tax structure changes on the road to the aec: how the cfo...
TRANSCRIPT
KPMG CFO Forum
Tax Structure Changes
on the Road to the AEC:on the Road to the AEC:
How the CFO responds
24 th May 2012
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ASEAN Economic CommunityOverview
“AEC” ASEAN Economic Community
“The AEC Blueprint will transform ASEAN into a single market and production base a highlyThe AEC Blueprint will transform ASEAN into a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy."
- Declaration on the ASEAN Economic Community
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ASEAN Economic CommunitySingle Market and Production Base
“Single Market and Production Base”
5 Core Elements5 Core Elements5 Free flows in 2015• Free flow of goods• Free flow of services• Free flow of investments• Free flow of capital• Free flow of skilled labors
2 Important Components• 12 Priority Integration Sectors (agro-
based products, air travel, automotives, S fe-ASEAN, electronics, fisheries,
healthcare, rubber-based products, textiles and apparels, tourism, wood-based products logistics - ASEANbased products, logistics ASEAN Framework Agreement for the Integration of Priority Sectors)
• Food, Agricultural and Forestry
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ASEAN Economic CommunityActions to Achieve “5 Free Flows” - Samples
Goods• Elimination of Tariffs, e.g. Eliminate import duties on all products except for the Sensitive and Highly Sensitive lists
– Action i. of Item 13, AEC Blueprint• Elimination of non-tariff barriers – Item 14, AEC Blueprint• Rules of Origin - Item 15, AEC Blueprint
Services• No restriction to service suppliers in providing services and setting up a company across national borders, subject
to domestic regulations• Allow 70% equity participation in service business by 2015 – Action v of Item 21, AEC Blueprint• Not completely free, activities that may interfere national public safety still be subject to domestic legal restrictions.• Engineering, nursing, architectural, surveying qualifications, tourism professional, accountancy services
Investment• Protection of transfer or repatriation of capital, profits, dividends, etc. – Item 27, AEC Blueprint
H i i li i• Harmonize investment policies
Capital• ASEAN Capital Market Development and Integration
F ilit t th fl f t d t f f t t t ti It 32 A ti i AEC Bl i t• Facilitate the flows of payments and transfer of current account transactions –Item 32, Action i., AEC Blueprint
Skilled Labors• Facilitate issuance of visas and employment passes for ASEAN professional and skilled labors –Item 33, Action i.
AEC Blueprint
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AEC Blueprint• To support the free flow of services
ASEAN Economic CommunityTaxation under AEC
Taxation under AEC In short, no single taxation regime for ASEAN member countries under AEC Blueprint.
Apart from Free Flow of Goods (non-tariffs), AEC Blueprint only mentions about taxation in two parts• Enhance withholding tax structure, where possible,
to promote the broadening of in estor base in
Remark
E i t b i t t d ASEANto promote the broadening of investor base in ASEAN debt issuance- Item 31, Action iv., AEC Blueprint
• ASEAN member countries should complete the
Economic to be integrated among ASEAN but taxation remains local
Government needs to reform tax system toASEAN member countries should complete the network of bilateral agreements on avoidance of double taxation among all member countries by 2010
It 58 AEC Bl i t
Government needs to reform tax system to become competitive among ASEAN members
• Thailand’s latest response: Corporate i t t d ti t 23% i 2012- Item 58, AEC Blueprint
Now Thailand has Double Taxation Agreement (“DTA”) with almost every ASEAN member countries except
income tax rate reduction to 23% in 2012 and 20% in 2013, 2014
• 2015?with almost every ASEAN member countries, except Cambodia and Brunei. (DTA between Thailand and Cambodia is being negotiated.)
2015?
“Opportunity: Tax Optimization Structure”
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T ti I tTaxation Impact
5
ASEAN Economic Community –Taxation ImpactTax Defines
T i th fit d l t1.
Tax in the profit and loss account(‘accounted for’)
2.
Tax paid
3.
Total tax borne
6© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
ASEAN Economic Community –Taxation ImpactTaxation of Global and Regional Companies
Key elements in solid corporate (profit) tax:
Companies are global or
y p (p )Efficient financingProfit repatriationAvoid taxation of capital gainsCompanies are global or
regional,but tax is local!
Avoid taxation of capital gainsAmortisation of intangiblesSolid transfer pricingRisk controlFollow the business
…Tax can drive shareholders value and add to competitiveness
7© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
…Tax can drive shareholders value and add to competitiveness
ASEAN Economic Community –Taxation ImpactGlobal Tax Trend
Corporate tax rates are going down
But...the tax basis is being expanded
Anti-abuse rules being introduced
Transparency required
Governments are becoming more aggressiveGovernments are becoming more aggressive
New and high-growth markets are tough
Substance required in tax planning
8© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
ASEAN Economic Community –Taxation ImpactCIT Rate Comparison
30
35
25
30
15
20
2012
5
10 20132014 -201X
0
*For Malaysia the corporate sector and professional bodies have been proposing to the Government to reduce the
9© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
For Malaysia, the corporate sector and professional bodies have been proposing to the Government to reduce the Malaysian corporate tax rates in order to remain competitive.
ASEAN Economic Community –Taxation ImpactWithholding Tax on Dividends Comparison
25
15
20
10
15
20122015
0
52015DTA Rate
0
* N WHT di id d d d ti l
10© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
* No WHT on dividends under domestic law.
ASEAN Economic Community –Taxation ImpactEffective Tax Rate Comparison
45
30
35
40
20
25
30
10
1520122015
0
5
11© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
ASEAN Economic Community –Taxation ImpactTax Comparison
Doing business in ASEAN member countries
Countries Tentative WHT on dividends Effective Tax rateCIT Rate (2015)
Brunei Darussalam* 22 - 22
Cambodia* 20 14 31 2Cambodia 20 14 31.2
Indonesia 25 15** 36.3Lao PDR 24*** 10 31.6
Malaysia 25 0 25
Myanmar 25 0 25
Philippines 30 15 40.5Singapore 17 0 17
Thailand 20 10 28Thailand 20 10 28Vietnam 25 0 25
*No DTA with Thailand
12© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
** Apply DTA Rate (20% local rate)***Not effective yet
ASEAN Economic Community –Taxation ImpactBusiness Trends and Taxation
Changes in business models and supply chain This creates a tax opportunity, in addition to traditional planningto traditional planning
C t li ti d ti i tiCentralisation and optimisation
Global/regional tradingGlobal financing
Central logisticsShared service centresg
Global key account managementCentral procurement and sourcing
Captive/group insurance
13© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
ASEAN Economic Community –Taxation ImpactTax Planning-Effective Tax Rate
Effective tax rate reduction
Current effective tax rate
One-off – transactional (e g gain mitigation)
rate Mid-level reorganisations
(e g holding compan
(e.g. gain mitigation)
Tax
Business driven, structural tax
(e.g. holding company, intercompany leveraging)
planning(e.g. intangibles, R&D, trading, contract manufacturing, and refinery)
Time
refinery)
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A ti I tAccounting Impacts
15
ASEAN Economic Community – Accounting impactsIFRS Adoption in ASEAN Countries
IFRS PermittedIFRS Permitted
IFRS become standard language for accounting !
IFRS Permitted
IFRS Adopted
Local GAAP
IFRS EquivalentLocal GAAP
IFRS by 2012IFRS Equivalent
IFRS Adoptedp
16© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
IFRS by 2012
ASEAN Economic Community – Accounting impactsFree Flows of Capital and Investment
Impact of investment outflows Impacts of capital inflowsImpact of investment outflowsand financial statements
Depending on investment portion in l
Impacts of capital inflowsand financial statements
Key considerations for capital inflows:general:
• Less than 20% General investment• 20-49% Equity accounting• More than 50% Consolidation
ti
inflows: Choices of fund raising e.g.
debts and equity or hybrid Debts or equity ?
accounting• Joint ventures arrangements
Different impact to your reported fi i l lt d k fi i l ti
Interests or dividends ?
financial results and key financial ratios
What factors you need to consider?f Implications on financial positions
Consider the FX implications Tax and legal constraints Tax efficiency structure
17© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
ASEAN Economic Community –Taxation ImpactStructure Comparison - Dividend
Th il dTh il d
CIT 20% after 2012Dividend received is tax exempt (if holds more than 25% of voting rights in the paying entity)
Net received Net receivedThailandThailandParent CompanyParent Company
ThailandThailandParent CompanyParent Company
Dividend received= Tax exempt
Net received= 100
Net received= 100
Dividend received= Tax exempt
Holds
•CIT 17%•No tax on dividend
= Tax exempt = Tax exempt
Dividend payment= No WHT
SingaporeSingaporeIntermediate Intermediate
CompanyCompany
more than35% shares
Dividend received
Dividend payment= No WHT
Holdsmore than
35% sharesCIT 25%No WHT on dividend
Dividend received= Tax exempt
Dividend payment= No WHT
Myanmar Myanmar SubsidiarySubsidiary
Myanmar Myanmar SubsidiarySubsidiary
Profit after tax= 100
Profit after tax= 100
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ASEAN Economic Community –Taxation ImpactStructure Comparison – Capital Gain
Th il dTh il d
CIT 20% after 2012Dividend received is tax exempt (if holds more than 25% of voting rights in the paying entity)
Net received Net receivedThailandThailandParent CompanyParent Company
ThailandThailandParent CompanyParent Company
40% tax credited on gain received
Net received= 60
Net received= 48
20% CIT= 12
Holds
•CIT 17%•No tax on capital gains accrued in foreign country
on gain received = 12
Dividend from capital gain payment
SingaporeSingaporeIntermediate Intermediate
CompanyCompany
more than35% shares
Gain receivedHolds
more than35% sharesCIT 25%
Capital gains tax 40%
Gain received= tax exempt
40% Tax= 60
40% Tax= 60
Myanmar Myanmar SubsidiarySubsidiary
Myanmar Myanmar SubsidiarySubsidiary
Gains= 100
Gains= 100
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ASEAN Economic Community – Accounting impactsCross-Border Mergers and Acquisitions
Cross-Border M&A ActivitiesKey accounting considerations Acquired assets & liabilities need to be measured at FV and this may materially affect future
consolidated earnings and financial ratios (e.g. FV recognition of long-term contracts) Foreign exchange fluctuations may affect overall net equity Deferred tax assets / liabilities arising from FV measurements g Difference in accounting standards of each country
Thinks ahead of the gameM t h ld bt i d t di f tiManagement should obtain understanding of accounting implications under each type of transaction and its impacts from: Financial positions and performanceFinancial positions and performance Key financial ratios arising from foreign investments
(e.g. Profit Margin, ROE, ROA) Differences in accounting standards Fair value measurements may significantly affect your Fair value measurements may significantly affect your
financial statements Efficient tax structure that facilitates flows of returns
and capitals
20© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
ASEAN Economic Community – Accounting impactsForeign Currency Exposure
Remember !Currency fluctuation always impact your Net Equity
Either from: FX translation of foreign entities’ financial statements
y y p y q y
FX translation of foreign entities financial statements Foreign currency denominated transactions
You may need to know:H h ld I t t it f FX fl t ti ?How should I protect my equity from FX fluctuations?
Potential Trends: Financial instruments may be increasingly used to limit FX exposuresFinancial instruments may be increasingly used to limit FX exposures Some instruments can protect loss but also could limit upside opportunity gain Hedge of net investment in foreign subsidiaries will be increasingly used to limit impacts arising from FX
fluctuations from currencies of foreign subsidiaries Ri k t d t b t t i d ll b l d t li it FX Risk management need to be strategic and well balanced to limit FX exposures
Unrealized exchange gain/loss could significantly affect the company effective tax expense.
21© 2012 KPMG Phoomchai Tax Ltd., a Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Thailand.
ASEAN Economic Community – Accounting impactsAccounting profession
ASEAN Mutual Recognition Arrangement Framework on Accountancy ServicesFramework on Accountancy Services
• Education – agree to accept the educations of country of origin• Licenses – agree to facilitate Practicing Professional Accountant (“PPA”) of other country to obtain licenses in the g g ( ) y
host country• Demonstration of Competency – agree that PPA needs to demonstrate competency to have satisfactory
knowledge of domestic regulations of host country• Experience – PPA shall meet the experience requirements specified by the Host Country. • International Federation of Accountants (IFAC) Standards and Guidelines – Professional competencies and
qualifications shall follow IFAC taking into the considerations of Domestic Regulations of each country
• Thai accountants are regulated under Accounting Act BE 2543 and 2547• Currently FAP is working on the changes in rules and regulations in response to MRA FrameworkCurrently, FAP is working on the changes in rules and regulations in response to MRA Framework
above.• These changes have not yet finalized.
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Thank youThank you
Presentation by
Wirat Sirikajornkij, Partner
Sukit Vongthavaravat, Partner
© 2012 KPMG Phoomchai Tax Ltd A Thai limited liability company and a© 2012 KPMG Phoomchai Tax Ltd. A Thai limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).
This information is intended as a general guide only. Tax law is complex and professional advice should be taken before acting on the information provided.
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