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Year in review: Major tax adjustments, regulatory progress

AS 2013 comes to a close, we look back as always before looking forward to count our accomplishments for the year and assess things left undone.

This year saw significant progress on several issues related to tax and regulatory changes, along with clarifications of some open issues left over from 2012. But my, how things can change in just one short year.

The year started with the United States granting an extension to the impending three-plus-year roll-out of the Financial Accounting Tax Compliance Act, know more commonly as FATCA. As often discussed, this new legislation requires that all financial institutions worldwide provide the US government information on Americans' accounts.

Hopes had been expressed that maybe FATCA would go away, but the Internal Revenue Service (IRS) merely announced a six-month delay in implementation of FATCA from December 31, 2013, to July 1, 2014.

Thai financial institutions have been working hard to ensure they are able to meet the new reporting and withholding requirements FATCA imposes on them and appear set to be in a position to comply when the act kicks in.

The Thai government has also taken the lead on FATCA implementation by setting into motion the negotiation of an intergovernmental agreement (IGA) with the US, which would convert FATC from a voluntary-compliance exercise between Thai financial institutions and the IRS to a Thai domestic |law reporting requirement. While negotiations were set to begin on this important agreement, there |are now questions as to how |quickly the negotiations can be completed given the current political unrest.

Timely completion of the IGA and implementation of the needed tax reforms to accompany the agreement by the July 1 FATCA deadline appear to be in doubt. It is hoped that the parties involved are able to press ahead despite the current tumultuous political environment.

This year also saw another reduction of the corporate income-tax rate, which now stands at 20 per cent. This is part of a multi-year phased reduction of the rate from 30 per cent. This new 20-per-cent rate will be effective under the current royal decree for at least one more year.

Action will be needed to extend the rate beyond 2014 either in the form of a permanent legislative change or via extension through a subsequent royal decree. This again will depend on how things progress in settling the political situation and formation of a new government that can take effective action to implement the needed changes.

A failure to act would result in the tax rate reverting to 30 per cent in 2015, a prospect that could have a significant added impact on foreign investors looking to use Thailand as a base for Asean investment.

Proposed reductions in tax rates were not limited to corporate earners. The much-anticipated reductions in personal income taxes were finally proposed and set for action in the latter part of this year, but they have stalled. A last-minute effort has been made to ensure these changes take effect through temporary enactment via a royal decree.

Our information is that the decree has been approved and signed, but that it currently awaits publication in the Royal Gazette. It will not be effective until published, so it is hoped that this will be done within the few remaining weeks of the year. If not, there could be some confusing computations for employers as they had been instructed in November that they could use the new rates for withholding purposes in November and December payrolls.

Other developments over the year include the final execution of the Thailand-Taiwan double-taxation treaty, with its corresponding benefits for cross-border investment.

In addition, removal of Thailand from the Financial Action Task Force anti-money-laundering watch-list after passage of improved and more stringent know-your-client due-diligence requirements brings Thailand into compliance with most other nations. It also potentially provides the Kingdom with a strategic advantage over several of its Asean neighbours that are still remain on the FATF's "grey list".

Removal from this list also eliminates a strategic advantage that other Asean member states may have had over Thailand in the competition for inflows of foreign direct investment and in the development of this country as a financial hub for the Asean Economic Community (AEC).

Reform of the entire business-transfer rules brought Thailand more in line with international standards, as did clarification of value-added-tax (VAT) rules regarding export services.

All in all, it has been a very busy and productive year as regards developments in the tax and regulatory arena. Let's hope that 2014 can be as productive and that many of the reforms needed to meet the 2015 AEC-implementation deadline can be completed in time.

On a separate note, I would like |to take this opportunity, as I do every year, to thank the many people here |at KPMG who support the production of this article every month with |much-needed technical and editing support. They are the backbone of this project, and I would not be able to do it without them. To them I am forever indebted.

Jonathan Blaine is executive director at KPMG Thailand.


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