(2/2006)
On 9 December 2005 the Listed Companies Development Department of the Stock Exchange of Thailand released a Circulation letter to inform all listed companies of the corporate income tax implications arising from reducing accumulated losses and repurchasing treasury stock as follows:
Reduction of accumulated losses
According to the Public Limited Company Act (No. 2) B.E 2544, if public companies that have accumulated losses and remain unable to pay dividends, have reserve funds or share premiums, they may lower their accumulated losses by the transfer of other reserve funds, legal reserve funds and share premiums respectively to offset against the accumulated loss account with prior approval of the shareholders' meeting. A number of listed companies asked whether or not the reduction of accumulated losses in this manner affects tax loss carry forward. For clarity, and to enable listed companies to resolve their problems without obstacle, the SET sought a ruling on the issue of whether or not listed companies, remain entitled to carry the losses forward under Section 65 ter (12) of the Revenue Code.
The Revenue Department replied that the reduction of accumulated losses by the transfer of other reserve funds, legal reserve funds and share premiums to offset against the profit (loss) account does not affect the computation of net profits or net loss under the Revenue Code. Hence, the companies remain entitled to deduct the net loss carried forward of the following five years from the net profits pursuant to Section 65 ter (12) of the Revenue Code.
(Revenue Department ruling no. kor khor 0706/9245 dated 8 November 2005).
Repurchase of treasury stock
The SET also sought a ruling on whether the sale of repurchased treasury stock will generate a gain or loss from the difference between the selling price and the cost of the stock so repurchased. Is the difference treated as revenue or expense to be included in the computation of income subject to corporate income tax?
The Revenue Department replied that the accounting guideline on treasury stock repurchased by an enterprise defines the term "treasury stock" to include ordinary shares, preferred shares and other equity instruments having the rights and characteristics equivalent to the enterprise's ordinary shares repurchased by the enterprise or its subsidiary. Treasury stocks are not the enterprise's assets but a reduction of the shareholder's right in the enterprise's assets. Thus, the said shares are not assets but capital of the company. In addition, a public limited company will sell the treasury stocks or decrease the paid-up capital by writing off the remaining shares (in the event that it is unable to sell all the treasury stocks) within a specified period; if the public limited company has recorded the treasury stocks in the shareholders' equity, the benefit derived from the sale of the treasury stock or capital decrease is a part of the equity and is not treated as operating income to be included in the computation of net profits for corporate income tax purpose pursuant to Section 65 of the Revenue Code.
(Revenue Department ruling no. kor khor 0706/9342 dated 10 November 2005).
