On 09 April 2018, Thailand's Supreme Court delivered its judgment on Case No 8943/2560 dismissing a foreign company's appeal against assessments of tax it received after a Revenue Department audit of its Entire Business Transfer, and agreeing with the Revenue Department's position.
This judgment affirms that, whilst for an Entire Business Transfer under Section 74(1)(c), which prescribes that the value of assets transferred shall be at market price, the prescription in Section 74(1)(b) actually does apply mutatis mutandis, and a transferee company shall only carry assets transferred at the same value appearing in the books of the transferor company. That is, if there's a transfer of assets in excess of the value appearing in the books of the transferor company, such as “goodwill”, this does not qualify for the Revenue Code's exemption from Corporate Income Tax for Entire Business Transfer transactions. This Tax Insight has been updated to reflect this judgment of the Supreme Court.
The Transaction
An Entire Business Transfer is carried out by one or more companies transferring their entire business assets, liabilities, rights and obligations to another company under a sale and purchase of business agreement, then dissolving and entering into liquidation in the same accounting period as the transfer of business.
The Tax Treatment
For an Entire Business Transfer transaction, Thailand's tax laws prescribe:
For the shareholders of transferor companies transferring their entire business to a transferee company
Exemption from income tax, but only for shareholders who receive shares in the transferee company for the shares in the transferor company (1)
For transferor companies transferring their assets, liabilities, rights and obligations to a transferee company
Exemption from corporate income tax, but only for transfers at the same value appearing in the books of the transferor company (2)
For transferor companies transferring their movable assets to a transferee company
Exemption from value added tax
For transferor companies transferring their immovable assets to a transferee company
Exemption from specific business tax
For the executing of instruments that are required for the EBT transaction
Exemption from stamp duty tax
(1) As amended by Ministerial Regulation No 291 issued on 06 Sep 2012, and Royal Decree (No 542) issued on 10 Sep 2012 (2) As per the judgment of Supreme Court Case No 8943/2560 read on 9 April 2018
The Revenue Department's Conditions
The conditions prescribed by the Director-General of Revenue are as follows:
The transferor and transferee companies shall be public companies or private companies incorporated under Thai law;
The transferor and transferee companies shall not owe the Revenue Dept any arrears of taxes on the date of the entire business transfer, unless a bank guarantee or other collateral is provided for the arrears of taxes;
The transferee company shall file a notification with the Revenue Dept informing details of the entire business transfer within 30 days of the transaction; and
The transferor companies shall register for dissolution and enter into liquidation in the same accounting period as the business transfer.
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