How new EU tax laws impact Thai firms

THAI MULTINATIONAL companies will be impacted on their cross-border business activities due to rapidly evolving tax laws in Europe and Asia-Pacific. For instance, the European Union (EU) achieved a groundbreaking result on June 20 by agreeing to a package of tax measures to combat corporate tax avoidance, which will be introduced by all 28 EU member states.

Also the international taxation landscape is expected to become even more complex necessitating careful consideration of financing, international tax structuring, transfer pricing and tax reporting policies worldwide.

The global project to address tax-base erosion and profit shifting (BEPS) continues to build momentum, in the wake of the 2015 final recommendations of the Organisation for Economic Co-operation and Development’s (OECD) Action Plan on BEPS. With the endorsement of Group 20, many countries are in the process of implementing large parts of the BEPS recommendations to combat aggressive tax planning structures worldwide.

Since 2015 the EU has taken the lead on trying to harmonise EU BEPS implementation for its member states. On June 20, this resulted in a political agreement between all EU member states on the proposal for an anti-tax avoidance directive. The directive lays down common minimum corporate tax rules in the areas of interest limitation, exit taxation, general anti-abuse rules, controlled foreign companies and hybrid mismatches. EU member states are now obliged to implement the anti-tax avoidance directive in their national legislation to be effective from January 1, 2019.

The release of the so-called “Panama Papers” and the continuing focus of the public and tax policy makers has certainly created even more momentum for wide EU support for adopting BEPS measures. The anti-tax avoidance directive comes on top of already agreed upon EU rules on exchange of tax rulings, transfer pricing documentation and exchange of country-by-country tax reporting.

Thai multinationals with operations in Europe will all have to consider the implications of the new tax rules on their financing and interest payments, international tax structuring and holding companies, transfer pricing and reporting policies in the EU. The “Brexit” referendum on July 23 in the United Kingdom, where the public voted in favour of leaving the EU, will most certainly complicate these considerations.

Moreover, also the tax administrations in the Asia-Pacific region feel a sense of urgency to advance efforts in the fight against tax avoidance and aggressive tax planning, where Australia, China, Japan and India have taken the lead on implementing BEPS recommendations. The OECD tried from the start of the BEPS process in 2013 to engage with non-participating countries, including the ASEAN member states, in order to reach a truly global platform for BEPS implementation. Currently only Indonesia has committed to implementing BEPS as a G-20 member state. Thailand, Singapore, Malaysia and Vietnam follow the process with great interest and are in the process to introduce parts of the BEPS recommendations (for example on transfer pricing, exchange of information and country by country reporting).

During the KPMG ASPAC Summit, held in May in Beijing, tax directors and government tax officials from different countries in the region all shared the same view.

Also the ASEAN Economic Community (AEC) Blueprint 2025 mentions the commitment to “discuss measures to address the issue of base erosion and profit shifting to ensure fiscal health”. With the inclusion of the BEPS paragraph in the AEC Blueprint 2025, the ASEAN tax administrations are opening the door towards a certain framework for discussing potential detrimental effects of tax competition within the region.

All these developments leave Thai multinational companies exposed to profound international taxation changes in almost all countries in the world where Thai companies have created significant business presence in the past decade.

Vinod Kalloe is head of international tax policy at KPMG EMA and head of EU-ASEAN desk KPMG Thailand.