Thailand and the Philippines signed a revised Double Taxation Agreement (“the revised DTA”) to replace the current version, which has been in effect since 1983. The revised DTA will come into force from 1 January 2019 onwards.
Keywords: Mazars, Thailand, Philippines, Tax, DTA, Double Taxation Agreement, Permanent Establishment, Revenue Code
1 October 2018
The revised DTA contains various changes, including a change in the definition of a permanent establishment (“PE”). The major changes to the definition of a PE are set out below:
In addition, Article 9 of the current DTA has been moved to the definition of a PE in Article 5. Therefore, under Article 5 of the revised DTA, “an insurance enterprise of a Contracting State shall, except in regard to reinsurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through an employee or through a representative who is not an agent of an independent status within the meaning of paragraph 6.”
Furthermore, the revised DTA amends the withholding tax rates of dividends, interest, and royalties, as set out below:
However, the amendment of the withholding tax rates under the revised DTA as listed above does not have any practical impact on the payment of royalties and interest by a Thai entity to a Philippines entity. This is because the new withholding tax rates are still not lower than the rate set out in the Thai Revenue Code, which is 15%. Therefore, the rates under the Revenue Code (15%) shall apply to the payment of royalties or interest that a Thai entity makes to a Philippines entity. In addition, the withholding tax rate for dividends that a Thai entity pays to a Philippines shareholder in general is still 10%, which is also the rate under the Revenue Code, as the new withholding tax rate under the revised DTA is still not lower than the rate set out in the Thai Revenue Code.
Article 15, “Personal Services”, of the current DTA has also been amended. In the revised DTA, personal services are divided into “Independent Personal Services” (Article 14) and “Dependent Personal Services” (Article 15). Conditions for both types of personal services are set out to determine whether income derived by a resident of a Contracting State from such services provided in the other Contracting State is taxable in that other Contracting State or not.
The revised DTA contains other changes in addition to those discussed above. Therefore, Thai entities expecting to make transactions with Philippines entities should carefully consider the impact of such changes.