Thailand Share Loss Corporate Tax Planning
On 18 Mar 2014, the Director-General of Revenue issued Departmental Instruction No Paw 146/2557, repealing his Instruction No Paw 135/2551 issued on 08 Aug 2008.
From the date of 18 Mar 2014 (the date Departmental Instruction No Paw 146/2557 enters into force) the share loss corporate tax planning scheme as described in this Insight is no longer sanctioned by the Revenue Department.
The Corporate Tax Share Loss Tax Planning Scheme
It is rare for tax authorities to sanction a tax-planning scheme, but this is what the Thailand Revenue Department did for claiming a tax deduction for related company bad debts.
For a long time in Thailand, companies have utilized a tax planning scheme of converting a debt that is owed by a related company into shares in that company, and then selling those shares (to another related company) to produce a loss on the sale of shares, which loss is claimed as an investment loss for tax purposes.
But the Thailand Revenue Department's lawyers just about always denied a tax deduction for the loss on investment. In almost every case, Revenue Department Tax Rulings would allow the loss incurred on the original shares in the related company on the basis that the shares were acquired for the purpose of earning investment income, but would disallow a loss on the additional shares acquired from conversion of the debt on the basis that those additional shares were acquired only for the purpose of creating a tax loss.
The Revenue Department's Sanctioning of the Scheme
Despite all of the Revenue Department's own Tax Rulings, on 08 Aug 2008, the Director-General of Revenue surprisingly sanctioned the share loss tax planning scheme in a new Instruction to his Revenue officers (Departmental Instruction No Paw 135/2551).
Paw 135 prescribes that a loss on share transactions arising from a conversion of a debt owed by a related company is permitted as an expense for corporate tax purposes from and including the 2007 financial year. The conditions prescribed in Paw 135 are:
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.