Article 7 "Business Profit" under Double Taxation Agreement: Practice and Problems in the Context of Thai Law

Abstract

Taxing foreign companies conducting business in a source country through a permanent establishment is considered as operating as a separate entity according to Double Taxation Agreement.  The permanent establishment functions as a part of the overall enterprise controlled by the head office, but its profits are treated independently, generated from the source country. The difficulty lies in determining deductible expenses and taxing profits since the permanent establishment’s profits stem from the source country, while expenses are incurred by the head office or elsewhere. Unfortunately, there are currently no regulations in place in Thailand to address this issue. Taxing business profits, especially for permanent establishment, is always a complex matter. While Thailand’s revenue code treats domestic and foreign companies equally, the tax obligations for foreign companies remain unclear. It is crucial to conduct a thorough study of how business profits are taxed under the Double Taxation Agreement in order to propose new regulations that align with it.