|
|
| • EXCH RATES |
|
Baht/$ 34.88/92 (Bid/Ask)
|
GOLD |
12500
+50
|
|
Tax CORNER
LAWALLIANCE LIMITED
'Change" has been the buzzword of the year with the rise of Barack Obama. Even the website of the Revenue Department notes a series of changes in the Thai tax system. Don't expect the local taxman to be overly generous, though. In the midst of a global economic recession and given the tight government budget, relaxation of tax treatment is unlikely. In fact, it is time to squeeze more taxes from taxpayers.
It has been a practice that if a Thai holding company holds shares in a non-listed company, the determination of share value for capital-gains tax purposes is based on either the selling price or the book value of the sold shares, whichever is the greater. Now it seems that this longstanding rule has been changed.
In the most recent case, a Thai holding company held all the shares in a second holding company in a foreign country. This second holding company in turn held almost all the shares in a third holding company, which held the majority of shares in an operating company listed on a foreign stock exchange.
Subsequently, the Thai holding company transferred all the shares it had held in the second holding company to one of its foreign affiliates, wholly owned by itself, at the book value of the second holding company. The sale at book value resulted in capital gains to the Thai holding company and was subject to corporate income tax, even if such a transfer had no impact on the financial statement due to the consolidation requirement under accounting principles.
It is a pity that things got turned upside-down. Without hesitation, the Revenue Department claimed that the transfer of the shares, from the Thai holding company to its own foreign affiliate must have reflected the market value of such assets. Absent the market value of the second holding company's shares, the Revenue Department required the Thai holding company to apply the price of the underlying shares being traded in the foreign stock exchange on the date of the transfer as if it were the fair market value of the second holding company's shares instead.
The reason for the change is that since the underlying assets were shares traded on a foreign stock exchange where their market price could be determined, the same should have been reflected in the transfer price of the second holding company's shares in proportion despite the fact that the financial statements of the second holding company did not mark-to-market the market price of the underlying shares.
This ruling creates a number of concerns in practice. It means that, from now on, if you wish to transfer shares of a holding company investing in another company that invests in another company, you need to take into account the value of the underlying assets in all tiers. If the last tier of the investment happens to be listed on a stock exchange anywhere in the world, it is presumed that you can determine the deemed market price of your own shares being transferred.
This issue could become more problematic if the holding company invests in many layers of shareholding, listed and non-listed, as the determination of the ultimate share value may not be that easy.
It is understandable that the Revenue Department has applied the transfer-pricing rule to the case. Keep in mind that this case did not take into account commercial reasons that it may constitute a justifiable grounds for transferring the shares at the book value, e.g. a group restructuring, which is an excuse for a transfer below the market price. Thus, if you can prove such justification in your specific case, the share transfer at a low price will not give rise to any imputed income for tax purposes.
It is worth noting that the tax systems of some developed countries provide a tax-free transfer within the group company. The group relief may be in the form of an intra-group transfer tax exemption. Even if the tax exemption is not granted, neither a gain nor a loss will be recognised for tax purposes until the asset is disposed of outside the group or until the transferee company leaves the group. Obviously, the group relief should override the rigid transfer pricing rule and this is something that Thai tax authorities should take into account in developing the tax system.
Prepared by Thanasak Chanyapoon and Piphob Veraphong. They can be reached at 0-2651-5490 or admin@lawalliance.co.th
Prev
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Next
