Tax Newsletter, Issue no. 2/2017

Tax Newsletter, Issue no. 2/2017 Tax developments from 1 April to 15 August 2017 In this issue: Tax developments from 1 April to 15 August 2017 Interesting Supreme Court case I. Additional tax deductions 1.1 Investment in electronic payment devices Royal Decree No. 640 was issued to grant corporate entities a 100% additional tax deduction for expenses paid between 1 November 2016 and 31 December 2018 for an investment in electronic payment devices. This is on the condition that no rental for the devices is charged to the persons who receive payments by means thereof. Furthermore, in order to obtain this tax benefit, the criteria and conditions prescribed by the Revenue Department must be followed. However, at this stage, none have been issued. The electronic payment devices will also be subject to the following conditions: 1. They must be devices according to a project certified by the National E-Payment Infrastructure Development Board and are used in such project. 2. They must have never been used before and must be ready for use by 31 December 2018. 3. Depreciation must be over a period of at least three years from the date on which they were ready for use, except in the case they are destroyed, lost or no longer exist. 4. They are not subject to tax benefits available for assets under other Royal Decrees issued according to the Revenue Code, either partly or wholly. 5. They are not used in a business exempt from tax under the investment promotion law, either partly or wholly. If the criteria and conditions are not complied with during any accounting period, the right to the tax benefit will be withdrawn with effect from the first accounting period in which this tax benefit was used. The tax returns for the respective accounting periods will be required to be re-filed. However, in the case where the assets are destroyed, lost or no longer exist after the tax benefit has been used, the tax benefit already used will not be required to be re-computed. Page 1 of 10

1.2 Fees charged for accepting debit cards for payments received Royal Decree No. 640 also grants the following persons a 100% additional tax deduction for fees paid between 1 November 2016 and 31 December 2021 for accepting debit cards for payments received for purchases via the electronic payment devices. The criteria and conditions for using the tax benefit, which are still to be issued by the Revenue Department, must be met. floods during the period from 1 December 2016 to 31 May 2017, including the cost of materials and equipment required to undertake the repairs. The expenses allowed as special deduction must be paid during the same period and are subject to a maximum of Baht 100,000. The tax deduction is granted to taxpayers who are owners, lessees or users of the properties for residence, business or other benefit. Individuals who earn income under Section 40 (5), (6), (7) and (8) of the Revenue Code in the total amount not exceeding Baht 30 million in the accounting period in which this tax benefit is used. Where there is more than one property to be repaired, all expenses incurred for all properties must be combined for determining the maximum allowance of Baht 100,000. Corporate entities whose paid-up capital on the last day of any accounting period does not exceed Baht 5 million, and the total income from the sale of goods and provision of services does not exceed Baht 30 million in the accounting period in which this tax benefit is used. If corporate entities do not comply with the above conditions in any accounting period, the right to the tax benefit will cease in that accounting period. 1.3 Repairs resulting from floods Ministerial Regulation no. 329 as well as the Notifications nos. 298 and 299 allow a special tax deduction for individuals who were victims of the floods in Thailand, as follows: 1. Expenses paid for repairing condominium units, buildings or properties permanently attached to the condominium units, buildings or land on which the buildings are located, that were damaged by the 2. Expenses paid for repairing vehicles or accessories in vehicles damaged by the floods during 1 December 2016 to 31 May 2017, including the cost of materials and equipment required to undertake the repairs. The expenses allowed as special deduction must be paid during the same period and are subject to a maximum of Baht 30,000. The tax deduction is granted to taxpayers who are the owners of the vehicles or lessees under a hire purchase contract. Where there is more than one vehicle or accessory to be repaired, all expenses incurred for all vehicles must be combined for determining the maximum allowance of Baht 30,000. The above deductions can be used for the two tax years of (2016 and 2017). However, the total deduction for these items for the two years combined cannot exceed Baht 100,000 for buildings and Baht 30,000 for vehicles. Page 2 of 10

II. Amendment of punishment provisions 2.1 Tax crimes relating to antimoney laundering laws (Revenue Code Amendment Act (No. 45) B.E. 2560, effective from 2 April 2017) Thailand is a member of the Asia Pacific Group on Money Laundering so it is required to comply with the guidance of the Financial Action Task Force in defining a serious tax crime as a predicate offence under the Prevention and Suppression of Money Laundering Law. The Thai Government has therefore established punishment for tax evaders and fraudulent taxpayers by enacting the Revenue Code Amendment Act (No.45) B.E. 2560. Accordingly, Section 37 ter has been added to the Revenue Code to charge a person with a serious offence if such person is liable to pay or remit tax and commits tax evasion or tax fraud or makes fraudulent tax refund applications. Tax evasion, tax fraud or fraudulent tax refund applications under the following circumstances will be charged as a predicate offence under the Prevention and Suppression of Money Laundering Law: 1. An offence under Sections 37, 37 bis or 90/4 of the Revenue Code: evasion of tax or an attempt to evade tax or an application for tax refund by filing false information/evidence, by falsehood, fraud or trick or other similar nature, 2. Tax evasion, tax fraud of more than Baht 10 million per tax year or a request for a tax refund of more than Baht 2 million per tax year by using false information, fraud, artifice or other similar nature, 3. Collaboration with accomplices or connections by creating false business transactions or hiding income to commit tax evasion and tax fraud, and 4. Concealing the origin of assets connected with the offence in order to prevent tracing such assets. The Director-General of the Revenue Department together with a committee comprising the Director- General, the Deputy Director-General and all principal advisors of the Revenue Department, will consider whether such crimes constitute a predicate offence. If so, they will submit the relevant information and evidence to the Anti-Money Laundering Office for further action according to the law. 2.2 Amendment of criminal offences of representatives of corporate entities (the Act to Amend Criminal Offences of Representatives of Corporate Entities B.E. 2560, effective from 12 February 2017) This Act has been issued to amend the criminal offences of the representatives of corporate entities which exist in various laws, including the Revenue Code. The criminal offences of the representatives of corporate entities under the Revenue Code are stipulated in Sections 35 bis and 90/5. Under the previous Sections 35 bis and 90/5, representatives of a corporate entity may be held liable for offences unless they could prove that they were not involved in the offences. Sections 35 bis and 90/5 of the Revenue Code were amended to broaden the criminal offences charged against the representatives of the corporate entities who have a duty to Page 3 of 10

instruct or take action but fail to do so and thereby cause the entity to have committed the offences. Such representatives will also be held liable for the offences. The representatives can therefore no longer claim that they were not involved in the offences so as to be released therefrom. III. Personal income tax 3.1 Flat rate of personal income tax for qualified expatriate and Thai employees working in target activities under the Eastern Economic Corridor project (EEC) (Royal Decree No. 641) Qualified expatriate and Thai employees can choose to be taxed at the flat rate of 17% on their employment income derived from working for companies carrying on target activities located in the EEC. The EEC comprises the three provinces of Chonburi, Rayong and Chachoengchao. The qualified employees are entitled to the flat tax rate from the date on which the Revenue Department has been notified by the employer companies. The following are the criteria and conditions for the employees entitled to enjoy this tax benefit. The employees must not be Thai tax residents, i.e. they either did not stay in Thailand or stayed for less than 180 days, before the tax year in which they first apply for the flat tax rate. The employees must stay in Thailand for at least 180 days in the tax year in which this flat rate of tax has been used, except in the case of the first and the last year of applying the flat rate whereby they may stay in Thailand for less than 180 days in aggregate. If the employees do not qualify to enjoy this tax benefit, it will cease in the tax year in which the disqualification arises. However, the tax benefit already used will not be required to be re-computed. 3.2 Amendment of a single payment by reason of termination of employment Management, experts or researchers with qualifications as prescribed by the Director- General. The employer undertakes a business in the EEC area in which the qualified employees work. Companies as employers are required to inform Revenue Department of the employment using the prescribed form before the first payment for employment is made, The flat tax rate will apply to the employment income paid entirely in Thailand under the employment contracts made with the employer companies. Previously, if a single payment by reason of termination of employment is paid out several times by the same payer over more than one tax year, whether such payment is made out from one or more categories of assessable income, the taxpayer would be entitled to the special computation of tax separately from the annual personal income tax computation only for the portion of income which is paid in the first tax year. This can be interpreted that where a single payment by reason of termination of employment is paid out several times by several different employers, the taxpayer may enjoy the special computation of tax separately from the annual personal income tax computation on all such Page 4 of 10

single payments received from each employer. The Notification No. 303, which is effective for assessable income of the tax year 2017 onwards, deletes the words several times by the same payer. This amendment clarifies that only the portion of income paid by reason of termination of employment in the first tax year can be computed for tax separately from the annual personal income tax computation regardless of whether they are paid by one or several employers. 3.3 Tax exemptions granted to individuals, unregistered partnerships and non-juristic body of persons when converting a business to be a juristic entity Royal Decree No. 630 granted exemption from personal income tax, VAT, specific business tax and stamp duty to individuals who convert their business into a juristic entity. The exemption covers the transfer of assets, sale of goods and execution of instruments arising from the transfer of assets used in the business to companies or juristic partnerships in exchange for ordinary shares. The transfer of assets and the establishment of the companies or juristic partnerships must take place between 10 August 2016 and 31 December 2017. (Please refer to our tax newsletter no. 1/2017) Royal Decree No. 644 extends the exemption from the above taxes to cover unregistered ordinary partnerships and non-juristic body of persons who convert their business to be a juristic entity. Criteria and conditions for the transfer of assets to qualify for the tax exemption are as follows: The transfer of assets must be made at the market price, except in the case of immovable property whereby the appraised value under the Land Code as of the transfer date or the actual cost paid by the individuals, whichever is higher, must be used. Individuals must hold the number of shares in such companies or juristic partnerships equal to or at least the value of assets transferred. Shares held by individuals as above and which are subsequently transferred must not be transferred at a price less than the net book value. For the transfer of immovable property, individuals as transferors and companies or juristic partnerships as transferees must prepare and submit a letter according to the form prescribed in the Notification to inform the officers of the Land Department and the Director-General of the Revenue Department through the Revenue Area Office when the registration of the transfer will take place. Page 5 of 10

IV. Other regulations 4.1 Extension of date for filing audited financial statements when the corporate income tax return is filed online (Notification on Income Tax (no. 297) and Notification of the Director-General, both dated 26 May 2017) Since 25 February 2016, Section 35 of the Revenue Code has included a fine of Baht 2,000 for those corporate entities that did not submit their audited financial statements within 150 days from the closing date of the accounting period. When filing the corporate income tax returns in hard copy, the audited financial statements are required to be submitted together with the tax return. However, the previous regulation did not require the audited statements to be filed together with the tax return when filed online. The Notification on Income Tax (no. 297), dated 26 May 2017 has been issued to require that the audited financial statements be filed through the website of the Revenue Department (www.rd.go.th) or at the Revenue office within 150 days from the closing date of the accounting period in the case where the tax returns are filed online. This Notification is applicable for the accounting periods for which the last day for filing the audited financial statements is on or after 25 February 2016. Nevertheless, since internet system of the Revenue Department does not yet support the online submission, the Revenue Department has granted an extension for filing the audited financial statements for the accounting periods that have their last day for filing between 25 February 2016 and 6 June 2018 to 7 June 2018. In this case, the Baht 2,000 fine for late filing under Section 35 of the Revenue Code will not be imposed. 4.2 Certain funds no longer exempt from VAT, specific business tax and stamp duty (Royal Decrees nos. 608 610, Clarification of the Revenue Department no. 2, dated 17 May 2017) Royal Decrees nos. 608, 609 and 610 were published in the Royal Gazette on 24 May 2016 to revoke the exemptions from VAT, specific business tax and stamp duty of property funds, property funds for resolving financial institution problems, mutual funds for resolving financial institution problems, including property and loan funds, all of which have been established under the Securities and Exchange Law. The above Royal Decrees became effective on 24 May 2017. As a consequence, the above funds are subject to VAT, specific business tax and stamp duty from 24 May 2017. 4.3 Income recognition of subsidies obtained from government under concession agreements Subsidies obtained from the government by corporate entities for concessions under the Public Private Partnership agreement should be amortised as taxable income commencing from the date on which the cost of the concession is depreciated until the end of the agreement. This is according to the Instruction of the Revenue Department No. Taw Paw 279/2560, which became effective on 27 April 2017. Page 6 of 10

The following regulations have already been included in our Tax Insights A 50% additional tax deduction for investment in certain new assets (Tax Insight No. 15/2017). Deadline for filing annual corporate income tax returns for corporate entities that registered with the Revenue Department for the waiver of a tax audit (Tax Insight No. 13/2017). E-tax invoices and E-receipts (Tax Insight No. 16/2017). Page 7 of 10

Interesting Supreme Court case No. 6900/2559 Subject Whether retained earnings paid as part of a capital reduction should be treated as income from capital reduction under Section 40(4)(d) of the Revenue Code or as a dividend/share of profit under Section 40(4)(b). Facts Prior to entering into a capital reduction scheme, the taxpayer had a registered capital of Baht 200,000,000 and retained earnings of Baht 336,435,737. U Co was one of the taxpayer s shareholders with 1,720,000 shares, representing 86% of the total shares. In 2006, the taxpayer reduced its share capital twice but only for the portion of the shares held by U Co. The first capital reduction was for Baht 150,000,000, while the second was for Baht 22,000,000 (Baht 172,000,000 in total). The taxpayer returned to U Co the capital at the total net equity value of Baht 387,670,800 which comprised capital of Baht 172,000,000 and its proportion of the retained earnings of Baht 215,670,800. The taxpayer did not withhold any tax from the payment of the retained earnings of Baht 215,670,800 but U Co included this amount as income in its own corporate income tax return for 2006. Subsequently, the Revenue Department issued an assessment letter to the taxpayer for withholding tax on the payment of Baht 215,670,800 as it was considered to be a dividend to U Co. However, since U Co had already included this amount in its tax return, the taxpayer would only be liable for the surcharge under Section 27 of the Revenue Code. The Revenue Department s position The amount of Baht 215,670,800, which was paid from retained earnings according to the proportion of U Co s shareholding, should be treated as a dividend under Section 40(4) (b) subject to 10% withholding tax. However, since U Co had already included this amount in its tax return, the taxpayer was released from the withholding tax liability but would still be liable for the surcharge under Section 27. Taxpayer s position The taxpayer disagreed with the Revenue Department for the following reasons: The amount of Baht 215,670,800 was returned as part of the capital reduction and so it is treated as assessable income under section 40(4) (d) of the Revenue Code and not as a dividend. There was no resolution of a general meeting of the taxpayer to pay a dividend according to Section 1201 of the Civil and Commercial Code. In this case, the taxpayer paid Baht 215,670,800 only to U Co and not to any other shareholder. Supreme Court s decision The Supreme Court ruled that the amount of Baht 215,670,800 paid by the taxpayer to U Co was a share of profit under section 40(4)(b) and therefore subject to 10% withholding tax for the following reasons: Under the Sections 1224-1228 of the Civil and Commercial Code, a capital reduction would reduce the amount of share capital according to the Memorandum of Page 8 of 10

Association. Hence, the capital reduction could be paid out from the share capital only. Retained earnings are different from share capital since they represent the profit of the business. A distribution of retained earnings to shareholders has to be paid in the form of a dividend as stipulated in Sections 1200-1205 of the Civil and Commercial Code. In this case, the taxpayer returned capital of Baht 172,000,000 and retained earnings in the proportion of U Co s shareholding in the amount of Baht 215,670,800. This shows that the taxpayer intended to pay a share of profit to its shareholder even though there was no resolution of a general meeting to pay a dividend and to make an appropriation to the legal reserve according to Sections 1200 and 1202. Therefore, the amount of Baht 215,670,800 paid by the taxpayer to U Co was not income under section 40(4)(d) but was a share of profit under section 40(4)(b) subject to 10% withholding tax. Page 9 of 10

Contact us Tax Mergers and Acquisitions/ Tax Structuring Paul B.A. Stitt, Partner ext. 1119 Prema Ramachandra Rao, Associate Partner ext. 1156 Vanida Vasuwanichchanchai, Associate Partner ext. 1303 Orawan Phanitpojjamarn, Associate Partner ext. 1017 Tax Reporting & Strategy Somsak Anakkasela, Partner ext. 1253 Ornjira Tangwongyodying, Partner ext. 1118 Prapasiri Kositthanakorn, Partner ext. 1228 Indirect Tax Services Somsak Anakkasela, Partner ext. 1253 Ornjira Tangwongyodying, Partner ext. 1118 Thirapa Glinsukon, Associate Partner ext. 1318 Business Process Outsourcing Services Prapasiri Kositthanakorn, Partner ext. 1228 Somsak Anakkasela, Partner ext. 1253 Transfer Pricing Peerapat Poshyanonda, Partner ext. 1220 Janaiporn Khantasomboon, Partner ext. 1437 Niphan Srisukhumbowornchai, Partner ext. 1435 Tax Dispute Resolution Niphan Srisukhumbowornchai, Partner ext. 1435 Ornjira Tangwongyodying, Partner ext. 1118 Financial Services Orawan Fongasira, Partner ext. 1302 Ornjira Tangwongyodying, Partner ext. 1118 Legal Services/BOI Services Somboon Weerawutiwong, Lead Partner ext. 1247 Vunnipa ruamrangsri, Partner ext. 1284 Japanese Business Desk (JBD) Atsushi Uozumi, Partner ext. 1157 U.S. Tax Desk Thirapa Glinsukon, Associate Partner ext. 1318 Global Mobility Services Jiraporn Chongkamanont, Partner ext. 1189 Customs & Trade Paul Sumner, Partner ext. 1305 Nu To Van, Partner ext. 1353 15th Floor Bangkok City Tower, 179/74-80 South Sathorn Road, Bangkok 10120 Tel: +66 (0)2 844 1000 Fax: +66 (0)2 286 6666 Website: http://www.pwc.com/th Editor: Ornjira Tangwongyodying, Partner ext. 1118 E-mail: ornjira.tangwongyodying@th.pwc.com At PwC Thailand, our purpose is to build trust in society and solve important problems. We re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com/th. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. 2017 PwC. All rights reserved. PwC refers to the Thailand member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.