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The tortured reasoning behind the new Thai government’s decision to make Thaksin's kids pay taxes on the $2 billion sale of Shin Corp to Temasek
A few days after his kids sold their stake in Shin Corp tax-free to Singapore investment arm Temasek Holdings for 73.3 billion baht ($1.99 billion), then-Prime Minister Thaksin Shinawatra dismissed critics howling about the deal as "jealous."
"The rule is clear," Thaksin said in late January. "There is no tax on capital gains for share sales conducted through the stock exchange. This rule has existed for more than 10 years."
"Everything has been considered with legal experts," he added. "Everything is correct and right. Some people are concerned about this because it's a lot of money, and they want it."
Well, now they just might get some of it. This week, the chief of the Revenue Department made complete u-turn and went from defending the tax-free deal to ordering Thaksin's children to pay taxes on the sale. The only thing that has changed, seemingly, is that different people are running the country and so the tables have turned. Officials said the bill could run as high as 11 billion baht—nearly $300 million at the current exchange rate.
The move to go after the family seems to be an attempt by the new military-appointed government to refocus the public spotlight on the shady side of the Shin sale, which at the time it happened helped unify the Bangkok elite in its quest to rid the country of what they called an "immoral" leader.
About five weeks after the deal, massive street protests forced Thaksin to call an early election, and the ensuing political deadlock culminated in the September 19 coup. But in demanding that Thaksin's family pay tax on the sale now, the generals face the same problem they have encountered in other graft probes: They need to find evidence. For, although many Thais will be pleased to see the Shinawatra family give the state some money, some editorialists worry that something greater is amiss. The more the junta walks on shaky legal ground, the more it seems the white knights that claim to have rescued Thailand's democracy are hardly immune to self interest.
"They can't just have a kangaroo court," said Thitinan Pongsudhirak, director of the Institute of Security and International Studies at Chulalongkorn University. "It's complicated, because they must present evidence and allow for a defense. If they don't do this effectively, then it will look like they are manipulating the law just like Thaksin."
The key witness in all of this, Sirote Sawadpanish, the Revenue Department chief, is hardly convincing since he was the one who cleared the deal in the first place and his explanation for an about-face now is being questioned.
For sure, the tax issues are complicated. The issues is not so much the 73.3 billion baht sale to Temasek Holdings that was conducted through the Stock Exchange of Thailand, since all share sales are indeed tax exempt, as Thaksin so quickly pointed out.
The real concern is a transaction made three days before the January 23 sale, when Thaksin's children transferred 392.2 million Shin Corp shares from a British Virgin Islands-registered holding company called Ample Rich back to Thailand for one baht apiece. Those shares were then sold to Temasek for 49.25 baht each, resulting in a tax-free gain of more than 15.8 billion baht.
At the time, Thaksin's legal team said it had consulted with the Revenue Department about whether they needed to pay taxes on the Ample Rich transaction, and received a written response on September 21, 2005, that the share transfer would not be subject to tax if it was made through the stock exchange and no financial gains were made.
When the sale prompted a typhoon of outrage, Sirote joined with other bureaucrats to defend the decision. He said at the time that the purchase of shares below market price did not involve unrealized gains counting as assessable income under section 39 of the tax code. Other tax experts dispute that interpretation, and say the Ample Rich transaction should be taxed similarly to employee stock options.
They cite the case of a pending IPO of state-owned electricity giant EGAT, whose employees were forced to pay a 10 percent withholding tax on gains received based on the difference between the 10-baht subscription price and the 25.41-baht book value—even though the IPO has been delayed indefinitely and no gains have been realized.
In any case, the point is not so much the interpretation of the tax law as blatant political opportunism of the bureaucrats. Only two weeks before the coup, Sirote told the Bangkok Post: "I am confident in what I have done."
But Sirote's confidence seemed to leave along with Thaksin after the generals rolled the tanks into Bangkok on September 19. He somehow managed to survive a reshuffle at the Finance Ministry, and now incredulously claims that he was not consulted about the decision.
"Collecting taxes is a matter of duty," Sirote told reporters after the coup, apparently in a bid to save his scalp. "If we fail to perform our duty, tax officials could be put in jail."
So what is the official reason for the change of heart? New Finance Minister Pridiyathorn Devakula said that the department received unspecified "new information" in the case.
According to The Nation newspaper, Sirote said he "had obtained new information suggesting tax should be paid by anyone who made a profit of more than 40 billion baht on the stock exchange."
That left tax experts scratching their heads. "He must've been misquoted, because there is nothing like that in the revenue code," said Paul Ashburn, a tax advisor with BDO Richfield Advisory in Bangkok. "Thaksin's family did tax planning, which they are allowed to do," he said. "Forget the amounts involved. There are no limits on how much money someone can make on a share transfer."
Thaksin's lawyer Nopadol Patama told the Associated Press this week that he would take the case to court. "The family of Mr. Thaksin had consulted the Revenue Department to strike a deal and at the time Sirote said that they didn't have to pay taxes,'' he said. "Then the political situation changed and he comes out and says that Mr. Thaksin's family has to pay taxes."
The u-turn on tax fits into a greater post-coup pattern of massaging the legal system to punish foes. So far, the generals have targeted Thaksin and his Thai Rak Thai party without much success. Now they appear to be putting the squeeze on anything related to Shin Corp after a few weeks of negative headlines.
Prior to the announcement on taxes, Temasek had tried to revive its prospects in Bangkok through naming Tongnoi Tongyai, once an associate of Crown Prince Maha Vajiralongkorn, as its Thailand advisor. Although some said the deal was done with the full knowledge of the prince's office, it submitted a stinging statement a few days later claiming Tongnoi is "a shrewd deceiver, habitually passing himself off as closely linked to HRH the Crown Prince."
While that episode was more embarrassing than anything for Temasek, another pending case with iTV, a Shin subsidiary, could hit the Singapore government-owned firm hard. In June, the Central Administrative Court ruled that iTV must pay 76 billion baht in penalties for breaching its concession with the Prime Minister's Office, plus daily penalties.
The government announced Wednesday that it would seek 94 billion baht from the broadcaster, which is 53 percent owned by Shin. That amounts to about $2.6 billion – more than Temasek originally paid for Shin.
Temasek also may be forced to divest some of its Shin holdings depending on how the new government changes the foreign ownership law.
The Singapore investment fund owns 41.7 percent of the company directly and another 54.6 percent through holding companies. Thai authorities have said the indirect stake is held illegally through nominees, but now they are in the process of working out a compromise as thousands of other foreign investors have structured deals similarly and also would be affected by any Shin-Temasek fallout.
Meanwhile, Thai Prime Minister Surayud Chulanont made his first state visit to Singapore on Thursday, where he and Prime Minister Lee Hsien-loong said the two countries have a "strategic partnership" and want to build stronger relations. One wonders what might have been said about Shin behind closed doors. Previously, Singapore leaders have defended the Shin purchase as perfectly legal.
Earlier this week, Surayud told the Foreign Correspondents Club of Thailand that his government would continue to investigate the deal.
"It's involved with the Thai law, so it's in process at the moment," he said. "For the Thai government, we are not going to deal with that case directly, but we will let the rule of law do its business."
Yet the more the appointed government works, the more it becomes apparent that the rule of law depends on who is in power just as much now as during Thaksin's era. The generals not only enforce the laws, but they are writing the rulebooks with no public participation or oversight.
Kiet Sitti-Amorn, an executive member of the Democrat party who led the opposition's investigation into the Shin-Temasek deal, said he was "not really" satisfied with the government's reasoning for suddenly handing Thaksin's kids a tax bill.
"What's important is the explanation behind the change in opinion, rather than the change itself," he said. "In the application of law, you need predictability, otherwise it will undermine the confidence of all investors. The Revenue Department must now win back confidence. If the discrepancy was due to corruption, then those involved should be prosecuted."
Although many Thais will be pleased to see the Shinawatra family give the state some money, some editorialists worry that something greater is amiss. The more the junta walks on shaky legal ground, the more it seems the white knights that claim to have rescued Thailand's democracy are hardly immune to self interest.
"The tax officials failed the public earlier this year by adopting a convoluted explanation to protect the personal interests of the Shinawatra family, presumably in exchange for advancing their own careers in the state bureaucracy," The Bangkok Post wrote in an editorial this week. "They have failed the public once again by demonstrating so plainly that their decisions can be so easily bent, with nary a care for integrity or principle."
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A new report by International Risk says it's a jungle out there
You can find the information in any financial textbook for university student print after year 2000.
You must have forgot that there is a law, and voodoo talisman probably shouldnt help much.
If you want to check with Thai's IRS Thaksin actually on the top 10 of people who paid tax the most.