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Why did FC Barcelona have to pay Thai tax?
Naturally, by bringing the best football team to Thailand, the Thai company was required to pay substantial consideration in return – particularly in taxes. With a view to avoiding any tax exposure, a ruling request was submitted before the Thai Revenue Department to ensure that the Thai company, FCB and their football players had fully complied with Thai tax law. The Thai Revenue Department issued a surprising ruling in response on 2 August 2013. The facts of the case were as follows:
- The Thai company entered into a contract with FCB and agreed to pay a relevant compensation to be the major sponsor of a Chang Champions Cup FC Barcelona Asia Tour 2013.
- The superstar football players and FCB team had been in Thailand for the Chang Champions Cup FC Barcelona Asia Tour 2013 for a period not exceeding six months.
The Thai Revenue Department ruled that:
- FCB had carried on business in Thailand so as to derive income. Also, the profit obtained from athletic activities in Thailand is subject to tax in Thailand under Clause 17 Paragraph 4 of the Double Taxation Agreement between Thailand and Spain (the DTA). As a consequence, the FCB was subject to corporate income tax at the rate of 20% (applicable rate in 2013).
- The Thai entity, as the payer of the consideration, was required to withhold tax at the rate of 5% upon payment to FCB. The 5% withholding tax would be creditable against corporate income tax when FCB filed its annual corporate income tax return.
- For personal income tax purposes, the playing of football in Thailand by Barcelona Players was considered as work performed in Thailand and therefore subject to personal income tax regardless of where it was paid under Clause 17 Paragraph 1 of the DTA.
- The athletic activity was considered a provision of services in Thailand and therefore was subject to VAT in Thailand. However, it was the responsibility of a Thai entity to self-assess the VAT. The self-assessed VAT would be creditable VAT by the Thai entity in the month the VAT was paid.
According to domestic Law, the consideration that was paid by the Thai sponsor to FCB should not be subject to tax in Thailand, because the consideration paid was a consideration satisfied according to Section 40(8) – Income from business. Income under Section 40(8), not subject to tax under the local law according to Section 70 of the Thai Revenue Code.
Section 70 states that: A company or juristic partnership incorporated under foreign laws and not carrying on business in Thailand but receiving assessable income under Section 40 (2)(3)(4)(5) or (6) which is paid from or in Thailand, shall be liable to pay tax. It is implied in Section 70 that when a Thai company makes a payment of income under Section 40(8) to the foreign company, it does not require to withhold tax. Therefore in FCB's case, the 5% withholding tax should not be withheld, unless FCB is considered to be carrying on business in Thailand.
The issue is then to consider whether or not FCB carried on business in Thailand since the DTA is available.
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The DTA states that furnishing of services through employees or personnel where the activity continues for more than six months would constitute a permanent establishment. Given that the superstar players and FCB team had not been in Thailand for a period exceeding six months, FCB cannot be deemed to be carrying on business in Thailand. This raises the question, why does FCB have to pay corporate income tax at 20% to the Thai Government?
For personal income tax, it is quite clear that (under local tax law) income from work performed in Thailand is subject to Thai tax regardless of where it is paid. Article 17 (1) of the DTA also states that these athletes may be taxed in the source country and, therefore, the superstar player must pay tax at the progressive rate from 0%-35% in Thailand. However, the personal income tax paid is creditable against personal income tax imposed in the player’s home country.
The VAT ruling was a fair one. Thailand uses the VAT system and VAT is imposed on sales of goods and provisions of service in Thailand. Where the athletic activity in Thailand is obviously seen as a provision of service, it is not a surprise that VAT is imposed on the payment transaction. However, in this case the service provider came from outside Thailand and outside Thai VAT system, so the self-assessed VAT system applies to the payer of income which is a fair process.
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