Thailand Franchisee Advertising Withholding Tax
Tax Insight | February 2010
Pursuant to the provisions of Section 70 of Thailand’s tax code and Article 12 of Thailand’s double tax agreements, just about all amounts paid (other than for purchases of goods) by a franchisee in Thailand to a franchisor in a foreign company could be subject to 15% withholding tax.
A Thailand franchisee is also required to make a 7% "reverse-charge" VAT payment to the Revenue Department on behalf of the foreign franchisor, as prescribed in Section 83/6 of the tax code.
For both the withholding tax and the VAT, the tax code prescribes that the liabilities arise when the payer in Thailand pays the foreign company, and most Thailand franchisees would be complying with these liabilities when they pay their franchise fees to the foreign franchisor.
But they would not generally be doing that for local advertising and sales promotion spending paid to a Thailand-based advertising agency/service provider, because for such payments the tax code prescribes the payer having the duty to withhold 2% or 3% WHT (as the case may be), and the advertising agency/services provider having the duty to remit the 7% VAT.
For one particular Thailand franchisee the Thailand Revenue Department officers claimed that, because the local advertising and sale promotion spending is a condition that is specified in the franchise agreement, then the payments of the local advertising and sales promotion were a part of the "right" to operate the franchise, and therefore, the payments of local advertising and sales promotion were subject to 15% withholding tax and 7% VAT, the same as what applies for the franchise fee.
The Thailand franchisee did not agree with the Revenue Department and appealed the matter to the Courts. The Supreme Court's Ruling follows:
Supreme Court Case No 4440/2552
The Supreme Court ruled that because the requirement for the Thailand franchisee to incur payments on local advertising and sales promotion in Thailand is a condition that is specified in the agreement, then the local advertising and sales promotion requirement is part of the obligations of the Thailand franchisee for the "right" to operate the franchise business.
The reasoning of the Supreme Court was that:
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.