Mergers and Acquisitions: VAT Implications under the Revenue Code
Under the Revenue Code of Thailand, what are the specific value-added tax (VAT) implications that arise after a merger and acquisition? The general principle of law as stated in Sections 152 and 153 of the Public Limited Companies Act of B.E. 2535 (1992) is that a merger of companies causes the former companies to cease their existence as juristic persons and causes the amalgamated company to inherit the property, obligations, rights, duties and responsibilities of the former companies.1 Further guidance is offered in Revenue Department Advisory Opinion No. Gor. Dor. 0706/10422 issued on December 14, 2005 that addressed a merger between two publicly-listed Thai companies, although the information is also generally applicable to private limited companies as well. The Revenue Department offered the following guide:
- VAT Registration
According to Section 85/14 of the Revenue Code, a registered business operator under the VAT system that will be merging with another company must notify the Revenue Department of a cease of business operations pursuant to Section 85/15 of the Revenue Code within 15 days after the cease of business operations. The newly amalgamated company must then register for the VAT system within 15 days after it has been incorporated. In this case, Revenue Department Order No. Por. 66/2539 Re: Notification of Cease of Business Operations According to Section 85/15 of the Revenue Code, issued on December 29, 1996, is not applicable. The aforementioned Revenue Department Order only applies to registered business operators that will actually cease business and will no longer face VAT liability, which is a different situation than in a merger which provides that the amalgamated company shall inherit the rights and liabilities of the former companies.
- VAT Liability
In the event that one of the former companies sold goods or offered services in a certain transaction before the merger, but the duty to pay VAT and issue a tax invoice did not arise until after the merger was registered, the amalgamated company shall have a duty to issue a tax invoice for the sale of those goods or services pursuant to Section 86 of the Revenue Code. The amalgamated company must use the output tax to calculate VAT liability under Section 82/3 of the Revenue Code. The amalgamated company shall have a duty to file VAT form Por. Phor. 30 and must pay VAT according to Section 83 of the Revenue Code. On the other hand, if one of the former companies purchased goods or services before the merger, but a tax invoice was not issued by the supplier of the goods or services until after the merger was registered, the amalgamated company shall have the right to use the input tax to reduce VAT liability under Section 82/3 of the Revenue Code. However, the amalgamated company must ask the supplier to cancel the tax invoice originally issued to the former company and to issue a new one in the name of the amalgamated company.
- Credit Notes and Debit Notes
In the event that there is a change in the total price of goods or services originally sold by a former company in a certain transaction as described in Sections 82/9 or 82/10 of the Revenue Code, and in which the output tax was already used by the former company to calculate VAT liability under Section 82/3 of the Revenue Code, the amalgamated company shall have a duty to issue either a debit note or credit note (depending on the case) to the customer accordingly. On the other hand, any debit notes or credit notes received by the amalgamated company after registration of the merger for goods or services originally purchased by a former company must be issued in the name of the amalgamated company.
VAT implications arising after a merger and acquisition are complex. Companies are advised to consult with competent legal counsel in order to understand their rights and duties under the law.
1 The equivalent law for private limited companies is found in Section 1243 of the Civil and Commercial Code.
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