Thailand Related Party Interest Income SB Tax
On 23 December 2013, Royal Decree (No 571) was gazetted, prescribing:
"For businesses undertaking regular transactions similar to commercial banking, but not being a business of banking, finance, securities, credit foncier or life insurance business under Sections 91/2 (1), (2) or (3) of the Revenue Code, interest received from a lending of money to related corporate entities shall be exempt from Specific Business Tax."
For the Revenue Department's tax audit officers, this new Royal Decree now converts the intention of the Director-General’s Instruction No Paw 26/2534 and the Supreme Court's rulings into a thou-shalt-not law for related party interest income.
Specific Business Tax on Related Party Interest Income
Thailand's Corporate Tax law contains a market value provision for income in Section 65 bis (4), which prescribes as follows:
“In the case where, without justifiable ground, property is transferred, service is rendered or money is lent without consideration, service charge or interest, or with consideration, service charge or interest at an amount lower than market value, the assessment officer has the power to re-assess the consideration, service charge or interest at the market value on the date of the transfer, rendering of service or lending.”
But in addition to the above, the Specific Business Tax law in Section 91/2 of the tax code prescribes that interest income arising from “regular transactions similar to commercial banking such as extending loans" is subject to SBT.
And when the Revenue's tax audit officers re-assess interest income for corporate income tax, they additionally use that re-assessed interest income for Specific Business Tax also. But foreign businesses should note this is not right. Section 65 bis (4) is a corporate tax law provision. It does not automatically apply to Specific Business Tax, and for tax audit officers to also assess SBT, they must firstly follow the rules for application of SBT:
Departmental Instruction No Paw 26/2534
For a company loaning funds to an affiliated company, irrespective of the funds coming out of the company's own funds or coming out of funds that are borrowed by the company, the interest income earned on the loan funds are not treated as being subject to SBT.
For a company investing funds in bank deposits, irrespective of the invested funds coming out of the company's own funds or coming out of funds that are borrowed by the company, the interest income earned on the invested funds are not treated as being subject to SBT.
Supreme Court Ruling No 687/2550
For a company providing loans to shareholders for the amount of the shareholders' unpaid share capital, such loans are not “regular transactions similar to commercial banking” and the Revenue audit officers have no power to assess interest income for SBT purposes.
Supreme Court Ruling No 13847/2553
For a company providing advances to suppliers under agreements for securing company supplies, such advances are not “regular transactions similar to commercial banking” and the Revenue audit officers have no power to assess interest income for SBT purposes.
This Tax Insight is general information only. It should not be used to determine any particular matter without consulting with your knowledgeable Thailand tax advisor.