Thailand Related Party Interest Income SBT
Update | December 2013
On 23 December 2013, Royal Decree (No 571) was gazetted, prescribing:
"For businesses undertaking regular transactions similar to commercial banking, but not being a banking business, finance, securities or credit foncier business or life insurance business under Sections 91/2 (1), (2) or (3) of the Revenue Code, interest received from the lending of money to related companies or juristic partnerships shall be exempt from Specific Business Tax."
For the Revenue Department's tax audit officers, this new Royal Decree law now converts the intention of the Director-General’s Instruction No Paw 26/2534 and the judgments of the Supreme Courts into a thou-shalt-not impose Specific Business Tax law for interest income on related party loans.
Tax Insight | June 2012
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.
Based on the words in these two provisions, when the Revenue audit officers re-assess interest income for corporate income tax, they additionally use that re-assessed interest income for Specific Business Tax as well. But foreign businesses should note this is not true. Section 65 bis (4) is a corporate tax law provision. It does not automatically apply to Specific Business Tax, and for the Revenue audit officers to also assess SBT on interest income, they must firstly follow the rules for application of SBT, as follows:
Departmental Instruction No Paw 26/2534
For a company loaning funds to an affiliated company irrespective of the loan 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 Article is general information only. It should not be used to determine any matter without consulting with an experienced Thailand tax advisor.