Corporate income tax : Tax deductions
In Tax News Flash, Issue 5, we discussed the regulations issued by the Director-General in May 2016, specifically Royal Decree No 604 and the associated Notification, which aimed to promote and incentivize capital spending on certain eligible assets, provided the expenditure in respect of such assets is incurred during the period 3 November 2015 – 31 December 2016.  Recently, a Royal Decree (No 622) was issued amending the May regulations.  This article explains these amendments, as well as discusses some uncertainty as to whether the benefit of additional tax deductions is available in respect of “finance leasing” and “hire-purchase” arrangements.
The key amendment in Royal Decree No 622 relates to the requirement for the asset to be ready for use before 31 December 2016.  Specifically, this requirement no longer applies to machinery and permanent buildings.  That is, even if these assets are ready for use after 31 December 2016, the additional tax deduction will still be available, provided the expenditure is incurred during the period 3 November 2015 – 31 December 2016 and, in the case of a permanent building, the application for construction license is submitted by 31 December 2016.  It should be noted that this amendment does not apply to any assets other than machinery and permanent buildings.
While the capital expenditure must be incurred by the end of the year, the amendment provides some flexibility to taxpayers in terms of installation of machinery and completion of construction.  Should you require any specific advice on whether you may benefit from the additional tax deduction incentive, please contact us for assistance.
Following the issuance of Royal Decree No 604, there has been some uncertainty as to whether the additional tax deductions will apply to “finance leasing” and “hire-purchase” arrangements.
On 16 August 2017, the Thai Revenue Department issued a tax ruling in response to the Thai Hire-Purchase Association’s request for clarity on the application of Royal Decree No 604.  More specifically, the question was asked whether a company carrying on the business of leasing assets, where tax depreciation is claimed by the lessor, would be entitled to the benefit under Royal Decree No 604.  The ruling did not distinguish between an operating lease or a finance lease. The question was also asked whether the recipient under a “hire-purchase” contract would qualify once the final instalment in respect of the purchase of the asset is made.  The Thai Revenue Department concluded positively on both of these questions and confirmed that the companies would be entitled to benefit under Royal Decree No 604, provided the remaining requirements under the Royal Decree have been met.
We understand that taxpayers engaged in finance lease arrangements are still, however, concerned as to whether the additional deduction is available to them.  Based on the wording in Royal Decree No 604 and the recent ruling, it appears that there is no distinction between operating or finance leases and the additional deduction should be available if the requirements are met. However, there is said to be differing views among Revenue Officers on whether the ruling issued in respect of lease arrangements should include a finance lease and whether this ruling will be consistently applied by the Revenue Officers when auditing taxpayers.  Should you wish to discuss your specific circumstances, please contact us for assistance.
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