On 16 May 2016, Thailand's Supreme Court read its judgment on Case No 15345/2558, dismissing a BOI-promoted company's arguments against assessments of tax it received from the Revenue Department and agreeing with the Revenue Department's arguments.
This Supreme Court ruling affirms that whilst the Investment Promotion Act prescribed an exemption from tax for Board of Investment promoted projects, this prescription does not override the Revenue Code's law for the method of computation of tax for companies with BOI promoted projects and therefore the Revenue Department's Notification and Board of Taxation's Ruling (as described below) prevail.
Revenue Department Notification and Board of Taxation Ruling
Back in 1987, Thailand's Revenue Department issued Notification dated 5 February 2530 prescribing that the 'one entity concept' shall apply to Board of Investment (BOI) promoted projects for the purpose of a company computing its corporate tax exemptions for its BOI-promoted projects.
That is, in the case of a company having a BOI-promoted project, the company is required to combine the profits/losses of all its BOI projects with those of its non-BOI businesses, which combined profit/loss (i.e. profit/loss for the one entity) shall be the profit/loss for the purpose of computing corporate income tax exemptions for the BOI projects.
But for 20 years, the Revenue Dept didn't enforce this Notification, because shortly after its issue, the BOI referred the matter to the Council of State, which issued the opinion that the Notification was contrary to the prescription in Section 31 of the Investment Promotion Act, which prescribes exemption from corporate tax for each individual BOI-promoted project.
Not resting however, in 2008 the Revenue Department referred it to the Board of Taxation, which issued Ruling No 38 dated 13 February 2552 that as the Revenue Code subjects a company to corporate tax as a single entity, a company must combine its profits/losses from its BOI-promoted projects with its profits/losses from its non-BOI businesses (that is, agreeing with the Revenue Department's position).
And whilst shortly thereafter, the BOI again referred the matter to the Council of State, that again issued its opinion in favor of the BOI, this time, with the Board of Taxation's backing, the Revenue Department started to enforce its Notification.
If you are a company with a BOI-promoted project, Sherrings should like you to note that the Council of State's opinion cannot be used to mitigate any corporate income tax liability that may be imposed by the Revenue Department under its Notification dated 5 February 2520.
That Notification requires a company with a BOI-promoted project to compute tax by:
Combining the profits/losses of all BOI-promoted projects with the profits/losses of all non-BOI businesses to arrive at a total combined profit/loss for the corporate entity;
Calculate the amount of corporate tax payable on the total combined profit/loss for the corporate entity;
Apportion the amount of corporate tax payable on the total combined profit/loss for the corporate entity to the BOI-promoted projects and the non-BOI businesses; and then
Subtract the apportioned corporate tax payable on the BOI-promoted projects from the corporate tax payable on the total combined profit/loss for the corporate entity.
This Tax Insight is general information only. It should not be used to determine any particular matter without consulting with your knowledgeable Thailand tax advisor.