Is Thailand Foot-Dragging On US Double Tax Treaty?

by Mary Swire, Tax-News.com, Hong Kong

07 August 2001

The Double Tax Treaty between Thailand and the US, which was signed with great fanfare in 1996, but was then subject to a long ratification process in the US Senate, is still not fully in effect. Under the treaty, many remittances from Thailand to the US pay a rate of withholding tax reduced from 15% to 5% or nil - but tax privileges under the Treaty will automatically terminate on 1st January 2003 unless the Thai and US Governments "exchange such information as is necessary for carrying out the provisions" of the treaty.

One of these requirements is that the Thai government submits a "diplomatic note" to the US government by June 30, 2002, and according to Michael Doyle, a partner in local law firm Nagadatta & Doyle Ltd, writing in the Bangkok Post, there is no sign that the Thai Government is planning to send such a note. The Note is required to state that the Thai government agrees to provide the US government such information as is "necessary for carrying out the provisions" of the treaty on request. This note is also required to confirm that if the United States requests Thailand to provide such tax information Thailand "shall obtain the information to which the request relates in the same manner and to the same extent" as if the request originated within the Thai government.

The Double Tax Treaty (or, more properly, Convention) between the United States and Thailand was under negotiation for almost twenty years, mostly due to Thailand’s proposal for a tax-sparing credit by the US government to waive taxes for US-based investors in Board of Investment promoted projects in Thailand. The US Congress has been historically opposed to tax-sparing credits, and the final version of the Convention did not include a tax-sparing provision.

Dividend income is covered in Article 10 of the Convention. Dividends paid by a company which is a resident of one state to a resident of the other state may be taxed in either or both states. If the beneficial owner of the dividends is a resident of the other state the rate of tax imposed by the state of the resident company may not exceed either 10 percent or 15 percent of the gross amount of the dividends. The Thai rate is fixed at 10%.

Interest income is covered by Article 11 of the Convention. Interest arising in one state and paid to a resident of the other State may be taxed in the other state. The income may, however, also be taxed in the state in which it arises. However the state in which the income arises may not tax an amount which exceeds either 10 percent or 15 percent of the gross amount of the interest. The Thai rate is fixed at 15%.

Royalties arising in one state and paid to a resident of the other state may be taxed in the other state. However the royalties may also be taxed in the state in which the royalties arise, but the tax rate may not exceed certain specified rates. The rate may not exceed 5 percent of the gross amount of royalties for the use of copyright of literary, artistic, and scientific work. The tax may not exceed 8 percent of the gross amount of the royalties for the use of industrial, commercial or scientific equipment. The rate may not exceed 15 percent for royalties from the use of any patent, trademark, design or related information. The Thai rates follow the Convention maxima.

The headline rate of corporation tax in Thailand is 30%, so the Convention provides useful but not wonderful benefits. Important as US investment is to Thailand, it's possible that elements within the Thai administration are hostile towards the operation of the Convention. Another task for Mr Thaksin!

Recommended