VAT rate ruling clarifies export services position

The case was seen at the time to be somewhat problematic in that it appeared to call into question whether any service provided in Thailand would ever qualify as an export service under VAT rules and be subject to the zero-per-cent rate instead of the 7-per-cent rate. Given the uncertainty created by the ruling, the Revenue Department signalled that it would follow the court’s ruling but would not necessarily pursue taxpayers applying a zero-per-cent rate to export services being provided from inside Thailand, even in cases where those services were being partly or tangentially utilised in Thailand. 

This position now appears to have been reversed. In a ruling issued in April, the Revenue Department asserted that the provision of services by individuals in Thailand will be subject to 7-per-cent VAT, even where those services result in a report to be used, that is, consumed by persons outside Thailand. 

This ruling is contrary to the department’s ruling issued prior to the Supreme Court case and now brings the department’s position into line with that of the court. While the basis of the ruling still has some scratching their heads, this most recent ruling eliminates some uncertainty as to what the department would actually enforce as the rule in these situations and provides clarity for the many types of companies that provide services from Thailand to off-shore customers. 

Even though the services in question are slightly different in each of the cases, the basic assertion set out in this ruling – that export services conducted in Thailand and partially consumed in Thailand will be subject to 7-per-cent VAT – does provide guidance consistent with the court case and greater certainty as to the department’s stance on export services. 

Beside appearing to settle the export services controversy, the department’s ruling also provides VAT payers with administrative guidance on how best to report and apply the varying VAT rates in cases where both domestic and export services are provided under a single contract.

The ruling states that where a service contract consists of multiple services, some of which are subject to VAT at 7 per cent and others at zero per cent, for any of the fees being charged to the customer to qualify for the zero-per-cent rate, the services being consumed outside of Thailand must be clearly identified as such in the contract along with the amount of the contract that relates to those services. 

Otherwise, both the taxpayer and the department will find it difficult to determine which VAT rate should be charged on which revenue and as such, the department will assume that 7 per cent should be charged on the entire amount of the contract, regardless of the actual location of the consumption of the services. By taking this position, the department has clarified an uncertain position, which was set out in the previous guidance on the subject.

Under the previous VAT guidance set out by the director-general of the department, there was no indication of how taxpayers should determine the amount to which each rate should be applied, as this guidance was general in nature. Thus, while the director-general’s guidance provided that the zero-per-cent rate should apply to services consumed outside Thailand, it did not provide instructions on how to identify such services for VAT reporting purposes.

The ruling provides helpful guidance and clarity around VAT application and withholding in the export services arena, which most taxpayers should find helpful in determining their compliance obligations under VAT rules.

 

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.

 

 JONATHAN BLAINE is executive director of KPMG Thailand.