Summary of the Revenue Department's Ruling to Align With the New Type Merger

On 21 February 2024, the Revenue Department (“RD”) released Ruling no. GorKhor 0702/1112 to be in line with the new type of a merger under Section 1238 (2) of the Civil and Commercial Code (“CCC”), as amended by Section 17 of the Civil and Commercial Code Amendment Act (No. 23) B.E. 2565 (2022) (the “Act”), effective as of 7 February B.E.2566 (2023).

New provision of merger law under the CCC
One of the most prominent changes brought about by the Act is the introduction of a new type of merger in addition to the amalgamation of companies. The new provisions will allow companies to consolidate in two ways, as follows:

Amalgamation (where a new entity is established, and the amalgamated entities cease to exist).
Merger (where a company merges with one or more companies, with one company retaining its juristic entity and the remaining company(ies) ceasing to be a juristic entity without registration of dissolution).

Under the CCC, both cases are required to pass a special resolution, and such special resolution must be registered with the Department of Business Development within 14 days from the date upon which such special resolution is passed.

Under the RD’s ruling
In compliance with the CCC concerning the new type of merger, the RD issued Ruling No. GorKhor. 0702/1112 dated 21 February 2024 outlining the diagnostic rulings as follows:

1. Sections 73 and 74 of the Revenue Code (“RC”) outline the provisions of the RC in respect of the amalgamation of public limited companies or limited companies.

For amalgamation into a new company under Section 1238 (1) of the CCC, the provisions of Section 73 of the RC stipulate that for tax calculation purposes, it is considered that the merged companies or juristic partnerships have dissolved, and the newly amalgamated company or juristic partnership shall have the duty and liability for filing tax returns and paying tax on behalf of the company or juristic partnership which is considered to have ceased to exist.
For the merger of limited companies under Section 1238 (2) of the CCC, if one of the companies remains a juristic person while the other merged companies cease to be legal identities, without being registered as a new legal entity, this do not fall under the definition of the amalgamation of limited companies according to Section 73 of the RC. Rather, it falls under an Entire Business Transfer (“EBT”) according to Section 74 (1) (c) of the RC, where the company that ceases to exist is considered as the transferor, and the company still maintaining its juristic person status is considered as the transferee.

2. For the EBT, the tax liabilities are as follows:

2.1 Corporate Income Tax (“CIT”)
It adopts the calculation of net taxable profit or net taxable loss for CIT in the case of a business transfer between companies where the transferor has registered its dissolution and liquidation in the accounting period of the business transferred under Section 74 (1) (c) of the RC mutatis mutandis;

For transferor

It requires that assets shall be valued at “Market price on the dissolution registration date”, as well as that the provisions of Section 74 (1) (b) of the RC and such price shall not be deemed taxable income or expenses for CIT calculation.

For transferee - the company that has received the transferred business:

The assets received shall be valued at the price shown in the account of the transferor company (Net Book Value: NBV) on the date of the transfer; for the purpose of calculating net taxable profit or net taxable loss until such assets are sold. Any assets subject to depreciation or amortisation shall be deducted in the calculation of net taxable profit or net taxable loss, which complies with the rules, procedures, conditions and rates used by the transferor company or juristic partnership, but only to the extent that the remaining period and remaining cost value for those assets allow.
Net taxable losses of the transferor company or juristic partnership shall NOT be treated as expenses for the CIT calculation of the transferee (this means that net taxable losses of the transferor will not be transferred to the transferee).

For Shareholders - who are companies or juristic partnerships

The CIT shall be exempted under Section 5 septuordecies of the Royal Decree (No. 10) B.E. 2500 (1957), for companies or juristic partnerships who are shareholders in a company, on the benefits received from the merger or EBT to each other of business operators by transferring shares in exchange for shares in the transferee company, subject to when the following conditions are met:
- Specifically, only when the share valuation exceeds the capital, excluding profits and retained earnings from profits generated before the transfer of business; and
- The transfer of shares shall be made within the same accounting period as the merger or EBT, and the EBT must comply with the Notification of the Director-General of the Revenue Department, governing details of the rules, procedures and conditions of amalgamation or EBT between public limited companies or limited companies for tax exemption dated 19 October B.E. 2555 (2012).

2.2 Value-added Tax (“VAT”)
Regarding an EBT, the remaining inventory and/or assets held by the operator for business operations on the date of cessation of business shall not be treated as SALEs under Section 77/1 (8) (f) of the RC. However, the transferee company should be the VAT registrant who is subject to VAT under Section 82/3 of the RC.

2.3 Specific Business Tax (“SBT”)
Regarding an EBT, the transferor companies who register their dissolution and liquidation in the accounting period of the business transferred are exempted from SBT for income arisen from the sale of immovable property held by the transferor companies for business purposes. This exemption applies specifically to only the immovable property transferred due to an EBT according to Section 5 sedecim of the Royal Decree (No. 10) B.E.2500 (1957).

2.4 Stamp Duty (“SD”)
In the case where there is a transaction under the EBT that is usually subject to SD, it will be exempt from the SD according to Section 6(31) of the Royal Decree (No. 10) B.E. 2500 (1957).

As a result of the aforementioned law, there are many advantages, such as increased convenience for the business in many cases, e.g. there is no need to apply for a business licence for the merged company, nor is there a requirement to wait for lawsuits until they are settled. Moreover, there are several tax benefits associated with conducting the merger. For example, both the transferee and transferor will benefit from tax exemptions, including CIT, VAT, SBT and SD, subject to the mentioned conditions.

It is useful to note that the RD's ruling is only to provide legal opinions or basic advice regarding tax payments; it is not an exercise of any legal authority. However, the Revenue Department is in the process of enacting legislation to be consistent with Section 1238 (2), which must be monitored.

Furthermore, in determining the suitable merger structure for your business, SCL Nishimura & Asahi can offer comprehensive legal and tax advisory services. For further details on how SCL Nishimura & Asahi can assist you, please do not hesitate to contact us via the information provided at the end of this Newsletter.

Source: https://www.rd.go.th/66352.html

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.

Areeya Ananworaraks
Counsel
Pairaya Yangpaksi
Associate

Authors

Areeya Ananworaraks

Counsel
Bangkok

+66-2-126-9120

Areeya Ananworaraks was previously a legal officer at the Thai Revenue Department. She has 18 years of legal and tax consulting experience. Her specialties including corporate matters, M&A, joint venture, IPO & REIT, corporate secretary (company secretary), commercial contract, property, family business, international business, offshore incorporation, corporate income tax, personal income tax, international tax, value added tax, specific business tax, stamp duty, petroleum income tax. Areeya has extensive on cross border transactions, tax inspection, petroleum business and legal matters. In addition, she has advised numerous MNCs clients on establishing operations in Thailand and listed companies in the Thai Stock Market as well as carrying on due diligence assignments.

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