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Anti-Tax Avoidance Schemes Under Consideration


The Thai Finance Minister assigned the Revenue Department to improve the Thai tax structure to respond to competition with other countries in the region prior to the full entry to the ASEAN Economic Community (AEC) in 2015. The Revenue Department is focusing on the anti-tax avoidance schemes against cross-border transactions involving MNCs. Taxand Thailand discusses the anti-avoidance schemes under consideration and how MNCs may be affected if these come into force.

Cross-border transactions under focus
The cross-border transactions under monitoring and anti-avoidance schemes under consideration of the Revenue Department include:

1. Transfer pricing
2. Thin capitalisation
3. Treaty shopping
4. Controlled foreign company (CFC)
5. General anti-avoidance rules (GAARs)

In late April, the Revenue Department in its meeting, inter alia, with the Board of Trade of Thailand and the Federation of Thai Industries agreed to seek the opinion and feedback of business operators if the anti-avoidance schemes come into force.

The main issues under discussion are

  • Whether the five anti-tax avoidance schemes should be enacted or not?
  • What will be the improvement of tax collection on the above international transactions?

Current practices and new anti-avoidance schemes
The tax authorities are aware of the existing cross-border transactions dealing with the MNCs. However, the current official tax practices will not be able to enforce such activities in full for tax administrative purposes.

In practice, the tax authorities including tax court and Supreme Court accept the real intention of the contractual parties involved in the transactions as a basis to consider its real tax consequences. In many court cases, the 'substance over form' and 'economic substance' rules have been adopted to rule on court decisions. For example, the Supreme Court in 'Nike's Case' ruled in favor of the taxpayer on the customs valuation on royalties of the imported goods on the basis of 'economic substance'. Inconsistently, the Supreme Court in the prior case of 'Pizza Hut Franchise' ruled in the same position of the Revenue Department to include the 'marketing expense' as a part of franchise fee (royalties) and imposed withholding tax and VAT on it.

Taxand's Take

Care should be taken on the proactive tax planning with reasonable grounds of activities especially 'burden of proof' and supporting documents for existing and future transactions to respond to the upcoming anti-avoidance schemes.

Your Taxand contact for further queries is:
Chinapat Visuttipat
T. +66 2632 1800

Taxand's Take Author