MSC Research
The justifiable grounds when the transaction is done at the price lower than the market value.
In a snapshot:
- The limited company and the public limited company (collectively referred to as the “Company”) are incorporated to operate a business and gain profits derived therefrom. To fulfil such objectives, the Company should not transfer goods, provide services or lend money without remuneration or with remuneration lower than the market value unless there are justifiable grounds as prescribed in Section 65 bis (4) of the Revenue Code. However, there is no specific definition of the justifiable grounds. The justifiable grounds indeed proceed on a case-by-case basis.
- If the transaction is done at the price lower than the market value, the Company who earns income is subject to prove the justifiable grounds when questioned by the Revenue Department. Failing to do so leads to the fact that the assessment officials of the Revenue Department will re-assess the remuneration on the date of transfer, the provision of service or the lending, as the case may be.
The following two interesting events are, for example, considered as having the justifiable grounds:
The First Event
- The Company sold to its customer a large number of inventories, covering from the outdated and expiring goods, the nonconforming goods to the unusable raw materials for the production flow, at the price lower than the market value.
- The Revenue Department considered that this case emerged with justifiable grounds since the Company wholly carried out in line with the process (the “Process”).
- To clarify this point, prior to the sale of those inventories, the Company received the approval from its authorized person examining and concluding that those inventories were outdated and/or expiring and/or nonconforming and/or unusable in compliance with standards and conditions officially set by the Company. The Company also invited, for the purpose of bookkeeping, the warehouse officer and the accounting officer to attend the event, declare themselves and sign the document as witnesses of the sale of those inventories.
- Under the Order of the Revenue Department (Paw. 79/2541), the above-mentioned Process, which was originally written and has been enforced for the purpose of stock destruction, is not a generally binding regulation. However, the Revenue Department significantly applied the Process to this case and materialized it in considering the justifiable grounds for the sale of inventories of which price is lower than the market value, which is a different context. Even if one follows the Process, it does not necessarily guarantee the same outcome in every case.
The Second Event
- The shareholder, who was a limited company incorporated under the laws of Thailand and held shares in another company (the “Shareholder”), transferred its shares held in another company in exchange of the shares of the new holding company in Thailand under the corporate restructuring scheme (“Share Swap”).
- This action was considered as the transfer of goods (shares) to where the Shareholder, as a transferor, might receive remuneration which would subsequently be computed for the corporate income tax under Section 65 of the Revenue Code.
- However, such Share Swap was only done for the purpose of corporate restructuring. If the shareholding ratio, the amount of shares as well as the share price of every shareholder in the new holding company are as the same ratio, the same amount and the same price as those prior to the Share Swap, it deemed that the Shareholder did the Share Swap at the cost price of each shareholder and this was considered as the justifiable grounds under Section 65 bis (4) of the Revenue Code.
Note that it is always debatable between the Revenue Department and the taxpayers both on the market value and the justifiable grounds. It is still possible that the Revenue Department questions the taxpayers on the sale price but practically based on the facts and other relevant factors, together with the presentation of the valid reasons.
Facebook
LinkedIn
Author
Articles by Tirayu S.
Articles by Piyachat S.
