International Tax Trends
The Thai government’s focus on cross-border transactions is only expected to increase, in line with global tax trends currently taking shape. The Thai government has re-negotiated its tax treaties with both India and Singapore, both of which become effective on 1 January 2017.
While the new tax treaties include a number of changes, the most notable, perhaps, are their inclusion of the concept of “beneficial owner”. This inclusion is similar to many recent international tax treaties that focus on the “beneficial owner”, as opposed to merely the recipient of income, as a means to combat tax treaty shopping, that is, when a person who is not ultimately entitled to the income is still able to exploit tax treaty benefits.
The Organisation for Economic Co-operation and Development’s (“OECD”) original Action Plan on Base Erosion and Profit Shifting (“BEPS”) is complete, and the G20 endorsed the final BEPS deliverables released in October 2015.
The OECD is now putting in place mechanisms to monitor the implementation of the BEPS minimum standards for items requiring universal implementation. While the European Union (“EU”) and some countries in the Asia-Pacific region are taking the lead with efforts to harmonize BEPS implementation, many other Asia Pacific countries, including Thailand, are being influenced by the profound international taxation changes that are underway.
Transfer pricing legislation and, potentially, interest deductibility limitations and controlled foreign company rules are some of the key impacts that are expected to be seen in Thailand in the near future as a result of the BEPS developments.
One of the BEPS Action Plan’s key focus areas is the strengthening of transfer pricing regulations (Action 13). Under Action 13, the OECD recommends a three-tiered approach to documentation that includes preparing a master file, a local file and country-by-country reports.
The master file contains standardized information relevant for the multinational enterprise group, while the local file provides additional details about the operations and transactions relevant to that jurisdiction and the economic analyses of the inter-company transactions.
Finally, the country-by-country reports contain summarized data by jurisdiction, including revenue, income, taxes, and indicators of economic activity. Recently, Thai listed entities with multinational operations have been keen to understand how Action 13 might affect them so we have seen a marked increase in requests for guidance about the implementation of and preparation of master files, local files and country by country reporting.
Because Thailand’s engagement in the ASEAN Economic Community (“AEC”) offers Thai businesses opportunities in the form of a huge market and resources, it will also likely stimulate many firms’ international focus. Whilst the AEC is set to achieve the free flow of goods, services, and investment, there should be no impact on direct or indirect taxation, as each country within the AEC will continue to administer taxation on a jurisdictional basis.
However, Thai investors will still likely need the support of the Thai Government to help eliminate non-tariff barriers imposed by foreign governments, such as stiffer VAT for goods imported from Thailand and deterrents at port facilities, among others.
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