THE BASE EROSION AND PROFIT SHIFTING VIA THE EXPLOITATION OF HYBRID ENTITY AND HYBRID FINANCIAL INSTRUMENT IN THAILAND

Abstract

This article examines on the problems of base erosion and profit shifting generated by the international arrangements or transactions that occur via the use of hybrid entities and hybrid financial instruments which recognized differently depending on the domestic law of the country where the contracting party resides. When the recognitions of the status of an entity and the types of an instruments are different, then the compliance of tax law to the entity or the instrument may be different in each party country and causes the conflict of the income and the expense recognition between the payer state and the payee state, which does not satisfy the Matching Principle, creating the Hybrid Mismatch. This significant problem affecting many countries around the world makes the contracting countries are unable to levy tax appropriately and causes the loss of revenue from around the world about 100 to 240 billion US dollars per year. Moreover, the international arrangements or transactions using the hybrid entities and hybrid financial instruments also have a great impact on the Principles of Good Tax, including the economic competition. Because of the above issues, the author therefore studied comparatively to examine how the international organizations, for instance the OECD, have advised the guidelines to solve the problems and how other countries such as Australian and the United States have applied the concrete rule to prevent this problem. The analysis shows that the Australian provisions are in accordance with the principles of fairness and neutrality, meanwhile, the provisions of the United States of America are in line with the principle of simplicity. As the result of the study, the author has proposed to revise the Thai tax law to solve such problem by amending the provisions in the Thai Revenue Code to limit the given tax treatment.