MEASURES AGAINST PROFIT DEFERRAL THOUGHT OFFSHORE COMPANY

Abstract

            In the globalization, international business transactions have been increasing rapidly over the years. This is the reason why the world economy has become increasingly integrated Trade flows have grown as a proportion of national income, global capital market and investments have expanded in many states. These international business activities have led to the formation of groups of companies with mutual interests.

Generally, the goal of business enterprise is to create profit. In practice, most companies make profit by business expansion as well as in many other ways, such as it can be enhanced through transfer pricing using a foreign company. Profits that arise in the company are generally not taxed in the shareholder’s country until   the shareholder receives dividends or disposes of the shares in the foreign company, implying that taxation in the shareholder’s residence state is deferred. This is beneficial to the extent that the foreign tax payable is lower than the residence state’s tax. Thus, the tax deferral encourages residents to remove income to low tax jurisdictions and to accumulate such income there instead of repatriating the dividends to the residence state.

Currently, since Thailand is a source income country and needs capital inflow and high technologies, MNEs have influenced the development of Thailand through their investments. The problems of tax deferral and tax base erosion have existed because it is difficult to transparently identify the matter due to a lack of information and the nature of trans-border business transactions of MNEs. All the information and documentation are also often kept in the parent company established in other countries.

            Thailand is also facing the problem of international tax planning or tax avoidance by MNEs based in Thailand and abroad. Moreover, Thailand has not had any protection measures in Thai Revenue Code that would enable the authorities to prevent or respond effectively to such international tax planning. Therefore, the “Controlled Foreign Company” measures should be used for preventing international tax avoidance in Thailand.