Thailand and the OECD’s Base Erosion and Profit Shifting

Base erosion and profit shifting (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity. Through the OECD’s BEPS Inclusive Framework, of which Thailand is a member, over 100 countries and jurisdictions are collaborating to implement BEPS measures.

Executive Summary

OECD BEPS is the most significant change to international tax law ever. Taxpayers should consider and plan for both domestic and cross-border tax law changes and interpretations, such that there are no adverse tax outcomes to their operations or structures and to ensure they are fulfilling any reporting requirements.

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Transfer Pricing in Thailand

So how does and will the OECD’s BEPS affect taxation in Thailand?

Thailand has joined the OECD’s Inclusive Framework. This means that it is committed to implementing, at least, the following OECD BEPS measures:

• Prevention of abuse of Tax Treaties,
• Country by Country reporting of activities, financial information and taxation for transfer pricing purposes,
• Improving taxpayer dispute resolution, and
• Fighting harmful tax practices.

Transfer Pricing

In terms of BEPS actions, Thailand has agreed to implement Country by Country Reporting through a template requiring multinationals to report annually and for each tax jurisdiction in which they do business, certain information such as tax paid, activities and financial information. Further, Thailand has introduced draft legislation for mandatory reporting of Transfer Pricing with the filing of Corporate income tax returns. Refer our separate technical summary “Transfer Pricing in Thailand” for further details.

Thai Tax Incentives

The OECD BEPS program identified that tax incentives granted by governments can be harmful tax practices as they can allow profit shifting of income to tax incentivized, low tax countries and can lack transparency. Accordingly, to avoid OECD “blacklisting”, Thailand has agreed to amend the International headquarters, Regional operating headquarters and Treasury center incentives as well as either eliminate or amend the International banking facilities and International trade center incentives.

Our advice for corporates with these incentives or considering applying for such incentives is to carry on business as usual and then assess and plan for the changes as and when they are announced. It is currently unclear as to whether the incentives already granted will be protected from any future amendments.

Thailand’s E-Commerce Tax

The OECD BEPS’s action 1 has resulted in jurisdictions acting unilaterally in implementing destination taxation rights as espoused by the OECD and in order to “level the playing field” for domestic e-commerce operators.

The second draft of the legislation requires a foreign operator that provides services used in Thailand (irrespective of the residency of the consumer) through electronic media to a non-VAT registered person to register and pay VAT if its annual VAT-able income exceed the registration threshold of 1.8 million Baht.

Transactions with VAT-registered customers are already subject to self-assessment VAT such that the new law may only be applicable to B2C transactions. Refer our separate technical summary “Thailand’s E-Commerce Tax” for further details.

Multilateral Tax Treaty Instrument

Whilst Thailand has not currently committed to implementing the Multilateral Tax Treaty Instrument (MLI), Thailand will be impacted as many of Thailand’s trading partners have elected to implement the MLI. Thailand has also committed to the prevention of abuse of tax treaties, so it is possible the MLI will have a direct impact in Thailand, where Thailand may choose to implement sections of the MLI or BEPS treaty abuse actions in its tax treaty negotiations.

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Managing Revenue Department Audits in Thailand

Principal Purpose Test

A treaty benefit will not be granted if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction (subjective test), unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty (objective test). This means that in the future where multinationals may seek to receive Tax treaty benefits the revenue authorities may apply this test before allowing any tax treaty benefits.

Tax Law Change in Thailand

It is important to note that taxpayers should prepare for any tax law changes in Thailand whether they are related to the OECD BEPS project or otherwise and are in compliance with the new laws to avoid any adverse outcomes such as through a Thai Revenue Department Audit.  Refer our separate technical summary “Dealing with Revenue Department Reviews and Audits in Thailand” for further details.

About JNP Legal

Michael Anastasia has over fifteen years’ experience in taxation law in the Asia Pacific region and has been practising in Thailand since 2010. Currently working as Partner, Tax and Consulting at JNP Legal, he is a fully qualified CA with Chartered Accountants, Australia and New Zealand. He can be contacted at Michael@jnplegalthailand.com

JNP Legal is an international law firm based in Bangkok that offers professional and personal commercial law services to locals and expatriates both in Thailand and abroad. Specializing in corporate and commercial Law, their dedicated team assists companies and individuals with a number of key legal consultancy services. JNP Legal is a member of Dezan Shira & Associates’ Asian Alliance.

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