Interview: Andrew Jackomos and Paul Ashburn
How does Thailand’s corporate tax policy compare to other ASEAN countries?
ANDREW JACKOMOS: The blueprint for the ASEAN Economic Community does not contain action points to harmonise tax policies. Therefore, member nations may use tax policies to compete for investment and trade within the bloc. A good example of this is the downward trend in corporate tax rates over recent years as countries seek to improve their competitiveness. Thailand slashed its headline corporate tax rate from 30% to 23% in 2012 before further reducing it to 20%. Apart from Singapore, Thailand now has the lowest corporate tax in ASEAN and looks set to maintain its headline corporate tax rate at 20% for the foreseeable future. What incentives are offered to companies that set up a regional office in Thailand?
ASHBURN: To promote the country as a regional trade and investment centre, tax incentives were introduced in 2015 for firms that establish their headquarters in Thailand. First, international headquarters (IHQs) can receive a corporate tax exemption for 15 accounting periods on qualifying revenue from offshore associated companies, including capital gains. They can also receive a reduced 10% corporate income tax rate on income from managerial, technical, supporting or financial management services provided to associated enterprises under Thai laws, or royalties from these organisations. Second, there is a tax exemption on dividends (paid by IHQs to foreign corporate shareholders not conducting business in Thailand) or interest on loans taken out by an IHQ to relend to associated enterprises under financial management (also to be paid to a company or juristic partnership established under foreign laws not conducting business in the country). Lastly, expatriates working in IHQs pay a flat 15% personal income tax rate. Firms must apply to the Thai Revenue Department to access these incentives, and the Board of Investment offers other attractive non-tax benefits.
What are some of the results you anticipate from Thailand joining the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS)?
JACKOMOS: The BEPS initiatives were conceptualised in 2013 and will result in the most significant rewrite of international tax rules in a century. A guiding principle is that profits should be taxed where the economic activities generating profits are performed and where value is created. Thai transfer-pricing legislation was previously drafted to address the pricing of related party transactions for tax purposes – and prevent companies from artificially shifting profits from one country to another – but no actual laws came to fruition. By joining the Inclusive Framework on BEPS, Thailand is showing its commitment to strengthening its transfer-pricing rules to adhere to international tax standards.
Pursuant to BEPS Action 13, multinational enterprises (MNEs) will be required to provide tax administrations with high-level information regarding their global business operations and transfer-pricing policies in a master file that will be available to all relevant tax authorities. Furthermore, it requires that detailed transactional transfer-pricing documentation be provided in a local file specific to each country. The enterprises must provide material related to party transactions, the amounts involved in those transactions and the company’s analysis of the transfer-pricing determinations they have made relating to those transactions.
Thailand has also made a key commitment to implement country-by-country reporting for MNEs that generate annual consolidated revenue equal to or greater than €750m. This will provide the authorities of various jurisdictions with breakdowns of related party revenue, profits before income tax, income tax paid and accrued, the number of employees at a given firm, tangible assets and other indicators of economic activities in large groups of MNEs. Country-by-country reports are to be disseminated through an automatic government-to-government exchange mechanism.
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