Home and Abroad...holiday period • Impact on foreign and minority shareholders – not covered by...

15th AnnualConferenceMaximise

Home and Abroad:How changes in national and internationalpolicy may affect your business

www.pwc.com/th

MaximiseShareholder Valuethrough EffectiveTAX Planning 2014 29-30 October 2013

Contents

Section one – Developments at home

Section two – Base Erosion and Profit Shifting (BEPS)Section two – Base Erosion and Profit Shifting (BEPS)

PwC Slide 229-30 October 201315th Annual Conference Maximise Shareholder Value through Effective TAX Planning 2014

Section one – Developments at home

1.1 Dividends from BOI business

1.2 Cross-shareholding

1.3 Return of capital

1.4 Taxation of liquidation proceeds

1.5 Royalties

PwC29-30 October 201315th Annual Conference Maximise Shareholder Value through Effective TAX Planning 2014

Slide 3

1.6 Double Taxation Agreements

Dividends from BOI business


• Dividends paid from accountingprofits

“BOI dividend” for WHT exemption

A(TH)

B(TH)

C(US)

profits

• Dividends exempted from incometax and withholding tax if conditionsunder Section 65 bis (10) are met

• Dividends from BOI profitsexempted from income tax andwithholding tax if paid during tax

(TH) (TH) (US)

BOI

10% 40% 50%

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holiday period

• Impact on foreign andminority shareholders – notcovered by Section 65 bis (10)

Slide 529-30 October 201315th Annual Conference Maximise Shareholder Value through Effective TAX Planning 2014

• No definition of “profit” under theThai Revenue Code or Civil andCommercial Code (“CCC”)

Definition of “Profit”

Case 1:Non-BOI BOI Total

Commercial Code (“CCC”)

• CCC merely states that a“dividend” may only be paid out of“profit”.

• Temporary and permanentdifferences result in accountingand tax profits being different.

A/C profits 80 20 100

Permanentdifferences

8 15 23

Doublededuction(BOI)

- (10) (10)

Tax profits 88 25 113

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and tax profits being different.

• RD: BOI dividend has to be paidout of tax profits.


Dividend 75 25 100

• Taking double deduction reducesBOI tax profits and BOI dividend.

Taking BOI double deduction


• More non-BOI profits must bedistributed.

• WHT cost increases.



8 5 13


- (10) (10)



Dividend 85 15 100

WHT 8.5 0 8.5

• Foregoing double deductionincreases tax profits and more BOIdividend can be paid out free from

Do not Take BOI double deduction


dividend can be paid out free fromWHT.

• No tax cost of foregoing thededuction if business is profitable.

• Counter intuitive tax planning



8 5 13


- - -



Dividend 75 25 100

WHT 7.5 0 7.5

Cross-shareholding


Conditions for dividend exemption

• Not less than 25% shareholdingwith voting rights;Co. A with voting rights;

• No cross shareholding eitherdirectly or indirectly; and

• Shares held for at least 3 monthsbefore and after the date ofreceiving dividends

Co. A

Co. B

50%

99.97%


Cross-shareholding

Co. A(Payer)

Co. A(Payer)

Co. A(Payer)(Payer)

100%50% Co. C

(Payer)

50%

100%

(Payer)

100%Dividend


Co. B(Payee)

Co. B(Payee)

Co. B(Payee)

As at Aug 2012 As at Dec 2012 As at Apr 2013

Court interpretation

RD’s interpretation CTC’s interpretation

No cross shareholding mustexist from the beginning ofthe accounting period towhich the dividend relatesto the date the actualpayment is made.

All that is required is that the cross

No condition that crossshareholding must not exist fromthe start of an accounting period.

All that is required is that the crossshareholding does not exist at thetime the dividend is declared.


RD cannot impose conditions that do not exist under the laws.

Return of Capital


Capital Reduction

• Payments in a capital reduction areconsidered assessable income in anamount equal to the “sum of profitsand reserves”.

ForeignCo. and reserves”.

• Cross border payments of such assessableincome are subject to a final WHT.

• Since these amounts are, technically, not“dividends” under Thai law, the defaultWHT of 15% will apply when payments aremade to a foreign shareholder.

Co.

100%

Proceeds fromcapitalreduction

Overseas

Thailand


TH Co.

Capital Reduction payments – Taxation

• Since Sec 40(4)(d) income is not“dividend” under Thai law, theexpectation was that a 15% WHT would

FrenchCo. expectation was that a 15% WHT would

apply as it would be treated as “otherincome” in the tax treaty.

• “Other income” under the tax treaty hasno preferential tax rate.

• Indeed, this was the RD own position inthe past (specifically in a case involvingthe Thai-France treaty).

Co.

100%

Proceeds fromcapitalreduction –15% WHT

France

Thailand


the Thai-France treaty).

• RD interpretation on taxable capitalreduction being considered as “dividend”is more or less in line with OECDCommentary on Model Treaties.

TH Co.

Capital Reduction- Balance Sheet of taxpayer

B/S Before Capitalreduction

After

Capital 1,000 (750) 250

• In a recent ruling, the RevenueDepartment did not permit net off ofretained losses with the Legal ReserveCapital 1,000 (750) 250

Retained loss (900) (900) (900)

Legal reserve 100 100 100

Net Equity

Payment ofassessableincome

200

100

(550)

retained losses with the Legal Reservewhen arriving at the taxable income in acapital reduction.

• Revenue Department then treated thetaxable income as a payment of “dividend”under the Thai-USA tax treaty andimposed a 10% WHT.

• This interpretation could impact allcompanies with retained losses who plan


income

“Cannot net off retainedloss against legal reserve”

companies with retained losses who planto pay out cash in a capital reduction.

Capital Reduction – Planning points

• A Public Company Limited that hasretained losses and is planning a payment

B/S Pre-restructure

Postrestructure retained losses and is planning a payment

of cash in a capital reduction may firstwrite-off Legal Reserve against availableRetained Losses.

- It can then undertake a capitalreduction for cash.

• Private companies should be prepared topay a WHT if there is a cash payment in acapital reduction.

restructure restructure

Capital 1,000 1,000

Retainedloss

(900) (800)

Legalreserve

100 100

Net Equity 200 200


capital reduction.

- The Company can seek a ruling for a10% WHT rate (not 15%), if the foreignshareholder is tax resident in anfavorable treaty jurisdiction.

Net Equity

Payment ofassessableincome

200

100

200

NIL

Taxation of Liquidation Proceeds


Liquidation Proceeds – Dividends or Otherincome?

• Proceeds from amalgamation ordissolution of a company whichexceeds the “subscription price”

ForeignCo. exceeds the “subscription price”

is taxable income.

• This is subject to Thai WHT and,since this income is not “dividends”,the WHT applied in the past was15%.

• A recent ruling indicates that thisincome can be considered a

Co.

100%

Liquidationproceeds

Overseas

Thailand


income can be considered a“deemed dividend” and 10% WHTapplied.

• This is of interest to companies thathave entities in liquidation.

TH Co.

• Sec 40(4)(f) taxes liquidationproceeds less “subscription price”.

ForeignCo


• “Subscription price” has beeninterpreted by the RevenueDepartment to mean “cost ofacquisition” rather than“subscription price”, making theincome similar to “capital gains”.

• WHT applied in the past was 15%.

Co

LiquidationProceeds

Overseas

Thailand


• WHT applied in the past was 15%.

• But many DTAs exempt capital gainsfrom Thai WHT.

TH Co.

In a recent ruling, a TH Co paidliquidation proceeds to its UK parent


UK Co.liquidation proceeds to its UK parent

Liquidation proceeds includedaccumulated retained earnings.

Revenue Department ruled that theincome

Is a “dividend” under Thai-UK

100%

LiquidationProceeds

UK

Thailand


Is a “dividend” under Thai-UKDTA (Article 11)

Subject to 10% WHTTH Co.

Interestingly, Revenue Departmentapplied the domestic dividend WHT


UK Co. applied the domestic dividend WHTalthough the income is not “dividend”under domestic regulations.

Revenue Department ignored thehigher Thai-UK tax treaty rate of 15%on “dividends”.

UK Co.

100%

LiquidationProceeds

UK

Thailand


TH Co.

Liquidation Proceeds – Planning points

• If tax treaty protection is essentialto benefit from a 10% WHT, a non-

ForeignCo to benefit from a 10% WHT, a non-

treaty shareholder, an investmentmust be held through anappropriate treaty location.

• To ensure 10% WHT (even withouttax treaty protection), TH Coshould pay out the maximumamount of retained earnings asdividend, prior to being put into

Co

LiquidationProceeds

Overseas

Thailand

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dividend, prior to being put intoliquidation.

29-30 October 201315th Annual Conference Maximise Shareholder Value through Effective TAX Planning 2014Slide 23

TH Co.

Royalties


NetherlandsFact:

Recent Case Law: Payment based on % of sale notbeing regarded as royalty

NetherlandsCo.

100%

Thai Co. has entered into twoagreements i.e., an intellectual propertylicense agreement and an offshoreservice agreement.

The consideration were paid for twoelements which were monthly flat feeand variable fee.

1. Fixedmonthlypayments

2.Paymentsbased on% of sales


Thai Co.

and variable fee.

Netherlands


CTC judgment no. 304/2548NetherlandsCo.

100%

1. Fixedmonthlypayments

2.Paymentsbased on% of sales

CTC judgment no. 304/2548

Royalties were disguised in thepayments based on % of sales andfixed monthly payments.

SC judgment no. 13993/2555

The taxpayer has provided


Thai Co.

The taxpayer has providedsufficient evidence to prove thatthe payment was for generalprofessional services.

Key take-away

Economic substance is required to distinguish between “know-how”


Economic substance is required to distinguish between “know-how”rather than “show-how”.

The Supreme Court has laid out some basic principles of evidence:

• Show-how: Application of information being provided during thecourse of the provision of these services are not confidential but areavailable in the public domain.


available in the public domain.

• Know-how: Specific knowledge or commercial industrialinformation required for the business was already being paid forseparately in addition to hiring experts required for the line ofbusiness.

Double Taxation Agreements


Impact of new terms in DTA


Thailand and Taipei DTA

• Thailand-Taipei DTA became effective since 1 January 2013.

• 5% withholding tax on dividend for substantial holdings (at least25% interest)

• 10% withholding tax on dividend in all other cases

• 10% withholding tax on royalties

• These lower tax treaty rates impact Thailand’s other tax

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• These lower tax treaty rates impact Thailand’s other taxtreaties with a “most-favored nation” clause.


Most-Favored Nation Clause

UAE- If more favorable treatment (Article 8, 10 and 11)* is granted

under the Agreement Thailand concluded with other countries,under the Agreement Thailand concluded with other countries,the same favorable treatment shall be automaticallyapplied to residents of UAE.

* Ships operating in international traffic, dividend and interest income

Mauritius- If lower tax rates (Article 8, 10, 11 and 12)** are granted to other

countries, the lower tax rates shall be applied to residents ofMauritius.

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Mauritius.** Ships operating in international traffic, dividend , interest and royalty income

What is the legal position in Thailand? Will “automatic”application be accepted?


Changes in DTA


Development on amending/negotiation DTAs

• Reduction of withholding tax rate on dividend

(e.g., recent Thai-Taiwan DTA has a lower tax rate on dividend(5%) than any other of Thailand’s tax treaties)

• Granting underlying tax credit


Impact of reduction WHT rate on dividends

FCo.This will benefit for foreign shareholdersinvesting into Thai company by

5% WHT ondividends

Overseas

Thailand

investing into Thai company by

• Reducing the effective tax rate ofThai operations from 28% to 24%.

• Reducing the risk of inability to claimexcess WHT as a credit in therecipient’s jurisdiction.


TH Co.

Underlying tax credit

• The granting of underlying tax credit may yield benefits to Thaiinvestors only in very limited circumstances.investors only in very limited circumstances.

• This can be illustrated on three sample cases.

• A key assumption is that (like some other tax treaties with similarclauses), the underlying tax credit is available only for asubstantial shareholding of 25% or more.



TH Co.

• TH Co. invests in UK Co. through a holdingcompany located in Mauritius.

• UK Co. is subject to 25% CIT.

Example A

0%

Mauritius

Thailand• Dividends distributed by UK OpCo. is exempt

from UK WHT.

• Dividend would be subject to tax in Mauritiusat the rate of 15% but no tax is paid due tounderlying tax credit given by MAU Co.

• Dividends paid by MAU Co. to TH Co. wouldbe exempt from Thai tax under RD 442.

≥ 25%

MAU Co.

UK

15%


CIT rate at25%

UK(OpCo.)

be exempt from Thai tax under RD 442.

“No additional benefit to TH Co.from an underlying tax credit”

UK

TH Co.• TH Co. invests in UK OpCo.

• UK OpCo. is subject to CIT at the rate of0% (RD 442)

Example B


Thailand

• UK OpCo. is subject to CIT at the rate of25%.

• Dividends distributed by UK OpCo. ToTH Co. would be exempt from UKWHT.

• Dividends received by TH Co. would beexempt from Thai tax under RD 442.

≥ 25%

UK


CIT at therate of 25%

UK(OpCo.)

“No additional benefit to THCo. from an underlying taxcredit”

TH Co. CIT at therate of 20%

Example C


• TH Co. invests in ABC which is subject toCIT at the rate of 10% (less than 15%).

Thailand

≥ 25%

Overseas

rate of 20% • Dividends distributed by ABC to TH Co.is subject to 10% WHT.

• Due to the underlying tax credit rules,the foreign dividend is not subject toThai taxation.

• Under current rules, due to the headlinetax rate being <15% foreign dividendincome would be taxed at 20%, with a

DividendWHT 10%


Headline taxrate 10%

ABC

income would be taxed at 20%, with acredit for the 10% WHT.

“Beneficial to Thai investor”

Proposed changes in DTA

• Thai-Singapore DTA

- Extending the period from 6 months to 12 months on building site,construction, installation or assembly;

- Time test of 183 days for furnishing of services; and

- Reducing withholding tax for the payment for the use of softwarefrom 15% to 5%.

PwC

There will be some benefits in terms of proposed changes inThailand-Singapore DTA which will be discussed in next slide.


Example: Extending time test on building site

• Attractive to certain foreigninvestors, (e.g. China

CH Co.

investors, (e.g. Chinainvestors) who mayundertake EPC contracts viaa Singapore subsidiary.

• Attractive to foreigninvestors who mayundertake EPC contracts inSingapore via a Thai

China

EPC

Thailand6-monthtest

SG Co.

Singapore

EPC

Thailand12-monthtest


Singapore via a Thaisubsidiary – this is especiallyso if combined with areduced WHT on crossborder dividends

TH Co. TH Co.

Proposed changes in DTA

SG Co.Thai-Singapore DTA

Thailand

• Attractive to Thai softwarelicensors BoI privileges

• Reduction of Singapore WHT onsoftware licensing from thepresent 10% to 5% results is acash tax saving of 5%.

Softwarelicensing

Singapore

5% WHT onlicensing fees

“Beneficial to Thai


TH Co.

“Beneficial to Thaisoftware licensors with

BoI privileges”

Section two – Base Erosion and Profiting Shifting(BEPS)

2.1 Overview of BEPS

2.2 BEPS - 15 action points

2.3 What changes can we expect in Thailand?

PwC29-30 October 201315th Annual Conference Maximise Shareholder Value through Effective TAX Planning 2014

Slide 42

Overview of BEPS


Overview of BEPS

What is BEPS?

How will it affect internationaltaxation?

How could it influence Thairevenue authorities?

How could it affect the Thai tax

PwC

How could it affect the Thai taxlaws?

How could it affect Thailand’s taxtreaties?


Overview of BEPS

An OECD action plan to addressthe perceived flaws in internationaltaxation rules.

Comprehensive action planconsists of 15 actions to beimplemented by September 2014or September 2015.

Could affect/require bilateralagreements


agreements

What is driving BEPS?

Austerity. Governments carryinglarge fiscal deficits and fundinglarge fiscal deficits and fundingcosts.

The public.

Non -government organisations.

The press.

Tax controversy regardingapplication of tax law to

PwC

application of tax law tomultinationals’ operations.


Who is driving BEPS?

G20.

OECD – A multilateral instrumentto amend bilateral treaties.to amend bilateral treaties.

Other non-member nations invitedto participate as Invitees.

Local tax jurisdictions may imposetheir domestic legislation inresponse to or in lieu ofimplementing BEPS.

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Consultation of non-governmentorganisations.


What is BEPS trying to do?

Tax cross bordertransactions on a“substance” rather than“substance” rather thanform basis.

Prevent “double non-taxation”.

Reduce “treaty shopping”.

PwC

Reduce “treaty shopping”.

Reduce avoidance andevasion.


What is BEPS trying to do?

Enhance co-operationbetween taxing authorities.

Tax transparency – Automaticexchange of information fromsource to residence country.

Multilateral agreement forexchange of information?

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exchange of information?


What is BEPS addressing?

General actions:

• The digital economy.• The digital economy.

• Hybrid mismatch arrangements.

• CFC rules.

• Interest and management feedeductions.

• Harmful tax practices – actionsof states.

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of states.


What is BEPS addressing?

Other actions:

• Treaty actions preventing abuse.

• Permanent establishment.• Permanent establishment.

• Transfer pricing - I.P.

• Data and transparency.

Steps to actions:

• Review OECD country regimes.

• Expand participation for non

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• Expand participation for nonOECD members.

• Revise criteria on harmfulpractices.


BEPS – 15 action points


Action 1 (September 2014)Address the challenges of the digital economy

Action

• Priority action.

Impact

• Digital economy has less of a• Priority action.

• Difficulties with application ofinternational tax rules.

• Generation of value.

• Direct and indirect taxation.

• Review of business models.

• Digital economy has less of apresence in Thailand.

• More focus on indirect taxationof the digital economy?


Action 2 (September 2014)Neutralise the Effects of Hybrid MismatchArrangements

Action ImpactAction

• Hybrids used to achieveunintended double non-taxation or long term taxdeferral.

• Develop model treatyprovisions.

Impact

• Existing hybrid arrangementsmay lose their tax benefits,impacting the IRR of Thaioutbound investments.

PwC

• Hybrid instruments and entities.


Hybrid instrument example – RedeemablePreference Shares

• AusCo issues redeemable preferenceshares (RPS) that is considered “debt”Netherlands

“Dividend”received on RPStax-exempt shares (RPS) that is considered “debt”

for Australian tax.

• Dividends to RPS are considered“interest” for Australia tax.Consequently the dividends are taxdeductible and subject to interest 10%WHT.

• Netherlands considers the returns onRPS as “dividend” and thus exempts it

tax-exempt

Dividendpayment onRPS

PwC

RPS as “dividend” and thus exempts itfrom taxation.

• We get “double non-taxation” ofinterest/dividend on RPS.


Australia“Dividend” paid

on RPS taxdeductible

Action 3 (September 2015)Strengthen CFC rules

Action

• Reduces incentive to shift profits

Impact

• Avoidance of Thai taxation by• Reduces incentive to shift profitsinto a third, low-tax jurisdiction.

• Recommend design of domesticrules.

• Avoidance of Thai taxation bydeferring receipt of dividendcommon technique.

• Revenue Code would need to beamended to include CFC rules.


CFC - example

• Tax Haven Co is controlled bythe UK.UK Co

Tax rate 28%

Interest incomeof tax haven the UK.

• Tax Haven tax rates <75% ofUK tax rate (currently 28%)

• If Tax Haven Co does not meetthe (entity and income)exemptions, it is considered aCFC.

• Consequently,

Tax rate 28%

Tax Haven Co

100%Equity

Earns interest

of tax haventaxed in UK

PwC

• Consequently,

• A part of the profits of TaxHaven Co are taxed in the UK.


Tax Haven Co

Relending

Earns interestincome

CFC – example 2

• Foreign subsidiaries arecontrolled by the Aus Co.Aus Co

Taxed on incomeof 500K, as if controlled by the Aus Co.

• Foreign companies qualify asCFCs (if they do not meet theCFC exemptions).

• Consequently,

• Profits of CFC2 and CFC 1 aretaxed in hands of Aus Co as ifCFC1 and CFC2 are Australian

Aus Co

Foreign CFC1

100%

Earns income$300K

of 500K, as ifCFC1 &2 are Austax payers

PwC

CFC1 and CFC2 are Australiantaxpayers.


Foreign CFC2Earns income$200K

Action 4 (September 2015)Limit base erosion via Interest/FinancialDeductions

Action ImpactAction

• Inbound and outbound.

• Financial and performanceguarantees, derivatives andcaptive and other insurancearrangements.

• Recommend design of domestic

Impact

• Cross border impact intoThailand may require a reviewof gearing.

• Outbound financialarrangements (even viaoffshore financing companies)may be impacted.

PwC

• Recommend design of domesticrules/changes to transfer pricingguidelines.


may be impacted.

• Revenue Department reportedly isready to introduce thin capitalizationrules and expects to include this is a

Thin capitalization in Thailand

rules and expects to include this is apart of the anti-avoidance rulesapplicable to internationaltransactions.

• No discussion drafts have beencirculated 2 key points are unclear

• Will the rules consider only relatedparty debt, or ALL debt incalculating the ratio.

Fixed D/Eratio?

Justificationof

excessivedebt

Definition:Debt vs.Equity

PwC

calculating the ratio.


• Will the rules be prescriptive, like theBOI (e.g. fixed debt equity ratio 3:1) or

• Flexible, with each taxpayer being

Thin capitalization in Thailand

• Flexible, with each taxpayer beingpermitted to justify quantum of debt,with an overall safe harbour (e.g. as inAustralia).

• Thai entities may need to re-structuretheir “excess” debt into equity orinterest free loans (after factoringconsequences in the lending

Fixed D/Eratio?

Justificationof

excessivedebt

Definition:Debt vs.Equity

PwC

consequences in the lendingjurisdiction).


Action 5 (September 2014/2015)Counter harmful tax practices – transparency andsubstance

Action ImpactAction

• “Race to the bottom” on mobileincome tax base.

• Improve transparency.

• Substance for preferentialtreatment.

Impact

• Is Thailand a “tax haven” in thecontext of BOI privileges?

• Shifting profits impacted.

• Countries may require“substantial business activities”to access tax treaty network or


to access tax treaty network orpreferential rates – or bypassthe treaty.

Potential immediate impactProcurement centre

Currently used for:

• To shift profits to Singapore toTH Co • To shift profits to Singapore totake advantage of lower tax rate(5%-17%).

Potential BEPS impact:

• Thailand may require SGP Co tohave more substance.

SGP Co

TH Co

EuropeVendor

100$

100% 105$

PwC

have more substance.

• Thailand tax authorities mayattack transfer price.


Vendor

Potential immediate impactTransparency

“Aggressive tax planning” disclosure

• Publicly available information of parentcould trigger tax audits of Thai affiliates.could trigger tax audits of Thai affiliates.

Call for “automatic exchange ofinformation” by Global Tax Forum(OECD/G20)

• May impact structures that rely on lessthan full disclosure of information.

Characterisation of management fees and

PwC

head office allocations as “base erosiontechniques”

• Support Thai tax authorities in theirassessment of local affiliates.


Action 6 (September 2014)Prevent treaty abuse

Action

• Treaty benefits in inappropriate

Impact

• Thai concept of beneficial• Treaty benefits in inappropriatecircumstances.

• Double non-taxation.

• Restore source taxation.

• Recommend design of domesticrules/changes to model taxconvention.

• Thai concept of beneficialownership is legal and noteconomical owner. Form oversubstance.

• Anti-conduit rules in otherjurisdictions could impact“overseas holding company”strategies.

PwC

convention.


strategies.

Potential immediate impactTreaty shopping

Currently used to:

• Reduce WHT on dividend income fromTH Co • Reduce WHT on dividend income fromIndonesia.

• Save capital gains tax on exit (due toparticipation exemption in theNetherlands and Indonesia tax exemptionon capital gains under the Netherlands-Indonesia tax treaty).


TH Co

NetherlandsDividend

100%

DividendWHT@15%

PwC

• Netherlands could require more substancefor certificate of tax residency.

• Indonesia may deny treaty WHT rate orcapital gains exemption due to lack ofsubstance in the Netherlands.


Indonesia

DividendWHT@10%

100%

Potential immediate impactDebt push down

Currently used for:

• Interest withholding taxTH Co • Interest withholding taxreductions in OpCo.

• TH foreign dividend exemption.


• Foreign dividend exemption/debtdeductions denied.

MauritiusCo

TH Co

SGP Co

100%

100%

Equity

Debt

PwC

deductions denied.

• Preferential interest WHT ratedenied.


SGP Co

Indo opCo

100%Debt

Action 7 (September 2015)Prevent artificial avoidance of PE status

Action

• Update permanent

Impact

• Attribution of profit by Thai• Update permanentestablishment definition.

• Commissionaire arrangements.

• Changes to model taxconvention.

• Attribution of profit by ThaiRevenue authorities couldresult in higher taxation?

• Could impact structures thatrely on an overly technicalinterpretation of the PE rules(e.g. Buying agents, OffshoreFund managers)?


Fund managers)?

Action 8 (September 2014/2015)Assure that Transfer pricing outcomes are in linewith Value creation

Action ImpactAction

• Transfers of intangibles amonggroup members.

• Alignment of returns with valuecreation

• Recharacterise transactions

• Changes to transfer pricing

Impact

• Could affect a jurisdictionsconcessions for bringing IP intoa country?

• “Value creation” as a criterionfor allocation of residualincome

PwC

• Changes to transfer pricingguidelines and possibly themodel tax convention.


• Intra-group contracts may notbe respected

• How to manage transfer pricingrequirements?

Potential immediate impactRoyalty repatriation

Currently used for:

• Concessional WHT rates onTH Co • Concessional WHT rates onroyalty.

• Concessional tax rates inCyprus.


• Cyprus forced to increase

Cyprus

TH Co

UK

Sell

I.P 100%

LicenseRoyaltyPayments100%

PwC

• Cyprus forced to increasetax rates.

• UK denies preferentialWHT rate due to no“substance” in Cyprus.


UK

Potential immediate impactPrincipal structures

Current tax benefits:

• Utilisation of Singapore’sTH Co • Utilisation of Singapore’sconcessionary tax regime (0%-10%) for profits accruing toPrincipal structures.


• Thai authorities could attributemore profit to the Thai

SGP Co

TH Co

OverseasBuyers

Sale

Resale

100%

100%

PwC

more profit to the Thaioperations.


Buyers

Action 11 (September 2015)Establish methodologies to collect and analysedata on BEPS and the actions to address it

Action ImpactAction

• Tools available to monitor andevaluate the effectiveness andeconomic impact of actions takento address BEPS on an ongoingbasis.

• Recommendations regardingdata to be collected and

Impact

• What will be the impact of theanalysis? Will the proposedactions be continuallyrevisited? Certainty fortaxpayers?

PwC

data to be collected andmethodologies to analyse them.


Action 12 (September 2015)Require Taxpayers to disclose their aggressive taxplanning arrangements

Action ImpactAction

• Enable governments to quicklyidentify risk areas.

• Co-operative complianceprogrammes between taxpayersand tax administrations.

• Recommendations regarding the

Impact

• “Aggressive tax planning”.

• Evasion versus avoidance.

• Is there a legal basisdomestically to requiredisclosure?

PwC

• Recommendations regarding thedesign of domestic rules.


Action 13 (September 2014)Re-examine transfer pricing documentation

Action

• Transfer pricing and value-chain

Impact

• Will business become more• Transfer pricing and value-chainanalyses.

• Asymmetry of informationbetween taxpayers and taxadministrations. “Big picture”view of a taxpayer’s global valuechain.

• Changes to transfer pricing

• Will business become moreconservative?

• Group transfer pricingpolicies/documentation.

PwC

• Changes to transfer pricingguidelines andrecommendations regarding thedesign of domestic rules.


Action 14 (September 2015)Make dispute resolution mechanisms moreeffective

Action ImpactAction

• Develop solutions to addressobstacles that prevent countriesfrom solving treaty-relateddisputes under MAP.

• Changes to the model taxconvention.

Impact

• Increased co-operation betweengovernment’s taxation authorities.


Action 15 (December 2015)Develop a multilateral instrument

Action

• Develop a multilateral instrument to

Impact

• The proposal is to make existing• Develop a multilateral instrument toenable jurisdictions that wish to doso to implement measuresdeveloped on BEPS and amendbilateral tax treaties.

• Report identifying relevant publicinternational law and tax issues.

• The proposal is to make existingbilateral OECD model treatiesdynamic by creating a multilateraltreaty amendment document akinto the International Swaps andDerivatives Association masterswaps agreement.

• Signatories automatically acceptamendments/ interpretations


amendments/ interpretationscontained in the document for theirin- force treaties.

• This side-steps need for treaty re-negotiations.

What changes can we expect inThailand?


What changes can we expect in Thailand?

OECD expected outputs are“Recommendations regarding thedesign of domestic rules”.

• Introduction of thin capitalisationrules

• Anti-avoidance rules

Will this influence the Thai tax laws?

• Anti-avoidance rules

• Look for more “substance” inentities claiming tax treaty relief

• More aggressive audit environment

• Non-deductibles subject to 10%WHT?


Contact

Paul B.A. StittPartnerTel: +66 (0) 2344 1119

Vanida VasuwanichchanchaiExecutive DirectorTel: +66 (0) 2344 1303Tel: +66 (0) 2344 1119

[email protected]

Prema RaoExecutive DirectorTel: +66 (0) 2344 [email protected]

Tel: +66 (0) 2344 [email protected]

Orawan PhanitpojjamarnDirectorTel: +66 (0) 2344 [email protected]

PwC

[email protected]


[email protected]

Thank you

© 2013 PricewaterhouseCoopers Legal & Tax Consultants Ltd. All rights reserved.'PricewaterhouseCoopers' and/or 'PwC' refers to the individual members of thePricewaterhouseCoopers organisation in Thailand, each of which is a separate andindependent legal entity. Please see www.pwc.com/structure for further details.

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