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Be Cautious Around Cross-Border Transactions


Value Added Tax (VAT) came into effect in Thailand in 1992. The Swiss multinational company, SGS S.A. (formerly Soci?t? G?n?rale de Surveillance) obtained a private tax ruling on VAT from the Thai Revenue Department (TRD) as the first enforcement of VAT to benefit from 0% VAT for its main business which is inspection, verification, testing and certification services. The TRD, however, subsequently changed its position and viewed that the services provided by SGS in Thailand for its offshore customers were not the services provided in Thailand, and were used by the offshore customers in foreign jurisdictions. Therefore, VAT at the rate of 7% should be applied. Taxand Thailand examines this case and considers its likely impact on the VAT position of other multinationals operating in Thailand.

Decision of tax court
The Central Tax Court ruled that product inspection, laboratory analysis of goods, inspection of manufacturers' qualification provided by SGS in Thailand for its offshore customers, are all activities eligible for VAT at the rate of 0%. The TRD pursued the appeal against the tax court at the Supreme Court for a final decision.

Final court decision
After 7 years, the Supreme Court has released its decision this year in favour of the position of the TRD. The rationale of the decision is on the basis that the result of quality inspection services made by SGS was already being used in Thailand because the inspection report was opened and read in Thailand by the representatives of foreign customers.

The High Court viewed that the purpose of report reading in Thailand was for price negotiation, order, hire-of-work and export of goods to offshore parties. Therefore, the services provided by SGS in Thailand do not qualify for the 'export of service to be used entirely outside Thailand'.

Taxand's Take

Care should be taken when dealing with the facts and background of tax cases in relation to cross-border transactions; local and offshore activities should be clearly identified and explained fully. In addition, proper documentation and paperwork should be available to the courts for inspection.

It is important to note that if a taxpayer wins at a lower court, it does not guarantee the court's decision in a higher court. Accordingly, taxpayers and their tax lawyers should work together to fill in all gaps in their case as much as possible.

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


Taxand's Take Author