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Cablegate: New Tax Interpretation Snares Thaksin; Others Too?

VZCZCXRO4043
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #1968 0940949
ZNR UUUUU ZZH
P 040949Z APR 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 6046
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 3393
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

UNCLAS BANGKOK 001968

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS AND EB
COMMERCE FOR EAP/MAC/OKSA
TREASURY FOR OASIA
STATE PASS TO USTR FOR WEISEL

E.O. 12958: N/A
TAGS: ECON PREL TH
SUBJECT: NEW TAX INTERPRETATION SNARES THAKSIN; OTHERS TOO?

REF: A. BANGKOK1813
B. 06BANGKOK788

1. (U) On April 2 the government Asset Examination Committee
(AEC, a committee set up by the current government to examine
alleged cases of corruption committed during the Thaksin
regime) ruled that the sale of shares in Shin Corp by former
PM Thaksin's children was a taxable event (reftel A). The
ruling overturned an April 2006 tax letter by the government
Revenue Department (tax office) to the effect that it was not
a taxable event because the transaction had occurred via the
Stock Exchange of Thailand and Thai law exempts capital gains
on trading done on the public bourse.

2. (U) The rationale given by the AEC for overturning the
previous decision was that the sale of shares by Ample Rich,
the offshore company which held the shares for Thaksin's
family, sold the shares to Thaksin's children at Bt1/share
when the market value was Bt49.25/share. The AEC determined
that 1) even though this transaction nominally took place in
Singapore, because the share registry for Shin Corp shares is
in Thailand, the transaction was deemed to have been
"completed" in Thailand. 2) Capital gains taxes are due on
the difference between the cost of the Ample Rich share
purchase by Thaksin's children and the market value.

3. (SBU) Tax and legal experts with whom we have spoken are
concerned about various aspects of this decision:
-There has been no rescission of the April tax letter from
the Department of Revenue. Experts now question the value of
such letters.

-The registry for shares in all Thai companies exists only in
Thailand. Does this mean that offshore transactions between
offshore entities could now be deemed to be taxable events in
Thailand if they involve trading in Thai shares?

-Most problematic, the AEC has determined that a capital
gains event took place when the shares were purchased by the
Thaksin children from Ample Rich. The precedent of assigning
a capital gain at the time of purchase could be a problem,
tax lawyers say, because it could mean that there is a whole
new field for government to audit. They ask why the AEC
instead did not deem the transaction a case of income and
require tax to be paid under the income tax code.

4. (SBU) Comment: As reported in reftel B, Thaksin has been
shuffling his shares in Shin Corp around the globe from the
time he entered politics in order to avoid limits on
politicians owning more than 5 percent of a company. The
manner in which he structured the sale of Shin Corp to
Temasek was clearly done to limit any tax liability. The
problem for the current regime is that Thaksin's tax lawyers
were largely successful in this effort. Further, if changes
to the Foreign Business Act go through in their current form
and foreign companies and/or their nominees are required to
sell or swap shares, the value at which these deals are
transacted will have to be done with a view of the new rules
set by the AEC. The liability of each party in a private
transaction has now potentially increased by a significant
degree.
ARVIZU

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