The uncertainty over certain flood-related tax incentives
After the devastating flood last year, the government issued a number of tax measures intended primarily to provide businesses and individuals with relief from the hardships that resulted.
Despite the best intentions, the relief provided for businesses in Thailand appears to have resulted in some ambiguity as to the tax exposures for taxpayers. In particular, issues arose with regard to tax exemptions on income pertaining to insurance claims.
Once a company makes an insurance claim for flood damage, the amount of the claim becomes non-deductible for corporate income tax purposes since the claimed damage "may" be recoverable under the insurance policy under Section 65ter (12) of the Thai Revenue Code. Only after the taxpayer obtains a final settlement from the insurer can the costs resulting from the actual damage be taken as an expense for corporate income tax purposes in the given accounting period. This can result in delays to tax relief on costs incurred resulting from the flood, depending on when the final settlement is issued by the insurer.
Another example relates to Clause 4 of Royal Decree No 527, which grants corporate income tax exemption only on compensation which exceeds the value of assets less the depreciation previously taken on such assets according to Section 65 bis (2) of the Thai Revenue Code. There remains a question as to whether the term "asset" here includes non-depreciable assets such as stock, raw materials, spare parts etc. If the term "asset" is construed only to include depreciable-type assets then the compensation received from an insurer which is in excess of the value of claimed non-depreciable assets is still taxable.
Current practice seems to be divided on this issue. One interpretation is that the Royal Decree pertains only to depreciable assets; the other maintains that the Royal Decree pertains to depreciable and non-depreciable assets. The result is uncertainty for a taxpayer utilising the tax-exemption benefit on non-depreciable assets, as that action could result in disallowance of the tax position being taken. The uncertainty on this matter needs to be taken into consideration by a taxpayer when deciding what position to take for corporate income tax purposes. Taxpayers should monitor this matter regularly to ensure that they can mitigate any potential tax exposures or take advantage of tax benefits when the final position taken by the tax authorities is clearly defined.
Wanna Suteerapornchai is a Partner and Prachachon Kriengchaiyapruk an advisor in Tax & Legal services at Deloitte Touche Tohmatsu Jaiyos.