11/01/22

THAILAND: Tax reform efforts pose investment threat, says Revenue Department.

As published on bangkokpost.com, Tuesday 11 January, 2022.

Major economies' attempts to revamp the global taxation system might tackle corporate tax avoidance but could also impact Thai tax incentives granted by the Board of Investment (BoI), said the Revenue Department's director-general Ekniti Nitithanprapas.

Members of the G20 and the Organisation for Economic Co-operation and Development (OECD) are discussing a plan to reform the global tax system via two key methods.

One would see multinational enterprises, when investing in a country without being based there, pay part of their profits to that nation if they generated revenue of more than €20 billion (763.9 billion baht) from that territory.

Mr Ekniti said that Thailand stood to gain from this first method.

The second method targets parent companies setting up subsidiaries in tax havens to enjoy lower tax rates.

If this method were agreed, the country where the parent company has a presence would be able to collect extra tax from it in addition to the tax its subsidiaries pay in the tax haven.

The combined extra tax on parent companies and the tax paid by their subsidiaries in tax havens should not be less than 15%.

To give an example, company A sets up a subsidiary in a tax haven. If its subsidiary pays 10% tax in the haven, the country which hosts company A has the authority to collect an extra 5% tax from it.

Mr Ekniti said that this method could affect BoI incentives. For example, if a Japanese company wants to invest in Thailand to gain 0% tax incentives, it will have to pay an extra tax of 15% to Japan, so this could make Thailand look less attractive.

Mr Ekniti added that Thailand is negotiating details of this issue with the G20 and the OECD.

Thailand has continued to revamp its tax system. One example is its launch of the e-service tax law last September to collect value-added tax (VAT) from foreign e-service operators generating income in Thailand.

This law obliges overseas businesses providing online services in Thailand to register for the 7% VAT liability if their annual income exceeds 1.8 million baht.

The Revenue Department expects to collect VAT of 10 billion baht per year from these platforms, up from an earlier estimate of 5 billion baht.