On 16 May 2016, the Supreme Court of Thailand interpreted the Investment Promotion Act B.E. 2520 ("IPA") in a manner which was seen by many as breaching the reasonable expectations and reliance interest of many foreign as well as domestic investors. Reasoning that the IPA does not stipulate any specific method in the computation of net profit, the Supreme Court ruled that the Revenue Code's provisions must prevail with regard the computation method of net profit and loss deriving from BOI-promoted activities. The Revenue Department's position, in effect, prevails. However, certain legal practitioners and scholars were and have remained doubtful whether this interpretation of the IPA would prevail in future decisions.
Subsequent to the decision, BOI-promoted companies must now include its profit and loss from each and every one of its BOI-promoted projects to offset one another in order to be eligible to benefit from Sections 31 Paragraph 4 of the IPA (the "Tax Loss Benefit") and the 5% deduction from increased export income benefit under Section 36(4) of the IPA must be taken into consideration based on the total income of all promoted projects.
However, to normalize the investment landscape, on 16 June 2016, the Minister of Finance exercised his authority under Section 3 Octo Paragraph 2 of the Revenue Code and issued the Ministerial Notification On the Time Extension for Corporate Income Tax Return Pursuant to the Revenue Code (the "Notification") to help BOI-promoted investors who unwittingly found themselves to be in default of their tax liabilities as a result of the decision in May.
After the issuance of the Notification, it has been controversial among BOI-promoted companies that the Notification's limited scope was problematic. Some continually sought the justice, equalization and fairness from the Government. As such, on 29 July 2016, in his capacity as the Leader of the National Council for Peace and Order (the "NCPO"), Prime Minister and Commander in Chief Prayut Chan-o-cha has issued an order titled the Order from the National Council for Peace and Order No. 45/2559(the "Order"). This Order was issued under the executory authority under Section 44 of the 2014 Constitution of the Kingdom of Thailand (Interim).
The Prime Minister acknowledges the damages incurred by BOI-promoted companies as a result of the Supreme Court's judgement rendered on 16 May 2016. Section 44 of the 2014 Constitution of the Kingdom of Thailand (Interim) states, "[f]or the sake of the reforms in any field...or the prevention, abatement or suppression of any act detrimental to... national economy or public administration...the Leader of the National Council for Peace and Order, with the approval of the National Council for Peace and Order, may issue any order or direct any action to be done or not to be done, irrespective of whether the order or action would produce legislative, executive or judicial effect. Those orders or actions, as well as their observance, shall be deemed lawful, constitutional and final. After the exercise of such power, the President of the National Legislative Assembly and the Prime Minister shall be informed thereof without delay." (translated and paraphrased)
Through the exercise of this broad and powerful executory authority, the Prime Minister wishes to express his comprehension of the situation with regards to the diverging statutory interpretation between the two governmental institutions, which caused many BOI-investors to incur monetary damages in the forms of increased tax liabilities as well as penalty fees and surcharges. As such, the dominant purpose of the Order is to provide investors, domestic and foreign alike, with confidence and reassurance in their good faith reliance of Thailand's investment incentive law. The Prime Minister understands and appreciates the gravity of the conflicting interpretations between the Revenue Department and the BOI, and ramification that this may have on international investors' perception of the Thai economic climate. Furthermore, the Prime Minister is also cognizant of the shortcomings of the Notification by the Minister of Finance.
For the preservation of investors' good faith reliance on the now inoperable accounting method that had until recently been allowed by the BOI but was later nullified by the Supreme Court's decision, therefore, the Prime Minister has issued the Order with the objective to address the shortcomings and the patently narrow scope of redress provided under the Notification. Thus, the Order extends the deadline for filing both corporate income tax returns for affected companies as well as partnerships to 15 August 2016.
Under the Order¸ Section 2 of the Ministry of Finance's Notification, which grants an extension for affected businesses to file their income tax returns, shall, until 15 August 2016, apply with necessary adaptations to enable affected businesses to refile their income tax returns until the stated date. Furthermore, affected businesses may also apply for the refund of any surcharges or penalties that they may have already paid for as a result of having been rendered to be retrospectively in delinquency due to the accounting method that has been upheld by the Supreme Court.
Nonetheless, the Order is not without ambiguity. Section 2 of the Order leaves many practitioners and investors questioning whether or not all the shortcomings that the Ministry of Finance's Notification has sought to addressed have been remedied as well as what the roles and responsibilities of the BOI should be in the restitution process of the affected companies. Among other ramifications on the rights and benefits under the IPA in light of the Supreme Court's decision are Section 36 (4)'s right to deduction 5% from increased annual export income, Section 34's dividend withholding tax exemption, as well as Section 35 (1)'s corporate income tax reduction have not been restored to their former integrities. Section 2 of the Order states:
"The extension under paragraph one of Section 2 of the Notification, which is authorized under Section 3 Octo Paragraph 2 of the Revenue Code, shall apply mutatis mutandis with regards to the affected companies with regards to the previously non-compliant computation method(s) employed in the filing of their corporate income tax returns, which, but for the divergent statutory interpretation between the government agencies of Thailand, have not been committed with the intention of avoiding their tax liabilities, as stipulated by Section 3 of the Notification." (translated and paraphrased)
From the excerpt of Section 2 of the Order, practitioners as well as investors remain uncertain with regards to what other restitution remedies may be attained by this Order in addition to the refund of the penalty fees and surcharges. The question that remains, thus, is whether or not this Order has done enough to fully restore the rights and benefits under the IPA to their formal integrity.
Nonetheless, many practitioners believe that the wording of Section 2 of the Order, read in combination with the spirit and intention expressed therein, may be interpreted to be sufficiently comprehensive so as to address most of the shortcomings of the Notification. However, it has been widely suggested that the Revenue Department has interpreted the ambiguity of Section 2 of the Order as simply a deadline extension of the Ministry of Finance's Notification, which the Revenue Department contends, also covers the effects inflicted upon the original taxpayer involved in the Supreme Court's decision. This interpretation is seen to be the Revenue Department's stance on the accounting practice contention, notwithstanding the clearly worded intention and purpose of the Prime Minister's Order. Therefore, more intra-governmental statutory interpretation conflict may arise and BOI-promoted investors should take precautions before committing themselves to any accounting method for tax purposes.
As the Prime Minister has expressed his view that it would be incumbent on the BOI to provide support and to promote investments in Thailand through means of consultation and clarification of legal assumptions and understandings with regards to the practical application and implications of the laws relating to the BOI, perhaps, the BOI should take the initiative to address the damages inflicted upon many foreign and domestic investors who had relied on the BOI's accounting method in good faith. Ultimately, however, the implementation of the Order as well as its implications on each of the effected provisions of the IPA would depend on the NCPO's clarification. Lastly, the Order states that the Ministry of Finance and the BOI should also consult each other to clarify any ambiguities in the IPA as soon as possible. Nevertheless, although the IPA falls within the administrative purview of the BOI, as the Revenue Department and the BOI may once again enter into a dispute, investors are advised to consult with the BOI and the NCPO, respectively, for further confirmation prior to adopting a new tax computation method. In the absence of any clear agreement between the BOI and the Revenue Department, affirmation from the NCPO may at least have some evidentiary value in tax litigations.