‘CONSTRUCTION PROJECT RISK MANAGEMENT 2014’ Managing Tax Risk in Construction Projects Ruji Aphiworakitphan

‘CONSTRUCTION PROJECT
RISK MANAGEMENT 2014’
Managing Tax Risk in Construction Projects
Ruji Aphiworakitphan
BDO Advisory Limited
Tax & Legal Services
14 November 2014
Presentation Outline
• Tax considerations:
Project Owner & Contractor
• Tax planning:
Pre-construction
• Tax monitoring:
During and Post-construction
Tax Risk Management
Page 2
Tax Considerations
on Construction Contract
Project Owner & Contractor
Tax Risk Management
Page 3
Tax Considerations on Construction Contract
Project Owner
Contractor
Depreciation
Offshore & onshore
contractors
Deductible & nondeductible expenses
Income recognition
VAT creditable
Sale of goods & hire
of work
Withholding tax
liabilities
Stamp duty
Tax Risk Management
Page 4
Tax considerations: Project Owner
Depreciation of construction project: the project is ready to use –
when?
• Installation
• Commissioning
• Test –run
• Completion and deliverable
Tax Risk Management
Page 5
Tax considerations: Project Owner
Deductible and non-deductible expenses – What?
• During the construction: capital expenditures e.g. transport
fees, interest, taxes, government fees, cost of equipment and
services, etc.
• After completion of construction: non-capital expenditures (but
not include renovation or refurbishment) e.g. interest, service fees:
technical support, supervisory and maintenance
Tax Risk Management
Page 6
Tax considerations: Project Owner
VAT Creditable
• Input VAT on sale of goods and import of
goods
• Input VAT on provision of services
• No VAT on hire of service (employment of
its employees)
Tax Risk Management
Page 7
Tax considerations: Project Owner
VAT Non-creditable
• Input VAT incurred from the construction of building for usage
in the non-VAT business
• Sale or lease out or use of the building in non-VAT business
within 3 years from the tax month of completion of
construction but not include certain transactions e.g. business
rehabilitation, partial and entire business transfer,
privatization
Tax Risk Management
Page 8
Tax considerations: Project Owner
Withholding Tax Liabilities
• Offshore constructor: non-DTA tax resident and DTA tax
resident (business profit and PE, royalties) and tax rates
• Onshore constructor: hire of work (service, transport)
Tax Risk Management
Page 9
Tax considerations: Contractor
Joint Venture or Consortium
Offshore & Onshore Contractor
• Offshore contractor: PE, Alien Business
License, work permit
• Onshore contractor: subcontract
Tax Risk Management
Page 10
Tax considerations: Contractor
Income Recognition: Accrual basis
• Percentage of completion contract method: cost to cost and
engineering survey/report
(Thai Accounting Standard No. 11 (amended 2009))
(Departmental Instruction No.Tor.Por.1/2528, Clause 3.6)
Supreme Court Judgment No. 2744/2544
ruled to support the percentage of completion method
Tax Risk Management
Page 11
Tax considerations: Contractor
Stamp Duty
• Construction contract is a hire of work contract – subject to
stamp duty
• Liable person: contractor (unless agreed otherwise to be borne
by the customer)
• Stamp duty: every Baht 1 for service fee of Baht 1,000 without
maximum
How to reduce stamp duty: split of contract – sale of goods
contract is not subject to stamp duty
Tax Risk Management
Page 12
Tax planning
Pre-construction
Tax Risk Management
Page 13
Tax planning: Pre-construction
Onshore Contractor
• Split of contracts: sale of goods and services – to reduce
withholding tax and stamp duty
• Elements of sale contract and service contract should be
absolutely separated: purpose of contract, contract price etc.
• Seller and service provider is not necessary to be separated
Tax Risk Management
Page 14
Tax planning: Pre-construction
Onshore Contractor: Precedent Cases of Split of Contracts
Revenue Department Ruling No. GorKor. 0702/2301 dated 24 March
2009
• Objective of the Company is to provide construction services
• Split contract for sale of materials and construction
• The price per sale contract and service fee per construction
contract are both income from hire of work
Tax Risk Management
Page 15
Tax planning: Pre-construction
Onshore Contractor: Precedent Cases of Split of Contracts (cont.)
Supreme Court Judgment No. 2091/2553
Construction of Electricity, Communication, Sanitation and Air
Condition System
• Split contract for sale and service separately, separate scope of
work/objectives, goods price/ service fee, payment term
• Contractor and seller of construction materials are the same
entity
•
Tax Risk Management
Page 16
Tax planning: Pre-construction
Offshore Contractor
• Split of contracts: sale of goods and services
• Subcontract of onshore construction works to local contractor
to avoid PE and Alien Business License
Tax Risk Management
Page 17
Tax planning: Pre-construction
Offshore Contractor: Split of contracts
• Sale of goods is not subject to withholding tax and stamp duty
• Offshore supply contract shall be executed outside Thailand (no
employee, agent or go-between in Thailand dealing with the
customer for the sale)
• Ownership of offshore goods shall be transferred to the
customer outside Thailand
Tax Risk Management
Page 18
Tax planning: Pre-construction
Offshore Contractor: Split of contracts (cont.)
• Provision of offshore services may be exempt from withholding
tax under the double tax agreement depending on nature of
services.
• Self-assessed VAT for the project owner would not be a cost
and would be creditable for VAT business.
• Stamp duty only applies to service contract.
Tax Risk Management
Page 19
Tax planning: Pre-construction
Offshore Contractor: Avoiding PE under the Double Tax Agreement
• No fixed place: office, building site, etc (Asset test)
• No qualified activity: construction, installation, assembly or
supervision (Activity test); and
• No qualified period of time: 3, 6 months or 183 days in any
calendar year or accounting period (Time-test)
9 Count by project (being connected)
9 Consider on the period under the contract
9 Include suspension period, holiday
Tax Risk Management
Page 20
Tax planning: Pre-construction
Offshore Contractor: Secondment
• Secondment of foreign employees to the subcontractor and not
be reimbursed their remuneration to the offshore contractor
• Foreign employees obtain work permit under the employment
of subcontractor
Tax Risk Management
Page 21
Tax Monitoring
During and Post-construction
Tax Risk Management
Page 22
Tax monitoring: During & Post-construction
Implementation of Tax Planning
• period of services performed in Thailand, invoicing,
reimbursement
Contract Monitoring
• party who bears the tax payment, gross up price and tax on tax
calculation
Withholding Tax
• double tax agreement, due date, tax rates and filing
Tax Risk Management
Page 23
Tax monitoring: During & Post-construction (cont.)
Self-assessed VAT
• service provided outside Thailand and use in Thailand, due date
and filing
Documentation
• transfer pricing, stamp duty and period of retention of
documents
Tax Audit and Disclosure of Information
• in-charge person dealing with the Revenue Department,
potential tax dispute and evidences in court trial
Tax Risk Management
Page 24
BDO THAILAND
Tax & Legal Contacts
RUJI APHIWORAKITPHAN
Manager
Tax & Legal Services
[email protected]
Telephone: +662 260 7290
Mobile: +6687 695 9451
Fax: +662 260 7297
Qualifications
Bachelor of Law degree from Thammasat University and Graduate
Diploma from Institute of Legal Education of the Thai Bar.
Experience
Ruji has over 8 years experience providing tax and legal advisory
services. Ruji specialises in advising on, personal income tax,
corporate income tax, value added tax, stamp duty and property tax.
She also has significant experience in advising on tax planning and
carrying out tax review and tax due diligence assignments.
Tax Risk Management
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BDO PROFILE
THAILAND
BDO Advisory Limited specialises in providing tax and legal services to
multinationals operating in Thailand and the Asia Pacific region.
BDO Advisory Limited, a limited liability company incorporated in Thailand, is a
member of BDO International Limited, a UK company limited by guarantee, and
forms part of the international BDO network of independent member firms.
BDO is the brand name for the BDO International network and for each of the BDO
Member Firms
INTERNATIONAL
BDO International is a worldwide network of public accounting firms, called BDO
Member Firms, serving international clients. BDO International is the world's fifth
largest international accounting and advisory network, with over 1,000 offices in
119 countries and more than 46,000 professionals.
Tax Risk Management
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BDO ADVISORY LIMITED
Tax & Legal Services
28th Floor, CTI Tower
191/16 New Ratchadapisek Road
Klongtoey, Bangkok 10110 Thailand
Telephone:+66 2 260 9467
TeleFax: +66 2 260 2680
Website: www.bdo.co.th
Tax Risk Management
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