addition to this, the Revenue Department sets out a list of documents that officers from the Revenue Department may request from taxpayers when conducting a transfer pricing audit.
As of late, the Revenue Department is increasingly focusing on transfer pricing issues when reviewing the tax affairs of companies.
(Page 243-244 of The Report : Thailand 2012, published by Oxford Business Group)
