Thailand Divorce Tax Planning Scheme
Tax Insight | September 2012
Back in March 2010, we alerted foreigners to the Thailand Supreme Court's ruling against the popular divorce tax planning scheme in Thailand whereby husbands and wives divorce at the end of a financial year and re-marry at the beginning of the next financial year.
This divorce tax planning scheme attempts to exploit the tax law, which prescribes, in the case of husbands and wives being married for an entire year, husbands shall include the income of wives in their personal income 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 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.
However, in 2010 the Supreme Court ruled against one particular divorcing husband's tax planning scheme, prescribing it to be “fictitious”, and holding the divorcing husband liable for the tax assessments issued for additional tax, penalty and surcharge.
But later, the aggrieved husband took up the matter with the Ombudsman, who in July 2010 referred the issue to 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 prescribing that husbands shall include their wives incomes in their personal income tax returns) contravened the principle of equality in Section 30 of the Constitution of Thailand BE 2550, which states as follows:
“All persons are equal before the law and shall enjoy equal protection under the law; and men and women shall enjoy equal rights.”
On 4 July 2012, the Constitutional Court issued its Ruling, prescribing that Sections 57 ter and 57 quinque of the Revenue Code do in fact contravene Section 30 of the Constitution, and following that, on 19 September 2012 the Revenue Department issued the following notice:
Constitutional Court Ruling No 17/2555 dated 4 July 2012 is a ruling under the current BE 2550 Constitution. The previous Constitutional Court Ruling (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 of equality under that Constitution.
The Revenue Department’s view is that Sections 57 ter and 57 quinque of the Revenue Code contravene the principle of equality under the current Constitution only, and only from the date of the current Ruling (4 July 2012). Prior to that date, the previous Ruling dated 12 September 2002 is the operative Ruling.
Whilst the Revenue Code won’t be amended in time, the Revenue Department wishes to clarify that from and including the current 2012 financial year, husbands and wives are permitted to file their own personal income tax returns for their own incomes only, 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 is a general information Tax Insight Article only. It should not be used to determine any matter without consulting with an experienced Thailand tax advisor.