Thailand Divorce Tax Planning Scheme
Tax Insight | September 2012
On 19 Sept 2012, the Revenue Department announced that, from and including the 2012 tax year, husbands and wives are now permitted to file their own personal tax returns for their own incomes, and husbands were no longer required to include their wives' incomes in their personal tax returns, and thereby announcing the end of the divorce tax planning scheme.
The divorce tax planning scheme exploited the tax law, which prescribed, in the case of husbands and wives being married for an entire year, husbands shall include the income of wives in their personal tax returns (except for the employment income of wives, for which wives can opt to file a separate personal tax return in their own names).
A long time ago, it became known to husbands with wealthy wives that if they divorced at the end of a financial year and re-married at the beginning of the next financial year then the husband could escape tax on the wealthy wife's income for both the year of divorce and the year of re-marriage, and the divorce tax planning scheme thus became very popular in Thailand.
In July 2010, after the Supreme Court ruled against a particular husband's divorce tax planning scheme, prescribing it to be “fictitious” and holding the divorcing husband liable for the personal income tax assessments issued for additional tax, penalty and surcharge, the aggrieved husband took up the matter with the Ombudsman and the Constitutional Court.
The Constitutional Court was required to determine whether or not, Sections 57 ter and 57 quinque of the Revenue Code (the Sections of the tax law that require husbands to include their wives' incomes in their personal tax returns) contravened the principle of equality in Section 30 of the Constitution of Thailand BE 2550, which states that “All persons are equal before the law and shall enjoy equal protection under the law; and men and women shall enjoy equal rights.”
Two years later, on 4 July 2012, the Constitutional Court ruled that the Sections 57 ter and 57 quinque of the Revenue Code (the Sections of the tax law that require husbands to include their wives' incomes in their tax returns) do in fact contravene the principle of equality in Section 30 of the Constitution.
Following that, on 19 September 2012 the Revenue Department issued the following notice:
The Constitutional Court's Ruling No 17/2555 dated 4 July 2012 is a ruling under the current BE 2550 Constitution. The previous Constitutional Court's Ruling on this matter (Ruling No 48/2545 dated 12 September 2002), which is a ruling under the previous BE 2540 Constitution, ruled that Sections 57 ter and 57 quinque of the Revenue Code did not contravene the principle in that previous Constitution.
The Revenue Department’s view is that Sections 57 ter and 57 quinque of the Revenue Code contravene the principle of equality in the current Constitution only, and only from the date of the current Ruling (4 July 2012). Prior to that, the previous Ruling dated 12 September 2002 is the operative Ruling.
Whilst the Revenue Code won't be amended in time, the Revenue Department clarifies that, from and including the current 2012 tax year, husbands and wives are permitted to file their own personal income tax returns for their own incomes, and husbands are no longer required to include their wives incomes in their tax returns.
Accordingly, there is now no need to spend your new year holiday going through the ritual of divorcing and re-marrying your wealthy wife!
This Tax Insight is general information only. It should not be used to determine any particular matter without consulting with an experienced Thailand tax advisor.