The Finance Ministry is conducting a study of the pros and cons of allowing subsidiaries that are situated in different geographic locations to separately pay corporate income tax to the areas where they are domiciled to make it more difficult to avoid tax payment.
The study comes after the World Bank proposed that each country improve its tax collection efficiency by requiring each subsidiary company to pay its own tax directly to locations where they are sited to beef up tax collection performance.
Allowing subsidiaries that operate in different countries to adopt separation of tax payment would help prevent tax avoidance, said Deputy Finance Minister Wisudhi Srisuphan.
The Revenue Department permits companies with multiple subsidiaries and locations to consolidate tax payment, unlike several countries that require every company to pay tax based on location.
With the tax consolidation treatment, a company with 10 subsidiaries located in five provinces could exploit tax-loss relief, giving the group no tax liability because half of its subsidiaries are in the red.
Moreover, some companies could carry forward tax losses for several years to reduce tax expense.
In another example, a company has two subsidiaries: one recorded a net profit of 2 billion baht and another had a net loss of 1.5 billion. The company could pay income tax based on only the 500-million-baht profit when the tax payment is consolidated.
With the separate tax payment system, the loss-making firm is not a tax liability, while the profit-making company is subject to tax payment.
Mr Wisudhi said Thailand's tax system encourages operators to manage tax by using a transfer pricing approach among subsidiaries to distort taxable income and pay as low a rate as possible.