Payment of the marketing company price by a Thai subsidiary to its dad or mum corporation outside Thailand could be problematic. Especially just after the Philips situation back again in 1997. Thai Income Section (“TRD”) at the time dominated the charge paid from Philips subsidiary in Thailand to its associated get together in the Netherlands as ‘Royalty’ instead of ‘Marketing service fee’. The Supreme Court then verified TRD’s idea later on in 2012 ensuing in the tax assessment on Philips subsidiary in Thailand virtually THB 30 million1 .

What happened? Why was this ‘Marketing support fee’ deemed as ‘Royalty’? You can uncover our conclusion, examination, and remarks for extra clarification underneath.

TAX Scenario OF PHILIPS IN THAILAND 

Philips Electronics (Thailand) Restricted (“Philips-TH”), a Thai subsidiary underneath Philips group, was assessed withholding tax of the internet marketing-company-rate payment from 1997 to 2001 by TRD, amounting to the approximate liability of THB 29.1 million (surcharge integrated). The withholding tax was imposed on the price (around THB 25 million for each annum) compensated to Philips Export B.V. of Eindhoven in the Netherlands (“Philips-NT”) beneath the Advertising Service Settlement (the “MSA”) which calls for Philips-NT to obtain and evaluate market’s atmosphere and consumer’s conduct for Philips-TH’s setting up of new product or service launch.

Usually, the payment of internet marketing company fee paid by a Thai organization to overseas would be addressed as a payment for ‘Hire of work’ beneath Area 40(8) of the Thai Income Code (the “TRC”), and so would not be topic to withholding tax under Area 70 of the TRC, and the double tax settlement between Thailand and the Netherlands (the “DTA”). 

However, the Supreme Court docket ruled in favor of TRD that the payment was ‘License fee’ or ‘Royalty fee’ instead. Based mostly on this, Philips-TH was liable for withholding tax deduction on these kinds of sum beneath Section 40(3) and Part 70 of the TRC, and the DTA.

Why Philips-TH dropped this tax situation? 

Considering the choice of the Supreme Court, we could place out significant weak factors of Philips-TH, as follows:

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