Beware tax pitfalls when Thai employees are sent overseas

As a result, an increasing number of Thai staff are being sent overseas to work. 
From our observations, while the Thai companies claim they send their employees overseas under secondment arrangements, in many cases, service fees are charged to the host country while no proper secondment agreements are made. This can raise corporate tax issues that may not be immediately apparent.
What Thai companies need to consider before sending their staff overseas:
Companies expanding internationally need to be aware that they may be deemed to have a permanent establishment (“PE”) in the host countries where their staff are working. As such they could be exposed to corporate income tax if the employees are regarded as representing the Thai company in concluding contracts or engaging in certain activities that are deemed to generate income in the host country. The solution may be to place these employees under a secondment arrangement. However, if the secondment arrangement is not structured properly the employees may still be penalised with double personal income tax bills. In structuring secondment arrangements, relevant factors that need to be taken into consideration include (but are not limited to) the following:
• Which entity receives the benefits arising from the employee’s work?
• Which entity gives day-to-day instructions or has authority over the employee’s work?
• Which entity bears the risks, costs and responsibilities of the employee’s work?
• Which entity reviews and appraises the employee’s work performance?
• Whether the employee’s work constitutes an inseparable part of the host country?
• Does the Thailand recover only the actual employee’s costs or is a profit mark-up also charged?
• Which party has the right to determine the remuneration of the employee?

A secondment arrangement should be clearly distinguished from a service arrangement. Under a secondment arrangement, the employee typically works under the direct control and supervision of the host country entity, which controls and benefits from the employee’s day-to-day work and bears the risks and responsibilities associated with it. Whereas, under a service arrangement, the employee usually continues to work under the control and supervision of the Thai entity to fulfill a service contract entered between the Thai entity and the host country entity. In many cases, how the services are rendered by an employee under a secondment arrangement and a service arrangement are confused. Also important is how the Thai company draws the line between who is the “legal employer” and who is the “economic employer”.
If all of these factors are not reviewed and addressed prior to the assignments, the Thai company may be in for unpleasant surprises and have a taxable presence in the foreign country. Tax inspectors in many jurisdictions are targeting improperly executed service and secondment agreements as a way of raising tax revenue from foreign parent companies. Planning ahead is the best way to mitigate such risk, because as the number of mobile employees increases, so will the tax exposure. We recommend that proper secondment arrangements be put in place ahead of time and be tailored to be in line with the host country’s tax law and regulations to minimise tax exposure up front.

Prapasiri Kositthanakorn is a partner at PwC International Assignment Services Thailand.