Tax Issues on Restructuring

Sriwan Puapondh
Tilleke & Gibbins R.O.P.

April 1999

Various tax regulations were issued in 1998 and 1999 in order to support or facilitate debt restructuring and corporate restructuring. These tax regulations grant relief on tax liabilities for parties involved in the restructuring, such as creditors, debtors and shareholders.
Debt Restructuring
If the debt restructuring proceeds in accordance with the rules respecting debt restructuring of financial institutions prescribed by the Bank of Thailand, and such restructuring is carried out from January 1, 1998 to December 31, 1999, the following tax liabilities are levied:

For Creditor

Reduction of interest rate granted to a debtor shall be deemed to have been made on justifiable grounds, hence, the Revenue Officer shall not assess the interest rate to be at market price (applies to a financial institution and a trade creditor).
A contract allowing a debtor to make payment of principal before payments of interest, fees or service charges shall be regarded to have already been approved by the Director-General of the Revenue Department (applies to a financial institution and a trade creditor).
The writing-off of bad debts may be carried out without complying with the general conditions applied to other cases (applies to a financial institution and a creditor who have jointly negotiated and made an agreement in writing with a financial institution for debt restructuring).
Exemption from income tax, VAT, specific business tax and stamp duty (for both individual and juristic entity) for income received from a transfer of property, a sale of goods or a rendering of services, and exemption from stamp duty for execution of an instrument arising from a debt restructuring of a financial institution or a creditor who have jointly negotiated and made an agreement in writing with a financial institution for debt restructuring.
For Debtor
Transfer of assets from debtor to creditor without any consideration or with consideration that is lower than the market value shall be regarded to have been made on justifiable grounds and the Revenue Officer shall not assess the asset price to be at market value (applies to a debtor of a financial institution, a debtor of a trade creditor who owes money to a financial institution, and the guarantor of the said debtor).
Income tax exemption for both individual and juristic entity for income received from a release of debts by a financial institution and other creditor who have jointly negotiated and made an agreement in writing with a financial institution for debt restructuring.
Exemption from income tax, VAT, specific business tax and stamp duty (for both individual and juristic entity) for income received from a transfer of property, a sale of goods or a provision of services, and exemption of stamp duty for execution of an instrument arising from the debt restructuring of a financial institution and other creditor who have jointly negotiated and made an agreement in writing with a financial institution for debt restructuring.
Corporate Restructuring
In a court-supervised debt compromise or rehabilitation plan under the Bankruptcy Act, the following tax relief applies:

The writing-off of bad debts may be carried out without complying with general conditions applied to other cases.
Income tax exemption shall be granted to the debtor (both individual and juristic entity) for income received from a release of debt obligations or debt compromise.
Exemption from income tax, VAT, specific business tax and stamp duty shall be granted to the debtor and creditor (both individual and juristic entity) for income received from a transfer of property, a sale of goods, a rendering of services, or execution of instruments.
Others

If interest income has been in default for three consecutive months, a financial institution may treat interest received thereafter as revenue of the accounting period in which it is received and this treatment may also apply to the payment of specific business tax. For insurance and any other similar business, the same treatment shall be applied if the interest income has been in default for six consecutive months.
Corporate income tax exemption shall be granted to the shareholder on that part of the value received from a merger or a transfer of an entire business that exceeds the cost of investment according to the rules, procedures and conditions prescribed by the Director- General of the Revenue Department.
Recapture of input VAT shall be exempted from the sale, letting out on hire, or use of a building in a business not liable to VAT within 3 years from the month in which the construction was completed.
Fees for transfer of immovable property or mortgage registration shall be reduced to 0.01% for financial institutions, other creditors, debtors, and guarantors, provided that the debt restructuring proceeds in accordance with the rules respecting debt restructuring of a financial institution prescribed by the Bank of Thailand. This reduction also applies to cases where a creditor is the transferee or the transferor of immovable property from a debtor or a mortgagor in a court-supervised debt compromise or rehabilitation plan under the Bankruptcy Act.
For further information, please contact Ms. Sriwan Puapondh, Partner and Head of Taxation Group, Tilleke & Gibbins (e-mail sriwan.p@tillekeandgibbins.com).

©1999 Tilleke & Gibbins, Bangkok, Thailand