AEOI: Thai Tax Structuring

Thailand reinforced its commitment to the Automatic Exchange of Information (AEOI) by formally joining the Global Forum on Transparency and Exchange of Information for Tax Purposes in January 2017.

Targeted at eliminating money laundering and tax evasion, the AEOI facilitates the exchange of information on financial assets and mortgages between tax authorities. This includes information to uncover Base Erosion and Profit Shifting (BEPS). Also, having joined the Organization for Economic Cooperation and Development’s (OECD) inclusive framework on BEPS in June 2017, Thailand will collaborate with other tax authorities to implement the BEPS Action Plan.

MLI Minimum Standards

The Multilateral Instrument (MLI) will speed up the implementation of the BEPS Action Plan through changes to tax treaties globally. Over 70 countries are signatories, including Singapore, Japan, China, Hong Kong, UK, the Netherlands, Indonesia and Australia – countries with close trade relations with Thailand.

While Thailand was not a signatory, it remains committed to minimum standards as a member of the OECD’s BEPS inclusive framework through:

• Preventing the abuse of tax treaties.
• Country-by-Country Reporting, which will affect Thai multinationals with consolidated revenues of more than EUR 750 million.
• Improving taxpayer dispute resolution through mutual agreement procedures for disputes related to treaties.
• Fighting harmful tax practices by improving transparency.

Impact of Tax Law Changes

• Thailand’s tax law changes, which are reflective of its commitment to eliminating BEPS, will impact tax structures.
• The OECD’s MLI will affect changes in tax treaties globally.
• Thailand has unilaterally implemented certain international tax law changes, which should be taken into consideration.
• In view of the soon-to-be-implemented mandatory transfer pricing disclosures and Country-by-Country Reporting, it is important that transfer pricing documentation for related party domestic and cross-border transactions be updated.
• A proposed 20% corporate tax on foreign digital operators without a presence in Thailand and 15% withholding tax as well as VAT (at the current rate of 7%) on digital transactions. Corporates transacting with foreign digital operators should take this law into consideration.

As a result of the changes in tax laws and their interpretations, the following are examples of what may need to be reviewed to avoid increased taxation:

• From denial of tax treaty benefits.
• Due to possible taxation adjustments on all cross-border and domestic-related party transactions, it is recommended to document these as soon as possible.
• From disallowance of capital gains tax exemption for crossborder investments by companies deriving more than 50% of their value, directly or indirectly from real property within 365 days of share divestment.
• Of dividends from denial of tax treaty benefits if share ownership amounts and periods including the dividend payment date are not met.
• Through agents, activities and the method of contracting in a country digital transactions.
• From transparent entities (e.g. Partnerships).

With the rapid changes in Thai and international tax laws, finance, tax, legal and compliance functions of corporates with cross-border transactions in or from Thailand, should ensure their organisations are ready for any necessary action.

For further advice on streamlining your organisation’s tax structure in the wake of the Thai and International tax law changes, contact Baker Tilly Thailand (michael@bakertillythailand.com) or Baker Tilly TFW tax practice (yokeping@bakertilly.sg).

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