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Relationship of business groups and their duty to submit Disclosure Form under Section 71 bis of the Thai Revenue Code

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Relationship of business groups and their duty to submit Disclosure Form under Section 71 bis of the Thai Revenue Code

It is generally known that related legal entities (affiliated group of companies) with income of no less than Baht 200 million have the duty to submit a disclosure form, commencing as of the fiscal year B.E. 2563 (2020). However, even though this law has been enforced for a few years now, some taxpayers may still adhere to the law incorrectly because the meaning of “Companies or juristic partnerships that have relationships according to Section 71 bis, paragraph 2 of the Revenue Code” is quite extensive. In summary, even though some taxpayers are related juristic persons, nevertheless, if the relationship is interpreted by considering only the shareholding structure, it may cause the business to misunderstand that it has no duty to submit a disclosure form, thus resulting in fines as high as Baht 200,000. In order to increase the understanding of businesses, the Revenue Department has established the following guidelines in relation to fines:

Filing a return not more than seven days after the deadline: fine of Baht 50,000.
Submission more than seven days after the deadline: fine of Baht 100,000.
Detection by officials to be related juristic persons: fine of Baht 200,000.

One thing for certain is that no juristic person would wish to pay such a high fine, and every business wants to operate legally in order to reduce the risk of being fined. Therefore, it is necessary to consider the legal meaning of ‘related legal entities/related juristic persons’, which is divided into three items as follows:

1. One legal entity holds shares or is a partner in another legal entity, whether directly or indirectly, of not less than 50% of the total capital.

2. A shareholders or partner who holds shares or is a partners in a legal entity, whether directly or indirectly, of not less than 50% of the total capital, and also holds shares or is a partner in another legal entity, whether directly or indirectly, of not less than 50% of the total capital.
For the case of direct shareholding according to item 1, the Revenue Department has guidelines for interpretation and calculation to consider based on the proportion of shareholding. The shareholding proportion must be considered from the number of shares held without classifying the type of shares (common shares or preferred shares).
In addition, the Revenue Department has previously ruled on the nature of relationships between companies or juristic partnerships that have relationships according to Section 71 bis of the Revenue Code, as can be seen in the following Revenue Department Ruling No. GorKor 0702/217 dated 14 January B.E. 2565 (2022):

List of shareholders	A Co.		B Co.		C Co.
List of shareholders	Number of shares	%	Number of shares	%	Number of shares	%
Mr. One	730	73	400	40	500	50
Mr. Two	170	17	400	40	500	50
Mr. Three	100	10	200	20	100	10

The Revenue Department ruled that the above shareholding is in the nature of having shareholders in a legal entity, whether directly or indirectly, of not less than 50% of the total capital; and that the shareholder also holds shares in another juristic person, whether directly or indirectly, of not less than 50% of the total capital.
The term "shareholder" or "partner" according to Section 71 bis, paragraph 2 of the Revenue Code covers both individual shareholders or partners and shareholders, or several partners together. Therefore, it is classified as a company or a juristic partnership that are related.

3. Legal entities that have a relationship with each other in terms of capital, management or control in such a way that one juristic person cannot operate independently from another juristic person as specified in Ministerial Regulation No. 369 B.E. 2563 (2020).

First of all, it is necessary to consider the meaning of the commercial or financial terms in this ministerial regulation as to what activities are covered, as follows:

“Commercial or financial requirements” means any terms, agreements or contracts related to the sale of goods or services, marketing, advertising or anything else in commerce; or related to borrowing money, provision of financial assistance or cooperation, or anything else in the financial field regardless of whether or not it has been made in writing.

Companies or juristic partnerships that have relationships and commercial or financial terms between them that are not independent of each other, in such a way it is believed that profits are transferred through one of the following mechanisms:

Setting a price for buying and selling products or services in which the terms or payment methods are different from what independent business operators would set under the same circumstance.
Setting an interest rate, financial service fees or any other financial fees that are different from what independent business operators should pay.
Setting an income or other expenses that are different from what an independent business operator would set.

Regarding a company or juristic partnership that has a relationship but no information on the shareholding proportion according to item 1 and 2 above, it will be considered according to item 3 in order to ascertain whether or not there are any requirements as mentioned in Ministerial Regulation No. 369 B.E. 2563 (2020) above.

The meaning of related juristic persons must be clearly understood in order to help reduce the problems of wrong practices resulting from misinterpretation of legal provisions. In such regard, if a business is considered a related juristic person, consideration must be given as to whether or not your business has an income of not less than Baht 200 million. If such income exceeds the aforementioned requirements, the company or partnership has the duty to submit a disclosure form within 150 days from the end of the accounting period.

This is intended merely to provide a regulatory overview and not to be comprehensive, nor to provide legal advice. Should you have any questions on this or on other areas of taxation law, please do not hesitate to contact our Tax Team of SCL Nishimura & Asahi Limited.

Budhima Kerdsiri
Counsel
Hatairat Sukprasert
Associate

Authors

Budhima KERDSIRI

Counsel
Bangkok

Budhima provides advice on tax compliance and a wide variety of tax-related work. In particular, she has extensive experience with accounting transactions and tax planning. Further, she has handled tax counseling and tax controversies and has substantial experience representing and advising individuals and major corporations in tax disputes, including filing appeal letters for tax assessments, which were assessed by the Revenue Department, the Customs Department, the Excise Department, and local tax collection agencies such as those dealing with land and building tax. In addition, she has more than 10 years of experience as a public speaker and columnist for tax magazines, focusing on tax planning and tax compliance for individuals and companies seeking to maximize their tax privileges under Board of Investment (BOI) promotion and accounting adjustments to comply with Thai tax laws.

Budhima was a columnist for the Tax Documentation Journal, the No. 1 public journal related to accounting and taxation published by Dharmniti Press Co., Ltd., and she is also the author of “Differences and similarities between accounting profit and taxable profit,” a book that has been published twice.

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