Untaxed Shin Corp sale
provides impetus for Thai tax code change
By Jon Fernquest |
In most laws intention rules supreme.
If you created an ingenious and complicated murder machine and then claimed that the machine, not you, murdered the person, what would the judge think?
The public outcry over the untaxed sale of Shin Corp to Singapore's Temasek two years ago has prompted tax experts to take a deeper look at Thailand's tax laws.
The Revenue Department of the Thai government, the department responsible for tax collection, commissioned the law faculty of Chulalongkorn University to review the nation's tax system, the first thorough review in 70 years (Read an earlier critical review of the Shin Corp tax loopholes).
Today's Bangkok Post business section provides an update on this ongoing review.
(See photo on right of thousands of giant honey bees swarming on the face of the garuda emblem at the criminal court during the reading of the verdict in the Khunying Potjaman Shinawatra tax evasion case. The bees dispersed after she was found guilty of tax evasion. Coincidence or omen?)
Here is the article in full:
Thaksin cases put loopholes in spotlight
WICHIT CHANTANUSORNSIRIMonday September 08, 2008
Thailand's tax code needs sweeping reforms that emphasise substance over form to curb tax evasion, according to Tithiphan Chuerboonchai, the dean of the law faculty at Chulalongkorn University.
Thaksin's tricky Shin Corp sale to avoid paying taxes
He said cases such as the high-profile tax liability owed by former premier Thaksin Shinawatra's family over its sale of Shin Corp to Singapore's Temasek Holdings highlighted the need for legal reform.
The Shinawatra case resulted in the Revenue Department doing an embarrassing flip-flop on whether Panthongtae and Pinthongta Shinawatra owed taxes related to the purchase of Shin shares for one baht each from Ample Rich, a Shinawatra-family offshore holding company.
The shares were sold one working day later to Temasek for 49.25 baht each, resulting in capital gains of more than 15.8 billion baht. While the tax code allows for bequests of assets to family members, Mr Tithiphan said, in reality, the transaction was a sale.
However, the current tax code restricts how tax officials can interpret such transactions.
SME tax loopholes
Mr Tithiphan said tax treatment for small and medium-sized enterprises also contained numerous loopholes. The tax code imposes a corporate tax of just 15%, half the normal rate, for companies with registered capital of less than five million baht and annual revenues of no more than one million.
A single corporate entity can reap significant tax savings by splitting up similar units across different companies to keep revenues under the one-million-baht threshhold, a tactic that Mr Tithiphan said did nothing to change the fact that the operations should be considered as one.
Chulalongkorn review of tax system: First in 70 years
Mr Tithiphan, who headed a one-year project commissioned by the Revenue Department to review the tax system, noted that the tax code had not had a substantial review in more than 70 years.
Numerous rules and regulations remained out of date with modern society, he said. For instance, the tax code continues to require women to consolidate their incomes with those of their husbands in assessing personal tax liability, resulting in higher overall tax liability under the progressive tax ladder.
The Chulalongkorn University review proposes allowing couples to file separate tax statements or, alternatively, to continue joint filings with higher tax-deductions to eliminate distortions.
Withholding tax abuses
The study also concluded that withholding taxes should be streamlined and reviewed. The existing tax code stipulates a wide range of withholding taxes, depending on the type of work, from 3% for temporary labour to 5% for transport work.
Mr Tithiphan said one common loophole was used by home contractors. A contractor accepting a one-million-baht project could, under the current tax code, be liable to pay a 3% withholding tax, or 30,000 baht.
However, the contractor could easily draft two separate contracts for the work, with a bill of 950,000 baht for materials, which incur no withholding tax, and a second 50,000-baht bill for labour, which is subject to the 3% tax.
New standards for transfer pricing
Transfer pricing, which refers to the pricing of goods and services within an organisation, is another complex area of the tax code rife with loopholes.
Under the Chulalongkorn University review, transfer pricing under the tax code would be clarified to emphasise the use of "arm's length" pricing and "comparable uncontrolled price" in determining tax liability.
Multinational companies use transfer pricing by manipulating the price and cost of goods to minimise their tax liability in a given jurisdiction. A company may sell goods at an artificially low price to a subsidiary in an offshore tax haven, which then sells the same products at market price to the final customer.
The review also proposes eliminating differences in tax treatment across various tax rates. Individual taxpayers, for instance, are allowed a 60,000-baht individual deduction, although workers in certain professions are allowed deductions of up to 30% of their income.
(Source: Bangkok Post, business, WICHIT CHANTANUSORNSIRI, temp-link)
Vocabulary:
Tax Vocabulary
the tax code - the tax laws
loopholes - imperfections in a law that allow legal experts to avoid and go around the law (See glossary)
curb - stop or reduce
evasion - avoiding (doing something you must do)
curb tax evasion - make people pay their taxes (stop people from avoiding payment of taxes)
high-profile - attracting a lot of attention and publicity
highlighted X - showed the importance of X
flip-flop - change suddenly and do the opposite of what you were doing
a bequest - money given to people (usually to family members after one dies)
bequests of assets to family members
interpret X - decide what the meaning and significance of X really is
reap X from Y - receive benefit X after Y happens
reap tax savings - gain by paying less on your taxes
X commissioned by Y - Y arranges for a piece of work X to be done for them
consolidate X with Y - join together X with Y
personal tax - tax paid by an individual person, a percentage of personal income that must be given to the government
liability - money that one person owes another person (See glossary)
assessing personal tax liability - calculating how much a person owes the government in taxes
progressive tax ladder, progressive taxes - a tax imposed so that the tax rate increases as the amount subject to taxation increases, this means rich people (higher income) get taxed at a higher rate(See Wikipedia)
file a tax statement, file a tax return - officially give the government an official statement of your earnings and the tax that has been paid on the earnings (every year)
file separate tax statements - when husband and wife each file their own tax return
joint filings - when husband and wife together file one tax return
a tax-deduction - an expense that can be subtracted from income before calculating tax (See Wikipedia)
a distortion - a change that makes something not true or acceptable
withholding taxes - tax that is taken out of employee pay checks
streamlined - make a process or organisation more efficient by removing unnecessary parts
stipulates - state clearly that something must be done, in a law, an agreement, or contract (See glossary)
draft a contract - write a contract
transfer pricing - the official price that a company uses to sell goods to another part of the company, often to a subsidiary in a different country, often with tax benefits (See Wikipedia)
rife with - has a very large amount of (something bad)
arm's length - there exists no special relationship between the parties involved in any matter which would taint the result
comparable uncontrolled price - a price of a similar good with a price that moves up and down under the influence of the market
General Vocabulary
impetus for Y - a force that makes a process go more quickly
ingenious - very clever and uses new ideas
public outcry - a reaction of strong disapproval and anger by the public and the media over an event
prompted X to do Y - caused X to do Y
a garuda - a large mythical bird or bird-like creature that appears in both Hindu and Buddhist mythology (See Wikipedia)
coincidence - two related events that happen by chance at the same time (here the two related events are the bees on the garuda's face and the guilty verdict)
an omen - an event that indicates what will happen in the future
reforms - improvements
sweeping reforms - improvements that change everything
substance - the deeper meaning and significance of events or objects
form - the outward appearance of events or objects
emphasise substance over form - looking more at the deeper meaning of events rather than outward form
