Thailand Entire Business Transfers Tax Free Cash Backs Plugged
One of the measures that was introduced after the 1997 Asian economic crash was the granting of tax exemptions to shareholders receiving benefits from a company that transferred its entire business to another. These exemptions were granted to corporate shareholders under Royal Decree (No 341) and individual shareholders under Ministerial Regulation No 215.
Whilst the words in Royal Decree (No 341) and the Ministerial Regulation No 215 are a little bit different to each other, the meaning is paraphrased as follows:
Income tax shall be exempted for a shareholder receiving benefits from a company transferring its entire business to another in accordance with the rules, procedures and conditions prescribed by the Director-General.
And whilst the Government's explanation was that this law was intended for the purposes of assisting companies to continue in business during the aftermath of the 1997 economic crisis, the intention was ignored, and Royal Decree (No 341) and Ministerial Regulation No 215 were used to structure a normal business sale as an Entire Business Transfer transaction in order to get tax-free cash back to the shareholders of the transferor (seller) company.
In September 2012, the Government plugged this loophole through the issue of Royal Decree (No 542) and Ministerial Regulation No 291, which repeal the afore mentioned Royal Decree (No 341) and Ministerial Regulation No 215 and replace the words therein with the following paraphrased meaning:
Income tax shall be exempted for a shareholder receiving benefits from a company transferring its entire business to another and receiving shares in the transferee in the same accounting period as the transfer of the entire business.
Thus, structuring a normal sale of a business as an Entire Business Transfer to get tax-free cash back to shareholders of the transferor company has been plugged.
Our Tax Insights and Updates are general information publications focusing on the laws for meeting tax compliance obligations, and tax rights and entitlements under the laws.