The Thai Revenue Department (TRD) is aiming to improve and increase revenue collection from the e-commerce business.  In the past few years, the TRD has launched several measures to include e-commerce business operators into the Thai tax system. One of these measures was the formation of a team to study and analyze the tax treatment of e-commerce and digital businesses in other countries. In the context of domestic e-commerce transactions, there is no current concern since the TRD can detect these and impose the appropriate Thai tax. However, in the context of international e-commerce transactions, the current Thai tax regulations does not provide the TRD with a basis to impose Thai tax since the foreign operators do not have a presence in Thailand. The digital economy provides increased opportunities for e-commerce operators to reap substantial sales from a country without establishing a taxable presence in said country.  The existing permanent establishment (PE) rules in domestic tax law and tax treaties require some type of physical presence before a PE can be established in another country. 

 

Under Section 76 bis of Thai Revenue Code (TRC), a foreign company is deemed to carry on business in Thailand and will be subject to Thai tax if it derives income in or from Thailand through the activities of its employee, agent, representative or go-between in Thailand.  Based on a strict reading of these provisions, if a foreign operator which carries on e-commerce business does not enter Thailand or does not have any employee, agent or representative and/or server located in Thailand, such foreign operators should not be regarded as carrying on business in Thailand and thus shall not be subjected to income tax in Thailand. 

 

The TRD is aware of this loophole and it is expected that the TRD will soon introduce new laws to capture the taxation of cross-border e-commerce transactions in Thailand. If the foreign operator has some type of presence in Thailand, such foreign operator may be considered as conducting business in Thailand and should be liable to pay Thai tax.  Thus, it is possible that the focus of the TRD is to broaden the interpretation of what constitutes a ‘taxable presence’ or PE in order to include cross-border e-commerce transactions in the Thai tax system. 

 

How this will impact on the application of double tax treaties is also a relevant point. Generally, if a PE is created in Thailand, the foreign operator would be taxed in Thailand in the same manner as a Thai operator. It is interesting that the TRD has stated that in the case where the foreign operator’s website contains Thai language, the law may allow the TRD to interpret that it has a presence in Thailand and thus is subject to tax in Thailand. 

 

Hopefully, the inclusion of Thai language is not the sole determining factor in establishing a PE for foreign operators in Thailand.  If the coming law is not clear and is open to interpretation, it may hinder the growth of e-commerce transactions in Thailand which would be counter-productive to Thailand’s initiatives of promoting and encouraging a new digital- and technology-based economy.