Issues of Tax Law Drafting on Branch Profit Remittance Tax under Section 70 Bis of Revenue Code

Abstract

A foreign company can choose to operate in another country whether in the form of establishing a subsidiary or going to have a branch of the company. If its subsidiary or its branch is profitable, the company may remit its profit back to the home country in form of “Dividends” or “Branch Profit”, as the case may be. However, because its branch and the headquarters are legally the same legal entity, remittance of its branch profits back is therefore not considered as income of the company (the headquarters). As a result, a source country where the company's branches are located has no taxing right to collect tax on the remittance of such profits. In contrast, a subsidiary and a parent company are considered separate legal persons. Profit remittance back by the parent company in the form of dividends is considered as the income of the parent company. As a result, the country where the dividends are derived has the taxing right to collect tax from such a dividend payment. Therefore, many countries have introduced a branch profit tax. This includes Thailand, which enacted Section 70 Bis of the Revenue Code to collect a similar branch profit tax, the so-called "branch profit remittance tax". Thus, even though branch profit tax and branch profit remittance tax look similar, tax drafting, including tax base, tax timing, and tax collection, is different from each other. According to the study's findings, in terms of legal drafting, Section 70 Bis of the Revenue Code is incompatible with the context of how a branch distributes its profit back to headquarters. As a result, collecting taxes under Section 70 Bis of the Revenue Code will cause issues for both taxpayers who pay taxes and tax officials who collect taxes efficiently.