What regulatory changes have had the most profound impact on foreign business in Thailand?

ASHBURN: With regard to regulations governing foreign business in Thailand, I think it is fair to say that we have not really seen major changes in the regulations, so what we are actually seeing is more a status quo. I think this is one of the things that makes Thailand so attractive as an investment destination. The World Bank currently ranks Thailand 18th out of 185 countries in the Ease of Doing Business Index. I do think, however, that foreign businesses coming into Thailand are now more aware of the regulations governing businesses here, especially because in recent times the government has sought to enforce the regulations. So what we do is encourage our clients in particular to look at how they can actually abide by the intention of the regulations. For example, obtaining a foreign business license for businesses that are restricted, setting up their factories in the industrial estates, and also looking to the Thailand Board of Investment for both tax and non-tax incentives, which include 100% foreign ownership and ownership of land.

What are Thailand’s competitive advantages with regards to multinational corporations setting up headquarters here?

ASHBURN: The Thai government does see it as a priority to attract multinationals to set up their regional headquarters here in Thailand, especially with the looming AEC looking to be set up in 2015 or 2016. One of the obvious incentives to set up in Thailand are the tax incentives. The tax incentives are very competitive compared to other regions and they include tax incentives or reductions in tax rates for the companies and for the expatriates that are coming to work in those companies. On top of that, we also have Thailand’s Board of Investment (BOI) offering non-tax incentives such as 100% ownership of the company, the ability to own land for your office location, as well as simplified conditions and procedures for visas and work permits for expatriates.

Thailand’s geographic location is very strategic, being close to a lot of the emerging markets in Southeast Asia. Also, if you look at office costs and labor costs, especially in Bangkok, they are very competitive with other locations in the region where you might consider setting up a regional headquarters. What I see as one of the main challenges is that perhaps Thailand is not seen as a place where you might consider setting up a regional headquarters. But I think that is changing as we are seeing more and more multinationals setting up here.

How will the implementation of the AEC impact multinationals in Thailand?

ASHBURN: I think the AEC raises some interesting challenges for the tax authorities in Thailand and in the region. What we do see is the AEC is going to create a lot more inter-trade between countries. You are going to have a lot more foreign businesses coming in to Thailand. So naturally what happens is that there are a lot more foreign businesses here and then you start looking at international tax planning issues that are likely to arise. What we do see is countries in ASEAN may be using their tax policies to try to compete within the region. For example, we see Thailand has reduced its tax rate from 30% to 20%, making it the lowest except Singapore, which is at 17%. However, I think at the same time, they will be enforcing their tax laws more strictly and particularly focusing on international tax planning. For example, we do see that transfer pricing will become a major issue in the future and we are seeing a number of countries starting to enforce their transfer pricing rules in anticipation of the AEC.

Can you give an overview of the incentive schemes available in Thailand?

ASHBURN: The BOI offers tax incentives ranging from corporate tax holidays of up to 8 years, to reductions or exemptions from import duties on raw materials or machinery. Additionally, dividends that are paid out of profits are also exempt from tax in Thailand. What we are seeing at the moment is that the BOI is actually looking to revise the way it promotes businesses in Thailand. We expect by the end of 2013 that they will have formulated their new policies which are scheduled to take effect from the start of 2015.

Part of those changes is actually to move away from the way they have zoned Thailand into 3 areas, and then within those areas you will get certain incentives. They are actually going to do away with that and they have listed 10 types of businesses they want to promote. So going forward, Thailand actually wants to be more strategic in the way that it attracts investment. We will still see that they will offer a number of corporate tax incentives, corporate tax holidays will still remain. I think you will find that it will be more aligned to the strategic elements of the way they want to attract businesses into Thailand rather than making it a general incentive that is based on where you locate within Thailand.

What are the transfer pricing guidelines that are currently in place?

ASHBURN: Thailand introduced transfer pricing guidelines a few years ago and those guidelines basically follow the OECD guidelines both in regards to transfer pricing and also in the way you set your transfer prices. As a result of implementing those rules, the revenue department has invested quite heavily in educating their own officers on how to conduct transfer pricing tax audits. That is an area that we expect to see Thailand and other countries focusing on in 2015 onward. Also, we expect to see tax authorities in the region cooperating more and enforcing their transfer pricing rules.

With a 10% reduction in corporate tax rates from 30% to 20%, how is the country going to maintain its tax base?

ASHBURN: What we envisage in the future is that we have tax as a tool to attract investment. As we said, the corporate tax rate is being slashed to 20%, however, the tax base of the country will still have to be maintained. I think the way they do that is by ensuring enforcement of the law. For example, we see the Revenue Department of Thailand employing more tax officers to conduct tax audits. Also, within the general population, they are trying to educate people more about paying tax and getting more people into the system. So we think that in terms of policy, there will be attractive tax policies, but at the same time, there are laws on the books and they will enforce those laws.

What is your economic outlook for Thailand?

ASHBURN: Normally, I like to focus more middle to long-term and I see Asia is the area of growth. We see a lot of potential. We are a developing economy and there is still a lot of potential in Thailand to develop. I am quite encouraged by the BOI and their policies and the way they are trying to attract better and less labor intensive types of industry here to Thailand. As I said, Asia is the place to be going forward and Thailand is definitely strategically placed to take advantage of investment flows from outside of the region.