Gains from sale of shares not listed on the stock exchange
“Tax law interpretation is not as simple as this and it is wrong to interpret Section 40(4)(g) of the Revenue Code in this way.”
In 1991, two important amendments were made to the Revenue Code in relation to the imposition of personal income tax on a sale of shares in Thailand.
Section 40 of the Thai Revenue Code was amended by the addition of sub-paragraph (4)(g) to Section 40, prescribing that the following shall be income that is subject to income tax in Thailand:
“Benefits derived from transfers of shares, partnership holdings, debentures, bonds, bills or debt instruments that are issued by a company or a juristic partnership or by any other juristic person, which exceeds the costs of the investment.”
Clause 2(23) was also added to Ministerial Regulation (No 126) prescribing that the following shall not be assessable income in Thailand:
“Benefits derived from sales of securities listed on the Stock Exchange of Thailand, not including debentures or bonds.”
It is pretty clear from the addition of these two amendments as to what the Revenue Code subjects to tax and what it doesn’t.
But if you ask an advisor in Thailand how a gain on sale of shares is determined for the purposes of Section 40(4)(g), it’s just about a certain bet that you’ll receive back the answer (even in the form of a written opinion) that the amount of the gain under Section 40(4)(g) is the difference between the sales price and the purchase cost of the shares only.
And if you ask the advisor if you can make allowance for any additional costs that you might have incurred besides the purchase cost of the shares, it is almost a certainty again that you’ll receive back the answer that no costs are allowed.
The determination of the gain or income under Section 40(4)(g) on the basis that the words “benefits derived” mean just the sales price of the shares and the words “the costs of the investment” mean just the purchase cost of the shares, is a simplistic interpretation of these words.
But tax law interpretation is not as simple as this and it is wrong to interpret Section 40(4)(g) of the Revenue Code in this way.
Unfortunately, in the 20 years the gain on sale of unlisted shares law was enacted, the officials at the Revenue Department have never issued any rule, regulation or notification, nor any tax ruling dealing with the meaning of the words.
The lack of “official” interpretation by the Revenue Department has contributed to advisors’ use of a simplistic interpretation for Section 40(4)(g), but for international tax advisors who have been brought up in the capital gains world, who have studied the concepts and the principles of what capital gains are, and for whom a determination of a capital gain is almost second nature, Section 40(4)(g) is really quite clear in its application.
The “benefit derived” from a sale of shares is the amount a seller realizes from a sale, so that if, for example, a seller effected a sale of shares through a broker for which the seller is liable to pay a broker’s fee out of the sales proceeds, then the amount of “benefit derived” is what the seller realizes or has left over after the broker’s fee.
Secondly, Section 40(4)(g) does not state that the gain is the benefit derived, which exceeds the purchase cost of the shares, but instead, it states that the gain is the benefit derived, which exceeds “the costs of the investment”.
The costs of an investment are more than just the cost of purchase of the shares. In addition to the cost of purchase there are other costs of an investment such as costs of establishing and maintaining ownership of shares.
So that where, for example, a share owner incurs government fees or duty tax costs or other capital-type costs, including even lawyer fees, to establish or maintain his or her ownership of shares, those costs too form part of “the costs of the investment”.
Both the UN and the OECD International Tax Committees describe the tax principle of capital gains on sale of shares as being the following:
Whilst the taxation of capital gains must be left to the applicable domestic laws, the tax principle for the calculation of capital gains is deducting costs from proceeds derived, and to arrive at costs, all costs incidental to establishing and maintaining ownership are added to costs of purchase of the shares.
The personal income tax payable on gains on sales of shares under Section 40(4)(g) of the Revenue Code is a high 37%, and it can be quite an injustice for you if you are required to pay more tax on a sale of un-listed shares than you have to pay.
For those who are going to earn a capital gain on a sale of unlisted shares under the provisions of Section 40(4)(g) of the Thai Revenue Code, Advantage would advise you to get the right professional advice and ensure that your gains are calculated and determined in a right and proper way.
Value Added Tax:
Easing of the 0% VAT rule for export services
The Notification of the Director-General on VAT (No 105) prescribes the rules and conditions when a service performed by a registrant in Thailand for a recipient in a foreign country shall be entitled to the 0% VAT rate (i.e. the export VAT rate).
Clause 2(1) of the Notification on VAT (No 105), as amended by the Revenue Dept in 2002 permitted a service that’s performed in Thailand for a recipient in a foreign country to be entitled to the 0% VAT rate, when the entire output of the service was used in a foreign country .
There were many challenges by Revenue Department audit officers over this matter, and it became widely known that even if only a very small part of a service that’s performed in Thailand for a recipient in a foreign country was in fact used by the recipient in Thailand (for example, in the case where the recipient of the service had a meeting in Thailand or where a filing of a document was made for the recipient in Thailand) this caused the service fee to be disqualified from entitlement to the 0% VAT rate.
The Revenue Department has now further amended the rules and conditions under Notification on VAT (No 105) and effective 29 March 2011, a service that’s performed in Thailand for a recipient in a foreign country shall be entitled to the 0% VAT rate, for that part of the service used in a foreign country .
You should note that this new amendment does not apply retrospectively and applies for services performed for a recipient in a foreign country from 29 March 2011.
Article Source: https://www.bharatbhasha.com
Article Url: https://www.bharatbhasha.com/finance-and-business.php/290871
Article Added on Wednesday, April 20, 2011
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