Thailand Branch Office Profits Remittance Withholding Tax
Section 70 bis of the Thailand corporate tax law prescribes that a corporate entity, which disposes profits out of Thailand shall be subject to Thailand profits remittance withholding tax, and Ministerial Notification dated 24 July 2544 prescribes that the profits remittance withholding tax shall be paid to the local Revenue office within 7 days after the end of the month of disposal.
But despite the tax law prescription that the withholding tax shall be remitted to the Thailand Revenue Department within 7 days after the end of the month of disposal, the practice of tax accountants for branch offices in Thailand is to remit the tax within 7 days after the month of filing the branch office's year-end corporate income tax return.
In 2016, the Supreme Court delivered it's judgement on Case No 13986/2558, concerning this matter. The Thailand Revenue Department's tax audit officers challenged the Thai tax accountants' practice for the foreign company's branch office, and following the company's referral of the matter to the Board of Appeals, the Central Tax Court and then the Supreme Court, the Supreme Court's decision was as follows:
Supreme Court Case No 13986/2558
The Thailand branch office of a US company carries on a business of providing drilling and surveying services to customers who are oil and gas exploration and production companies in Thailand. The US company’s contracts with the customers require the customers to pay their services fees net of withholding tax directly to the head office of the company in the US.
During the 2002 financial year, customers made various payments directly to the company's head office in the US. On 31 May 2004, the branch office in Thailand filed its 2002 year-end corporate income tax return, disclosing a net profit of 600 million Baht; a corporate income tax liability of 180 million Baht; and a net profit after tax of 420 million Baht.
On the same date of 31 May 2004, the branch office in Thailand also filed a withholding tax return for the 2002 financial year, disclosing profit remittances of 420 million Baht, a profits remittance withholding tax liability of 42 million Baht, and a late payment surcharge liability for the period from 7 June 2003 to 31 May 2004.
The Revenue Department's tax audit officers did not accept the branch office's late payment surcharge liability was only for the period of 7 June 2003 to 31 May 2004, and they issued an assessment for additional surcharge on the basis that the branch's profits were remitted out of Thailand at the time the customers made their payments directly to the head office of the company in the US, because the payments included not only the service fee amount but a portion of the profit amount as well, and so, the branch office had a duty under Section 70 bis of the Revenue Code to remit the withholding tax to the Revenue Department within the period of 7 days after the end of the month in which each customer's payment was made.
The Supreme Court agreed with the Revenue Department that at each time the customers made their services fees payments to the head office of the company in the US, the branch office in Thailand is deemed to be remitting profit out of Thailand, and ruled that the branch office had a duty to remit withholding tax under Section 70 bis of the Revenue Code within 7 days after the end of the month in which the customers paid their services fees to the head office of the company in the US.
And, whilst the Court disagreed with the Revenue Department’s method of calculating the additional surcharge amount payable by the branch office and re-calculated what should be the additional surcharge amount, the Court ruled that for cases when an exact profit amount is not known at the time of remittance of profit out of Thailand, withholding tax returns should be filed and paid on an estimated profit remittance amount within 7 days after the end of the month of each remittance, and at year end, either additional withholding tax has to be paid if there is a shortage or a tax refund has to be filed if excess withholding tax has been paid.
Whilst Thailand's civil law system does not recognize the common law principle of binding judicial precedents, you can be fairly sure the Revenue Department's tax audit officers will apply this Supreme Court Ruling to any branch offices that are following the Thai practice rather than the Thai law. This Supreme Court case also emphasizes two fundamentals of Thai tax compliance that Sherrings has been advising for a long time ... always follow the law, not the practice in Thailand ... and never file a corporate tax return late in Thailand!
This Tax Insight Article is general information only. It should not be used to determine any matter without consulting with an experienced Thailand tax advisor.