Thailand Entire Business Transfer Tax Exemptions Continue
Vichit Vatcharanukul | February 2014
When Royal Decree (No 542) was issued in September 2012, it did not stop the tax exemptions for Entire Business Transfers, and the EBT tax exemptions continue as the Government had always intended.
The only thing the Government did in September 2012 was to close the loophole of utilizing the EBT tax exemption laws for a normal sale of a business in order for the shareholders of the transferor companies to get tax-free distributions from the transferor companies.
In November 2008, when the economic crisis was impacting Thailand and many companies were undertaking M&A transactions for the purposes of reorganizing the business operations for enhancing efficiency, I issued a memorandum to my Revenue Department lawyer colleagues explaining the tax exemptions.
Royal Decree (No 542) has not changed anything in my Nov 2008 memorandum and for clarifying Thailand taxation of EBTs, I reproduce it, as follows:
1. Tax Exemptions Pursuant to the Government's introduction of tax exemptions in 1998 for assisting companies with their organizational restructurings, Royal Decrees and Ministerial Regulations were issued for exemptions from Specific Business Tax and Stamp Duty Tax for companies and also exemption from Income Tax for shareholders of companies that were undertaking mergers or entire business transfers. The Royal Decrees and Ministerial Regulations did not have to grant exemptions from VAT or Corporate Income Tax because those exemptions are already in the Revenue Code laws, as follows:
For VAT, Revenue Code Section 77/1(8)(f) prescribes that a transfer of assets under a Merger or EBT is not a "sale", and therefore, is exempt from VAT.
For Corporate Tax, Revenue Code Section 74 prescribes that profit or loss from a Merger or EBT is not profit or loss for corporate tax purposes. This is discussed in more detail below.
2. Rules, Procedures and Conditions For entitlement to the tax exemptions for mergers and entire business transfers, taxpayers are required to comply with the rules, procedures and conditions laid out in the Notification on Mergers and Entire Business Transfers, and required to notify their details to the Revenue Department within 30 days.
3. Revenue Department Tax Considerations Specific Business Tax exemption is granted for transfers of immovable property and Stamp Duty Tax exemption is granted for instruments, which are executed under mergers and entire business transfers. These SBT and SDT exemptions are not a problem for tax consideration.
For Shareholder Income Tax exemption, a shareholder of a merged company is exempt from Income Tax on any benefits received in excess of the investment in the merged company. This is also not a problem for tax consideration.
But if a shareholder of a transferor company under an entire business transfer does not become a shareholder in the transferee company, like under a merger whereby shareholders of the merging companies become shareholders of the merged company, then a shareholder of a transferor company is not entitled to Income Tax exemption.
Even though a transferor company liquidates, the money a shareholder receives are benefits derived from liquidation that is not entitled to Income Tax exemption under the EBT exemptions. However, if it can be proved a shareholder under an EBT is similar to a shareholder under a merger, then a shareholder under an EBT may be entitled to Income Tax exemption.
4. Corporate Tax Exemption As mentioned, the 1998 Royal Decrees and Ministerial Regulations did not grant Corporate Tax exemption for mergers and entire business transfers because this exemption is already provided in the Revenue Code. According to Section 74(1)(b) which prescribes the method of computing net profit for merger transactions, the value of properties shall be taken at the market price on the date of merger, but such price shall not be treated as income or expense for computing net profit or loss when the merged company carries the value of properties at the same value appearing in the books of accounts of the original companies.
Therefore, for a merger transaction, Corporate Tax is exempt and this also applies for an entire business transfer mutatis mutandis under Section 74(1)(c).
For mergers and entire business transfers, only the portions of reserves and net profits brought forward from previous years, which have not been subject to tax, and the portions of reserves and net profits set aside in previous fiscal years by insurance companies under Section 65 ter(1) shall be included for computing net profit or loss under Sections 74(2) and (3).
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