Recent public tax ruling on new merger scheme

Currently, there are four primary ways that an M&A transaction can take place in Thailand:  

• Acquisition of shares in a target company  
• Acquisition of assets / businesses of a target company  
• Amalgamation  
• Merger (new concept in Thailand) 

The Thai Revenue Code (RC) provides certain tax benefits for specific types of M&A transactions. For example, if an amalgamation or entire business transfer (EBT) takes place, the new entity from the amalgamation or the entity acquiring the business is eligible for corporate income tax, value-added tax (VAT), specific business tax, and stamp duty exemptions. Amalgamation, in which two or more companies are consolidated into a single new company, can also benefit from an exemption from land transfer fees. However, the new company would lose the opportunity to seek benefits from tax losses carried forward by the original companies. 

The concept of a merger, which had previously not existed in the Thai legal landscape, was introduced in Section 1238 of the Civil and Commercial Code (CCC) in 2023. A merger allows one of the merging companies to remain in existence while the other company is legally liquidated and dissolved. There are no amendments in the RC concerning the tax implications or benefits of a merger, so the tax treatment of a merger still needed to be clarified. 

On 21 February 2024, the Thai Revenue Department (RD) issued a public tax ruling regarding the tax treatment of a merger. This tax ruling was requested by a corporate taxpayer (Company A) which was considering a merger. In its request for a tax ruling, Company A stated that it intended to merge with other entities within its group of companies in Thailand. Company A would continue to exist, while the other entities would be merged into it, in accordance with the procedures outlined in Section 1238 (2) of the CCC, as amended by Section 17 of the Amendment to the CCC (No. 23), B.E. 2565, which became effective on 7 February 2023 onwards. 

The RD ruled that the planned M&A transaction could not be regarded as an amalgamation to which the tax treatments under Section 73 of the RC applied. Instead, it was similar in form to an entire business transfer under Section 74 (1) (c) of the RC, with the companies that would liquidate and be dissolved being similar to transferors, and the company that would continue to exist as a legal entity being similar to a transferee. Therefore, a merger would be subject to tax treatments similar to those that apply to an EBT, as follows: 

1. Corporate income tax  

• The merger must be done at market value. Any gain realized from the merger is exempt from corporate income tax. 
• The surviving company must carry over the tax cost based on the acquired assets as it appeared on the books of the merging entities as its own costs, based in depreciation.  

2. Value-added tax - Exempt  

3. Specific business tax - Exempt  

4. Stamp duty – Exempt

Our observations  

While the RC is silent on the tax treatment of a merger, this tax ruling clarified the tax implications and exemptions that would apply to a merger. While the tax ruling does not have the force of law and is not binding on all taxpayers, it can be relied on as a guideline. Taxpayers should perform a feasibility study of the options available before deciding which type of transaction to choose. Mazars can help consider various M&A options. With our expertise in M&A transactions, we can guide you through every step of the process, providing strategic insights and advice. Whether you’re considering a merger, amalgamation, or acquisition, our team of experts can help you navigate the tax, legal, and financial aspects of the process.  

Reference (in Thai): The Revenue Department ruling no. Gor Khor 0702/1112