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  1. #1
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    VAT and cross-border internet transactions - BP article

    Tax CORNER

    VAT and cross-border internet transactions


    LAWALLIANCE LIMITED
    While Thailand has tried very hard to develop its e-commerce sector, it is interesting to explore whether our tax law can really cope with such technological innovations.

    E-commerce transactions have been a contentious topic in cross-border trade for about a decade. Although taxes for export goods on a permanent establishment are not a serious concern in practice, service sector businesses are often an anomaly.

    Application of zero-rated value-added tax (VAT) on exports of services via the internet seems to be one of them even if the export industry has been the country's spearhead and received full support from the government.

    Technically speaking, exporters of services should not be required to collect VAT from offshore customers, but are still entitled to claim input tax paid to other VAT registrants. However, the rules and interpretations are not very promising, and there is always something hidden that lessens the already-thin profit margin of exporters.

    To be considered an export, services must be performed in Thailand but entirely utilised offshore. Unlike an export of goods with conventional transport, nowadays many services are commonly delivered via the internet.

    More complicated is proving that the service is "entirely utilised offshore". Many have an impression that the service can be considered as utilised offshore if the customers stay outside of Thailand. Unfortunately, life is not that simple.

    One Thai company ran into trouble when it posted information on the websites of its overseas clients that were not doing business in Thailand.

    The Revenue Department viewed that it was inadequate to deem the service "entirely utilised offshore" _ as some Thai internet users could access the websites of overseas clients. Hence, the service did not qualify for the zero rate.

    Also, where a Thai service provider sold a Hong Kong company the voice over internet protocol service in which its offshore customers could call to a destination in Thailand, the service was not viewed as "entirely utilised offshore". This practice demonstrates that even where a customer stays offshore, it is not a guarantee that VAT on the service fee will be zero.

    The Revenue Department recently relaxed the rule by saying that whether the service rendered via internet is "entirely utilised offshore" could be viewed on the transactional basis. For instance, an offshore client hired a Thai company to analyse the IT market in Thailand and to send the report via the internet.

    After the offshore client approved the report, it was posted in its website, located outside Thailand, for users, both in Thailand and offshore, to access in exchange for the fees.

    It was decided that the service rendered by the Thai service provider to the offshore client was "entirely utilised offshore". This ruling was the first of its kind, and its reliability will have to be tested over time.

    Mind you, the above development does not mean that the Thai service provider can apply zero-rated VAT easily. It is also crucial that the provider is able to show evidence that it is receiving a service fee from an overseas client. For all practical purposes, a tax auditor will ask for a bank statement showing the fund transfer to Thailand. Absent this paper, claiming the zero rate could be problematic.

    Thailand's export sector is struggling with the high baht, and the Revenue Department should be easing regulations and ignoring the requirement of "entirely utilised offshore". Also, since there are many methods to settle payment, it would be helpful to the service industry to have an expanded interpretation so that more forms of evidence can be used.

    In fact, if customers are residing outside Thailand and the zero rate is applied in good faith, should it be sufficient to claim that the consumption takes place outside the country?

    Why do we have to go through this painful test at the cost of the country's competitiveness in the service industry?
    By Rachanee Prasongprasit and Piphob Veraphong. They can be reached at admin@lawalliance.co.th
    source: Bangkok Post 17.07.2007

  2. #2
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    Thailand's export sector is struggling with the high baht, and the Revenue Department should be easing regulations and ignoring the requirement of "entirely utilised offshore". Also, since there are many methods to settle payment, it would be helpful to the service industry to have an expanded interpretation so that more forms of evidence can be used.
    Ah, I love flexible laws. Once upon a time it used to be dura lex sed lex

    Why do we have to go through this painful test at the cost of the country's competitiveness in the service industry?
    By Rachanee Prasongprasit and Piphob Veraphong.
    Dear Khun Pip and Khuntess Rachanee ,
    cuz' the govmint is hungry fer yer foking money thats why
    and
    lets avoid the pathetic melodrama pathos please!

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