BASE EROSION AND PROFIT SHIFTING ISSUES : THAILAND

Transcription

1 BASE EROSION AND PROFIT SHIFTING ISSUES : THAILAND ECOSOC Special Meeting on International Cooperation in Tax Matters 5 June 2014 Phensuk Sangasubana The Revenue Department, Thailand

2 CONTENTS Background Issues International cooperation : EOI, MAP Transfer pricing PE & Attribution of profits Anti-avoidance measures Treaty abuse Digital economy High Net Worth Individuals Conclusion

3 BACKGROUND BEPS - more focus on source country taxation OECD's 15 action plan Joint UN-OECD project on tax base protection

4 Thailand participated in OECD Regional Consultation Seminar, February 2014 G20 International Tax Symposium, May 2014 SGATAR will focus on BEPS issues and international taxation in 2014

5 Thailand taxes both inbound and outbound transactions Largest FDI flows into Thailand - Japan, Netherlands, USA, China, Malaysia Largest direct investment flows from Thailand - Hong Kong, Cayman Island, USA, Japan, others

6 INTERNATIONAL COOPERATION International taxation trends In the past, focused on DTAs Now, international cooperation such as EOI, MAP BEPS Thailand must be ready for the modern international trends

7 EOI - core of international cooperation Thailand meets minimum international standards - EOI on request Automatic EOI - still only inbound from 10 out of 57 treaty partners Needs legal framework and IT infrastructure to support automatic EOI

8 MAP Within bilateral framework Need to have clear guidelines and better mechanisms to deal with potential tax dispute cases

9 BEPS ISSUES - TRANSFER PRICING Transfer pricing is an important BEPS issue on many fronts and still not effectively dealt Intangibles Profit value alignment Value chain analysis FAR and real economic activity; substance over form Business restructuring - stripping of functions from Thai entities Need to focus on other industries with potential high TP risks such as extractive industries

10 Documentation Country by country reporting and 2 tier structure - Master file will provide a better snapshot on overall MNEs operations and help to better evaluate profit shifting Comparables - As Thai subsidiaries are tested parties, local comparables are preferred Thailand is interested in the use of simplified rules to deal with transfer pricing, i.e. bilateral safe harbour agreements

11 Thailand Specific TP legislation draft - tentatively by 2014 Has begun to decentralize TP audit - first within LTO Will push again for a separate international tax unit Will review APA guideline in 2014

12 BEPS ISSUES - PE Interpretation problems that may be inconsistent among treaty partners Tax planning schemes can result in artificial PE avoidance Attribution of profits for PE / Thailand applies paragraph 3 of Article 7 of UN Model AOA - FAR should consider real economic activities Taxpayers may take advantage of PE exemptions under paragraph 4 to avoid PE Agency PE May look at VAT

13 BEPS ISSUES - ANTI AVOIDANCE MEASURES Thailand does not have legislation to deal with CFC and thin capitalisation Thin capitalisation : 3:1 for company granted tax incentive under BOI law Relies on DTA to help prevent anti-avoidance: i.e. Articles 10 and 11 Tax law reform in international taxation : includes transfer pricing, thin capitalisation, CFC, GAAR

14 BEPS ISSUES - TREATY ABUSE To counter in DTA framework UN Model : explanation on prevention of treaty abuse is provided in commentary of Article 1 Proof of residence to obtain treaty benefits - close coordination with treaty partners LOB vs main purpose test Thai model : miscellaneous provisions

15 BEPS ISSUES - DIGITAL ECONOMY Current law provisions cannot catch digital transactions Tax issues Domestic tax law - income tax and VAT DTA Transfer pricing

16 Thailand's views to OECD discussion paper Withholding tax PE - to review paragraph 1 for all businesses; revise exemptions VAT registration Compliance issues Need to understand business models

17 BEPS ISSUES - HNWI Thailand: 12.7% and 19.3% increase in HNWI population and wealth Complex financial affairs Ease of mobility Easy transfer of assets to low tax jurisdictions Loophole in domestic law may cause profit shifting and non taxation and possibly double non taxation

18 CONCLUSION Political support Important to lay infrastructure - legislation, organization, IT architecture Must have good knowledge of transactions / capacity building Balance between maintaining investment climate and tax policy design BEPS is important to all countries, but viewpoints may be from different angles.

19 THANK YOU