Volume 4 Issue 3
April - June 2002          
SGA Bulletin
In this Issue:
New Law Affects Work Permit
E-Law Enters in to Effect
New Transfer Pricing Rules
Cabinet Endorses Amendments to Telecom Business Law
Commerce Ministry to Strengthen Copyright Fee Enforcement
New Anti-Dumping Measure to
Replace Steel Surcharges
Board of Investment (BOI) Considers Export Industry Incentives
Travelers' Cash Subject to
New Limits
New Export Service Center to
Expedite Food Exports
Office of SME's Promotion Aims to
Stimulate Recovery
Turkey Signs Tax Treaty with
Tax Incentives to Research and Developers
Tax Deductions Applicable to Local
Life Insurance Policies
The SGA Bulletin is intended for informational purposes only. It does not constitute legal advice. Legal, business and other information is subject to change and no warranty is either expressed or implied.

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Copyright SGA 2002

New Law Affects Work Permit Procedure

The Labor Department issued an announcement in mid-May of this year concerning changes in the work permit procedure. Under the new law, foreign employees applying for a work permit must meet one of five (requirements): (1) 2,000,000 baht as shown in a bank statement for each foreigner; (2) proof of income tax paid following for the company of 5,000,000 baht for last 3 years; (3) proof of 50 or more Thai employees; (4) proof of exports of 3,000,000 baht for the previous year; or (5) proof of paid income tax for the individual foreign employee in the amount of 18,000 baht or more for the previous year.

There are an additional twelve categories of inquiry that the Labor Department may use in granting or extending a work permit in cases where the major five requirements cannot be met, or in companies where there are more than one foreign employee.

E-Law Enters in to Effect

The Electronic Transaction Law became effective in early April ushering in a new era in the legalization of the digital revolution. Under the new law, electronic documents may become admissible in Court proceedings and official recognition will be given to electronic signatures.

Except for those transactions disallowed by Royal Decree, civil and commercial transactions by means of a data message will become officially enforceable. A Royal Decree to clarify the details of the Act is currently being drafted by the Electronic Transactions Commission, which is set up under the Ministry of Science, Technology and Environment.

Those legal instruments which require a third party signature or witness may be excluded from the Act.

Data security which is provided by means of a digital signature issued by a Certification Authority, will be necessary for the Act to apply to digital transactions.

New Transfer Pricing Rules

New and long awaited transfer pricing rules have been issued by the Revenue Department. The rules are intended to avert perceived losses in tax revenues caused by transfer pricing practices of multinational companies.

Pursuant to the instructions and consistent with prior policy the Revenue Department confirms that it has the right to adjust companies revenues and losses and will do so where it is determined that any of the following scenarios apply: (1) No revenue is received or the compensation received is below market value; (2) expenses paid out are higher than the market value. Market price is defined as the price pursuant to "arms length transaction" and the guidelines of the Organization for Economic Co-operation and Development are applied. For sales of assets and services and loans, "market price'" is defined as the price at the date of the transaction that would be charged between independent contracting parties for the same or similar assets or services.


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The instruction sets out four pricing methods that may be used to establish market price: (1) comparable uncontrolled pricing method; (2) resale price method; (3) cost plus method and; (4) other internationally accepted methods (provided the first three methods cannot be applied).

The instruction also provides for an extensive list of documentation that may be requested of a company in performing a transfer pricing examination. The rule also provides for affected taxpayers to apply for advance pricing agreements with the Revenue Department that would control future transactions.

Cabinet Endorses Amendments to Telecom Business Law

Major changes to the Telecom Business Law were endorsed by the Cabinet in May 2002. Most significant is the proposal to lift the 25% cap on foreign shareholding to allow for 49%. The 5% limit was a source of much contention within the business. Other changes include the banning of the 3,000 baht service deposit that was collected by operators. Refunds are being made to end consumers in the form of services rather than cash refunds. Some operators have asserted that allowing foreign investment actually strengthens the local economy.

Commerce Ministry to Strengthen Copyright Fee Enforcement

In an attempt to prevent users of copyrighted works from being unfairly charged and to curtail illegitimate operators from collecting copyright fees, the Commerce Ministry announced plans in April 2002 to force copyright owners to disclose their rates and the conditions of their licensing agreements.

Although the Intellectual Property Department may lack the necessary authority to compel the disclosure of copyright fees and conditions because there is no express provision in the Copyright Act to allow this, the Ministry of Commerce may have the ability to force disclosure by means of the Trade and Services Act.The Office on the Committee of Trade and Services currently is empowered to compel disclosure of fee arrangements by various industries and may add copyright to their list.

The new policies would require copyright owners, who are currently not directly compelled to register information regarding their fees and conditions of copyrights and licensing agreements, to disclose such information. By applying the 1999 Trade and Services Act copyright owners and their distributors would need to reveal their costs, prices, standards, and quality of their goods.

Allowing the committee to superintend copyright registration would protect the rights of users and consumers of copyrighted materials, as well as the owners of copyrighted materials, especially those who had produced a small number of works and were not currently registered with one of the existing fee collection agencies. The registration aims to prevent illegitimate individuals from claiming to be rights owners and collecting fees from entertainment venues.

New Anti-Dumping Measure to Replace Steel Surcharges

In mid June 2002 an official from the Board of Investment has revealed that current surcharges on imported steel will not be extended beyond their July expiry date. The surcharges, intended to temporarily protect local steel makers, will be replaced by new anti-dumping measures. While the import surcharges have generally benefited local steel producers, the new measures, which conform to World Trade Organization rules, would allow the Commerce Ministry to apply anti-dumping measures more selectively.

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This would benefit local manufacturers who were restricted access to lower cost supplies while all steel exporters were charged increased duty under the existing surcharges. The new measures would call for certain foreign steel producers to prove they are not selling their products below cost.

Board of Investment (BOI) Considers Export Industry Incentives

The BOI announced in June that Industries in Bangkok and other developed areas (Zones 1 and 2) may be granted privileges normally afforded only to the less developed area of Thailand (Zone 3) in an effort to increase production and utilization. 19 industries in Zones 1 and 2 which have, according to reports, been operating below capacity since the 1997 economic crisis would be granted non-tax privileges provided that they meet the following conditions: (1) they export all of their products; (2) they are already existing enterprises; and (3) they produce one of the following products: leather, paper, footwear, jewelry packaging, toys, artificial flowers, or stationery. The plans for the extension of privileges are still being considered and may run into opposition from other businesses.

In a separate development, BOI privileges were also extended to factories on bonded warehouse sites that occupy at least 200 rai of land. Factories in Samut Prakan producing metal, machinery, and transport equipment; agricultural and related products; electronic and electrical goods; and petrochemicals would be eligible for the same privileges as those in industrial estates or existing BOI promoted zones.

According to statistics collected by the BOI there has been an increase in investment applications this year as compared to previous years.

Travelers' Cash Subject to New Limits

May 2002 marks the start of enforcement of a new law on travelers either bringing into or carrying out of Thailand more than 10,000 USD.

The new law requires a declaration be made that concerns funds in excess of the stated limit. Travelers risk seizure of said funds if a declaration is not made. The intent of the law is to crack down on money laundering and the law may prove a useful tool for the Anti-money Laundering Office. The Cabinet approved the change several months ago and the change is in line with an international trend of government cooperation across borders to crack down on international crime syndicates.

New Export Service Center to Expedite Food Exports

A new multi-agency department was created in early June 2002 within the Export Promotion Department to expedite the process of granting export certificates. The One Stop Export Service Center aims to shorten the application process by one week, granting approval to food exporters within one to three days. By integrating 13 agencies, including the departments of Foreign Trade, Livestock, Fisheries, and Customs, the new center will allow food exporters to have all relevant documents processed in one location. The center will continue to provide licenses and certify food exporters until the Customs' electronic data interchange system is developed to process all this information digitally.

Office of SME's Promotion Aims to Stimulate Recovery

The Office of SME's Promotion, developed in 2001, seeks to boost small and medium size businesses by coordinating and supporting SME development. SME projects desiring capital from any of the ten state banks that provide such funds are now subject to screening from the new office. The office, which is expecting a budget of one billion baht this coming fiscal year, will oversee applications from state agencies regarding SME related issues.

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Turkey Signs Tax Treaty with Thailand

Turkey and Thailand have entered into a Treaty for the Avoidance of Double Taxation and tax evasion in mid April. Thailand currently has similar treaties with many nations including the USA. The treaty is intended among other things, to boost investment and reduce business costs. Trade between Thailand and Turkey includes rubber, synthetic products, motor vehicles, machinery, gems, precious metals, jewelry food products, hotels and tourism.

Tax Incentives to Research and Developers

Manufacturers engaged in specified research and development projects stand to gain tax deductions under a new program initiated under the auspices of the National Science and Technology Development Agency and the Revenue Department. A spokesman for the Revenue Department stated that companies would be eligible for tax deduction for up to twice the amount of their expenses. The tax incentives are aimed at increasing the technological skills of manufacturers in Thailand and further stimulating research and development in Thailand.

In a related development, the Revenue Department is seeking to increase its ability to enforce collection of VAT and income tax from insurance sales agents. The effort is aimed at offsetting revenue losses caused by the new tax deductions.

Although Thailand is required under the General Agreement on Trade in Services to open its insurance markets, including cross-border sales, there in no requirement to reduce taxes on foreign sourced insurance policies. The tax increase proposal may be submitted to the Cabinet within the next few weeks.

Tax Deductions Applicable to Local Life Insurance Policies

New tax deductions of up to 50,000 baht would be available to life insurance policies underwritten in Thailand, according to an official within the Commerce Ministry. Only savings policies issued during this calendar year that require 10 years to maturity would be eligible. Single premium and lump-sum premium life insurance policies will be granted a one-time deduction. However, policies purchased overseas or on the Internet will not be eligible.

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