“HOW TO BEST ACHIEVE TAX-EFFICIENT STRUCTURE IN PROJECT FINANCINGS”
presented by
Picharn Sukparangsee
at the Conference on “Project Finance Thailand 2007”
arranged by
the Asia Business Forum
on November 1 - 2, 2007 at Royal Orchid Sheraton Hotel Bangkok
presented by
Picharn Sukparangsee
at the Conference on “Project Finance Thailand 2007”
arranged by
the Asia Business Forum
on November 1 - 2, 2007 at Royal Orchid Sheraton Hotel Bangkok
TAX- EFFECTIVE STRUCTURE IN PROJECT FINANCING
Equity and Debt Financings- general tax comparisonEquity-tax
Equity Financing
Shares
Tax implications on dividends
Tax implications on capital gains
Tax implications on fees
Fees on offering and issuance of new shares
Foreign dividends
Conditions for tax benefits
Stock dividend
Questions
ESOP
Are securities issued by a company to its directors and employees subject to taxes?
How is the value of the securities received calculated ?
Warrants
Is an issuance of warrant subject to taxes ?
Is a capital gain on a transfer of a warrant subject to taxes ?
Debt Financing
Tax implications on interest/discount
Loan and Fees
Bonds and Fees
Question
Is any of the fees subject to any taxes ?
Question
Are convertible bonds/exchangeable notes regarded as equity and/or debt financing?
Convertible bonds
Tax implications on convertible bonds
Exchangeable notes
Tax implications on exchangeable notes
Loan – financial institution
A Thai company pays interest to S company which is a financial institution registered with the Dutch Central Bank and does not carry on any business in Thailand.
Question
Is interest be subject to Thai taxes ?
Loan BIBF
Bank A, Bangkok branch, Bank A, Singapore branch and Bank B, Bangkok Branch each lends US$ 30 million in the form of a syndicated loan to Company A. Thereafter, Company A enters into the cross currency and interest rate swap agreement on US$ 30 million loan with Bank A.
Question
Are Differences of both loans of US$ 20 million provided by Bank A, Bangkok branch and Bank A, Singapore branch subject to Thai taxes ?
Guarantee fee or a mark –up
A Thai company sells equipment and spare parts imported from Japan. A Thai company borrows money from Japanese banks which is guaranteed by a parent company in Japan. The Thai company shall pay interest and a margin to the banks. The Thai company will then sell equipment and spare parts to its customers on a credit term basis. As a result, The Thai company will charge the interest, a margin and a mark-up to its customer. The Thai company shall divide and pay part of a mark-up to its parent company.
Question
Is a mark-up subject to Thai taxes ?
Guarantee fee and default interest
Is a default interest on a guarantee regarded a guarantee or interest ?
Swap
A swap may be a interest rate swap, a cross currency swap and/or a cross currency and interest rate swap.
A payment under a swap transaction may be or may not be subject to taxes.
Is a difference on interest rate swap subject to Thai taxes ?
Is a difference on cross currency swap subject to Thai taxes ?
Is payment for provision of service liable to taxes ?
Sale and Service
Sale
Domestic transaction
A Sale of goods is generally not subject to withholding tax.
A sale of goods is subject to VAT.
A sale of real estate is subject to specific business tax.
Offshore transaction
A Sale of goods is generally not subject to withholding tax.
An export of goods is subject to 0 % VAT.
Sale
Supply Agreement
A Thai company makes payment to a foreign company for equipment and machinery supplied by a foreign company to a company in Thailand.
Question
Is the payment subject to Thai taxes ?
Sale and Installation
Equipment and machinery is sold and installment of the equipment and machinery is provided.
Question
Does the payment for the sale of the equipment and machinery and the provision of service fall within a payment for goods or a service fee ?
Service
Questions
If the warranty fee is included in the payment for goods, is a Thai company required to withhold tax on the warranty fee paid to a foreign company ?
What are tax implications on the payment of the channel fees to a company ?
Consultancy and Engineering Agreement
A Thai company employs a foreign company under Consultancy and Engineering Agreement to provide services to the Thai company including methods on construction of the underground system, preparation and organization of the site and stock for spare parts. The foreign company provides service in a foreign country and has no permanent establishment in Thailand.
Question
What are tax implications on the payment by the Thai company to the foreign company ?
Basic Engineering and Design Services
Basic engineering and design services are provided by a foreign company to a Thai company. Know-how or technology has not been transferred.
Question
Is tax chargeable on the payment by the Thai company to the foreign company ?
Is the payment for the provision of basic engineering and design services regarded as service fee or royalty ?
Basic Engineering and Technical Right
A foreign company entered into Basic Engineering Agreement and Technical Engineering Agreement with a Thai company.
Technical rights and engineering services are provided by the foreign company to the Thai company. Payments for technical rights and engineering services under the Agreement are made by the foreign company to the Thai company.
Question
Are the payments subject to Thai taxes ?
Engineering services on construction of a plant
U is a company established under the law of Germany and has no permanent establishment in Thailand. U carries on the main business of provision of engineering services on construction of a plant and provides full services including design , sketch and delivery of a completed plant to its customers.
A is a company established in Germany and is a contractor of U. A will provide technical engineering and title and technical right prepared by A will be conferred to U and will be sublicensed to T.
T is a Thai company.
U enters into 2 agreements with T:
Question
Are Thai taxes applicable to the payments under the two agreement ?
Technical assistance and services
Company B which is incorporated under the laws of a foreign country enters into the Service Agreement with a Thai company to provide the following:
Company B sends its employees to provide services to the Thai company in Thailand for a period of 2 years.
Question
Is the payment by the Thai company to the foreign company subject to Thai taxes ?
Computer program
Remuneration for writing computer program, the use of computer program or purchase of computer program generally sold is paid by a Thai company to a foreign company
Question
Is the payment subject to Thai taxes ?
Know-how and technical knowledge
A Thai company is authorized to use know-how and technical knowledge to produce a spindle motor, payment for such use is made by the Thai company to a foreign company.
Question
Is the payment subject to Thai taxes?
General services
A Thai company enters into General Service Agreement with a foreign company.
The foreign company as a service provider carries on the main business of provision of financial services to car distributors and retail customers of leasing distributors.
Computer services are general services on computer system and computer program on leasing business in Thailand.
General services are strategic planning, financial statements analysis, accounting, internal control, organization and personnel planning, legal services, operation and credit policies, marketing, quality improvement and training. No services or assistance to the public.
The foreign company was incorporated and carried on its business for approximately 25 years and has knowledge , experience and expertise in commerce and leasing system such as accounting system, reporting, credit analysis , receivables accounting and debt collection.
The Thai company makes payment under the agreement to the foreign company.
Question
Is the payment subject to Thai taxes ?
Installation of the equipment
A Thai company purchases equipment from a foreign company. Under the Purchase Agreement, the foreign company shall install the equipment and provide advice from the time of the installation of the equipment to the test-run of the equipment where the foreign Company shall send its engineers to provide advices and trainings to employees of the Thai company.
Question
Is the payment by the Thai company to the foreign company subject to Thai taxes ?
Software and Training
A foreign company sells computer program to a Thai company and sends technicians into Thailand to train the use of the computer program to employees of the Thai company.
The Thai company makes payment for the purchase of the computer software and the training to the foreign company.
Question
Is the payment subject to Thai taxes ?
Technical Assistance Service Agreement
A Thai company enters into Technical Assistance Service Agreement in Thailand with a foreign company. Under the Agreement, the foreign company shall provide know how on production, maintenance and quality control of the cold rolling mills to the Thai company and the foreign company shall send its employees from the foreign country to come to Thailand to transfer know how to the Thai company. The Thai company makes payment under the Agreement to the foreign company.
Question
Is the payment subject to Thai taxes ?
License and technical service
A Thai company pays license and technical service fees to a foreign company where The foreign company as the parent company provides assistance for production of the products and management and sends its technicians to perform their duties in Thailand.
Question
Is the payment subject to Thai tax ?
Project Financing and BOI
BOI privileges
Listing and Taxation
Reduction of Corporate Income Tax
- payment for subscription for new shares is not tax deductible.
- dividend is generally subject to tax.
- tax loss of a company may be used.
- interest is tax deductible.
- interest is generally subject to tax.
Equity Financing
Shares
Tax implications on dividends
- Thai legal entity
- non-Thai legal entity
Tax implications on capital gains
- Thai legal entity
- non-Thai legal entity
Tax implications on fees
- Thai legal entity
- non-Thai legal entity
Fees on offering and issuance of new shares
- arrangement or management fee
- underwriting fee
- selling concession
Foreign dividends
Conditions for tax benefits
- holding of at least 25% of the total voting shares for at least 6 months.
- taxed at the normal rate of at least 15 % of the net profits.
Stock dividend
Questions
- Is stock dividend subject to Thai taxes ?
- How is the stock dividend calculated for tax liability ?
ESOP
Are securities issued by a company to its directors and employees subject to taxes?
How is the value of the securities received calculated ?
Warrants
Is an issuance of warrant subject to taxes ?
Is a capital gain on a transfer of a warrant subject to taxes ?
Debt Financing
- Loan
- Plain Vanilla Bonds
- Floating Rate Notes
- Secured Bonds
- Subordinated Notes
Tax implications on interest/discount
- Thai legal entity
- non-Thai legal entity
- Thai legal entity
- non-Thai legal entity
- Thai legal entity
- non-Thai legal entity
Loan and Fees
- agency fee
- management fee
- commitment fee
- front-end fee
- guarantee fee
Bonds and Fees
- arrangement fee
- underwriting commission
- selling commission
Question
Is any of the fees subject to any taxes ?
Question
Are convertible bonds/exchangeable notes regarded as equity and/or debt financing?
Convertible bonds
Tax implications on convertible bonds
Exchangeable notes
Tax implications on exchangeable notes
Loan – financial institution
A Thai company pays interest to S company which is a financial institution registered with the Dutch Central Bank and does not carry on any business in Thailand.
Question
Is interest be subject to Thai taxes ?
Loan BIBF
Bank A, Bangkok branch, Bank A, Singapore branch and Bank B, Bangkok Branch each lends US$ 30 million in the form of a syndicated loan to Company A. Thereafter, Company A enters into the cross currency and interest rate swap agreement on US$ 30 million loan with Bank A.
Question
Are Differences of both loans of US$ 20 million provided by Bank A, Bangkok branch and Bank A, Singapore branch subject to Thai taxes ?
Guarantee fee or a mark –up
A Thai company sells equipment and spare parts imported from Japan. A Thai company borrows money from Japanese banks which is guaranteed by a parent company in Japan. The Thai company shall pay interest and a margin to the banks. The Thai company will then sell equipment and spare parts to its customers on a credit term basis. As a result, The Thai company will charge the interest, a margin and a mark-up to its customer. The Thai company shall divide and pay part of a mark-up to its parent company.
Question
Is a mark-up subject to Thai taxes ?
Guarantee fee and default interest
Is a default interest on a guarantee regarded a guarantee or interest ?
Swap
A swap may be a interest rate swap, a cross currency swap and/or a cross currency and interest rate swap.
A payment under a swap transaction may be or may not be subject to taxes.
Is a difference on interest rate swap subject to Thai taxes ?
Is a difference on cross currency swap subject to Thai taxes ?
Is payment for provision of service liable to taxes ?
Sale and Service
Sale
Domestic transaction
A Sale of goods is generally not subject to withholding tax.
A sale of goods is subject to VAT.
A sale of real estate is subject to specific business tax.
Offshore transaction
A Sale of goods is generally not subject to withholding tax.
An export of goods is subject to 0 % VAT.
Sale
Supply Agreement
A Thai company makes payment to a foreign company for equipment and machinery supplied by a foreign company to a company in Thailand.
Question
Is the payment subject to Thai taxes ?
Sale and Installation
Equipment and machinery is sold and installment of the equipment and machinery is provided.
Question
Does the payment for the sale of the equipment and machinery and the provision of service fall within a payment for goods or a service fee ?
Service
Questions
If the warranty fee is included in the payment for goods, is a Thai company required to withhold tax on the warranty fee paid to a foreign company ?
What are tax implications on the payment of the channel fees to a company ?
Consultancy and Engineering Agreement
A Thai company employs a foreign company under Consultancy and Engineering Agreement to provide services to the Thai company including methods on construction of the underground system, preparation and organization of the site and stock for spare parts. The foreign company provides service in a foreign country and has no permanent establishment in Thailand.
Question
What are tax implications on the payment by the Thai company to the foreign company ?
Basic Engineering and Design Services
Basic engineering and design services are provided by a foreign company to a Thai company. Know-how or technology has not been transferred.
Question
Is tax chargeable on the payment by the Thai company to the foreign company ?
Is the payment for the provision of basic engineering and design services regarded as service fee or royalty ?
Basic Engineering and Technical Right
A foreign company entered into Basic Engineering Agreement and Technical Engineering Agreement with a Thai company.
Technical rights and engineering services are provided by the foreign company to the Thai company. Payments for technical rights and engineering services under the Agreement are made by the foreign company to the Thai company.
Question
Are the payments subject to Thai taxes ?
Engineering services on construction of a plant
U is a company established under the law of Germany and has no permanent establishment in Thailand. U carries on the main business of provision of engineering services on construction of a plant and provides full services including design , sketch and delivery of a completed plant to its customers.
A is a company established in Germany and is a contractor of U. A will provide technical engineering and title and technical right prepared by A will be conferred to U and will be sublicensed to T.
T is a Thai company.
U enters into 2 agreements with T:
- Basic Engineering Agreement
- Licensing Agreement
Question
Are Thai taxes applicable to the payments under the two agreement ?
Technical assistance and services
Company B which is incorporated under the laws of a foreign country enters into the Service Agreement with a Thai company to provide the following:
- Technical assistance
- payment of salaries and benefits
- Recruitment and payroll handing
- Administrative Support Services
Company B sends its employees to provide services to the Thai company in Thailand for a period of 2 years.
Question
Is the payment by the Thai company to the foreign company subject to Thai taxes ?
Computer program
Remuneration for writing computer program, the use of computer program or purchase of computer program generally sold is paid by a Thai company to a foreign company
Question
Is the payment subject to Thai taxes ?
Know-how and technical knowledge
A Thai company is authorized to use know-how and technical knowledge to produce a spindle motor, payment for such use is made by the Thai company to a foreign company.
Question
Is the payment subject to Thai taxes?
General services
A Thai company enters into General Service Agreement with a foreign company.
The foreign company as a service provider carries on the main business of provision of financial services to car distributors and retail customers of leasing distributors.
Computer services are general services on computer system and computer program on leasing business in Thailand.
General services are strategic planning, financial statements analysis, accounting, internal control, organization and personnel planning, legal services, operation and credit policies, marketing, quality improvement and training. No services or assistance to the public.
The foreign company was incorporated and carried on its business for approximately 25 years and has knowledge , experience and expertise in commerce and leasing system such as accounting system, reporting, credit analysis , receivables accounting and debt collection.
The Thai company makes payment under the agreement to the foreign company.
Question
Is the payment subject to Thai taxes ?
Installation of the equipment
A Thai company purchases equipment from a foreign company. Under the Purchase Agreement, the foreign company shall install the equipment and provide advice from the time of the installation of the equipment to the test-run of the equipment where the foreign Company shall send its engineers to provide advices and trainings to employees of the Thai company.
Question
Is the payment by the Thai company to the foreign company subject to Thai taxes ?
Software and Training
A foreign company sells computer program to a Thai company and sends technicians into Thailand to train the use of the computer program to employees of the Thai company.
The Thai company makes payment for the purchase of the computer software and the training to the foreign company.
Question
Is the payment subject to Thai taxes ?
Technical Assistance Service Agreement
A Thai company enters into Technical Assistance Service Agreement in Thailand with a foreign company. Under the Agreement, the foreign company shall provide know how on production, maintenance and quality control of the cold rolling mills to the Thai company and the foreign company shall send its employees from the foreign country to come to Thailand to transfer know how to the Thai company. The Thai company makes payment under the Agreement to the foreign company.
Question
Is the payment subject to Thai taxes ?
License and technical service
A Thai company pays license and technical service fees to a foreign company where The foreign company as the parent company provides assistance for production of the products and management and sends its technicians to perform their duties in Thailand.
Question
Is the payment subject to Thai tax ?
Project Financing and BOI
BOI privileges
- exemption of import duties of raw material and machinery and equipment to be used to the BOI business
- exemption of corporate income tax for up to 8 years
- reduction of corporate income tax for up to 5 years after the end of the period of tax exemption
Listing and Taxation
Reduction of Corporate Income Tax
- 20% tax on the net profits of a company listed on the MAI
- 25% tax on the net profits of a company listed on the SET
Author: Partner Picharn Sukparangsee
