Thailand Foreign Tax Credit Audits
Tax Insight | January 2014
Thailand resident companies are subject to Thailand corporate income tax on income that is earned from other countries, either from carrying on business in other countries or from provision of services to a company in other countries, and relief from double taxation (i.e. payment of tax in other countries and also in Thailand) is granted in the form of tax credits for the payment of tax in the other country. These foreign tax credits are allowed to a Thai company under the following Royal Decree laws:
Under Royal Decree (No 18), tax paid in a foreign country is allowed as a credit against the Thai tax payable “in respect of that income” (Article 23 of the double tax treaties).
Under Royal Decree (No 300), tax paid in a foreign country is allowed as a credit against the Thai tax payable “in the accounting year in which the income is earned" (Clause 10 of Director-General's Notification on Income Tax No 65 issued under Royal Decree No 300).
But despite these prescriptions in the two Thai tax laws, many Revenue audit officers think that the credit cannot be claimed until the tax has actually been paid in the foreign country.
One Thailand company earned royalty income from the provision of services to a company established under the laws of a foreign country in the year 2012, but withholding tax paid in the foreign country on that income was not paid until the 2013 year. The Revenue Dept tax lawyers, in Tax Ruling No Gor Khor 0702/8746 dated 7 October 2556, ruled that:
“As a company established under the laws of Thailand, the Company must account for the royalty income from the provision of information technology services to the company established under the laws of a foreign country according to the accruals basis, which requires the Company to include royalty income earned in the 2012 year in its corporate tax return for the 2012 year. If the Company did not claim a foreign tax credit for the tax paid on the royalty income in the 2012 year because the tax wasn't paid until the 2013 year, and if the Company has already filed its corporate income tax return for the 2012 year, the Company is required to file an additional corporate income tax return for the 2012 year for claiming the tax paid in the foreign country in the 2013 year as a tax credit in the 2012 year corporate income tax return as it is prescribed in the Director-General’s Notification on Income Tax (No 65) dated 15 November 2539.”
An excellent tax ruling to help you defend your case against Revenue audit officers who do not want to allow your foreign tax credit claim because the tax was paid in a different year!
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.