ThaiBev’s Tax Policy are founded in the principles in the overall vision 2020, mission, values, sustainability goals and good corporate governance principles that have already been implemented in the ThaiBev Group which has continued to lead ThaiBev to become a stable and sustainable ASEAN leader in 2019. ThaiBev plans to further expand our sustainability efforts in order to ensure ThaiBev remains a stable and sustainable ASEAN leader in the total beverage business in 2020 as it marks the start of our journey towards Vision 2025.
In support of our overall business strategy and good corporate governance objectives, we pursue a tax policy that is principled, transparent and sustainable in the long term. We have established principles governing our tax policy and related tax practices which have been the result of a longstanding ThaiBev experience and which are directed by ThaiBev’s Board of Directors, and are annually reviewed and approved by the meeting of Group Finance and Accounting which is chaired by CFO which allows ThaiBev’s business to be conducted according to its core business plans, the shareholders’ resolutions in an honest manner under the law and ThaiBev’s objective and consequently accomplish our commitment and responsibility towards our stakeholders. Our tax policy and related tax practices are set out below:
TAX CODE OF PRACTICE
contains principles that aim to achieve sustainable and competitive taxation and sustainable value and growth including good corporate tax citizenship with added value for society. ThaiBev’s Tax Code of Practice clearly sets out clear our tax governance framework and perspective on tax risk. Our tax principles are set out below.
We act at all times in accordance with all applicable laws and relevant international standards and we aim to comply with the spirit as well as the letter of the tax laws in the countries in which the company operates.
B) CORPORATE ETHICS:
Our Tax Code of Practice is based on good corporate governance as laid out in the Business Ethics Policy of Thai Beverage Group which requires our business to be transacted in accordance with a high standard of corporate conduct appropriate to our standing as a major company with worldwide operations. All ThaiBev’s personnel have the responsibility to adhere to the Tax Code of Practice, so that ThaiBev achieves its objective of upholding ethical conduct and maintaining ethical standards.
C) TRANSFER PRICING:
We aim to pay an appropriate amount of tax according to where value is created within the normal course of commercial activity. Any intragroup pricing is aimed at achieving a commercial market price. We have conducted a transfer pricing documentation and benchmarking study for our intragroup transactions to ensure that all the prices and considerations are fairly and commercially allocated in comparable situations across the Group. We have made significant progress in implementing a group transfer pricing policy to ensure that all the intragroup transactions are aligned with the Arm’s Length Price principle under the respective domestic jurisdiction regulations and transfer pricing laws and in the context of the international tax environment in order to demonstrate that all respective transactions have appropriately and commercially been charged within the range of the prices that parties who are not related to each other should transact business and to promote prudence and transparency in ThaiBev Group.
D) TAX STRUCTURING:
Our tax structuring is always based on sound commercial rationale with a substantive presence in each jurisdiction. We never participate any fraudulent, contrived or abnormal tax structures shifting profits to secrecy jurisdictions or so-called tax havens. Furthermore, we do not create complex tax structures where the primary objective is accessing tax benefits and the main purpose is tax avoidance nor execute any business structures based on aggressive tax planning and/or with tax benefit driven intentions. We always ensure that our tax structures comply with existing requirements, regulations, ethical business practices and OECD’s BEPS guidelines. We have responsibility to our shareholders to be financially efficient and deliver a sustainable taxation approach that enhances shareholder value.
F) TAX INCENTIVES:
To achieve tax efficiency, we will seek to make use of legally available tax incentives, within the context of sound and sustainable business decision-making. Incentives may include tax holidays, accelerated asset allowances or other incentives. All are in the context of national or local tax policy and would generally be available to any business that meets the relevant criteria. These incentives may influence our business decision making but are only one of a range of economic factors taken into account.
G) RELATIONSHIPS WITH TAX AUTHORITIES:
We respect the right of governments to determine their own tax structures, rates of tax and collection mechanisms. We seek an open and constructive dialogue with the tax authorities in pursuit of professional, constructive and transparent working relationships.
TAX RISK MANAGEMENT AND TAX CONTROL FRAMEWORK
We focus on risk governance including the identification and management of all material business risks, but not limited to strategic, financial, operational, reputational, environmental and information technology to ensure compliance with legal requirements. We are fully compliant with tax laws and regulations in all jurisdictions where we operate. In this context we aim to manage our tax risks and consequences due to changes in government tax policies or administrative tax practices. This encompasses maintenance of documented policies and procedures in relation to tax risk management and completion of thorough risk assessments in all its taxation affairs. This includes, among others, compliance, operational and external reporting risks
A) PROCESS COMPLIANCE:
We commit to act responsibly in relation to our tax affairs. This means that we comply with the tax laws and regulations of each region in which we operate. Where tax laws do not give clear guidance, prudence and transparency shall be the guiding principles. We also commit to be compliant in timely, accurate and complete filing of tax returns and strive to avoid adjustments, fines and interest costs. Our economic contribution, of which tax forms a part, is important and we aim to ensure that we pay the right and proper amount of tax in each region in which we operate. Operational controls apply to all processes relating to the management of tax liabilities.
B) MONITORING & REPORTING:
We are committed to appropriate internal and external tax monitoring and reporting and accurate representation of current and deferred tax expenses.
We acknowledge tax as a relevant factor in the decision making process at the meeting of Group Finance and Accounting which is chaired by the CFO. Tax risk is a recurring item in the meeting agenda of Group Finance and Accounting and is monitored and reviewed on a structural and operational basis. Management controls are in place to ensure that, at the highest level, tax practice is aligned with our tax policy in a controlled and standardised manner. They encompass the authority, objectives, principles, rules, and related assurances that underpin tax activities and establish boundaries for tax.
C) REPUTATIONAL RISK:
We are committed to effectively monitor and manage compliance and reputational risks related to our tax affairs. We periodically review the quality and integrity of tax arrangements, as well as the accuracy and comprehensiveness of tax data, tax returns and reported results regarding tax provisions, exposures and deferrals.
D) CULTURE OF RISK MANAGEMENT:
We are committed to ensuring that our employees truly understand the content and meaning of the Tax Code of Practice. Personnel at every level are required to accept and follow the code; to engender knowledge and understanding and instil awareness of good tax risk management into all tax practitioners who are directly responsible for ThaiBev’s taxation including giving a direction to other divisions on tax related issues and making tax risk management a part of corporate culture. We periodically provide special training in tax risk management to promote understanding of risk factors, risk processes and management tools used to address risks.
E) TAX CONTROL FRAMEWORK:
ThaiBev is in a continuing process of improving and implementing tax risk management in the company and the development of the Tax Control Framework is part of that continuous commitment and process .
In order to operationalize our Tax Risk Management commitments, ThaiBev has introduced a Tax Control Framework (“TCF”)
including internal processes, roles, responsibilities, reporting and risk mitigating policies for ThaiBev business transactions and their potential tax consequences. ThaiBev’s TCF has been being developed to ensure that all commitments included in Tax Code of Practice, Tax Risk Management and Tax Transparency are covered in the internal risk management processes.
ThaiBev aims to be "in control" of all tax issues and able to detect, document and report any relevant tax risks in a timely way, and include all tax processes within the scope of the Tax Control Framework. In this way the ThaiBev Tax Control Framework should enable ThaiBev to identify, mitigate, control and report tax risks internally and, when necessary, externally.
The main focus is on managing the risks associated with taxes for its Thai and foreign entities. This includes keeping current with tax laws and changes as they occur, improving controls over tax financial reporting requirements, managing the global tax audit activity, determining that compliance with tax requirements occurs in every jurisdiction, providing access to proper expertise in each jurisdiction and accurately reporting global tax accounts by jurisdiction.
ThaiBev supports the increased focus on financial reporting and enhanced demand for improved transparency by investors and shareholders, public and governments, stakeholders and management alike. ThaiBev has developed the tax function by consolidating tax compliance from the individual company in the group to the tax specialized unit center to monitor and control all the tax works to mitigate any possible tax risks from operations, interpretation and compliance. This will help ensure that the businesses are compliant in rapidly changing environment to always achieve the business and sustainability goals. ThaiBev’s TCF should result in an effective, efficient and transparent tax function in which roles and responsibilities are defined for each tax process in the organisation, and procedures, processes (and tools) are made available and properly documented and reported.
Our tax communication to governments is based on transparency fulfilling all statutory disclosure requirements on taxation and demonstrating our transparency and accountability as a part of our good tax governance. Our clear and transparent tax policy are disclosed in the public domain accompanied by ThaiBev regional tax report.
Good corporate citizenship includes excellence in tax governance, tax accountability and tax transparency building trust with societies and stakeholders. We are committed to an open and transparent principle-based approach towards taxation.
TRANSPARENCY TO TAX AUTHORITIES
a) Transparency to tax authorities involves ensuring that full disclosure will be given to fulfil all regulatory requirements in all jurisdictions we operate in.
b) This includes information necessary to properly understand entries in a tax return and information specifically requested during tax audit enquiries. In this context, we ensure that proper documentation is retained to meet local tax requirements.
TRANSPARENCY TO OTHER STAKEHOLDERS
a) We are committed to ensuring that our employees truly understand the content and meaning of the tax code of practice; at every level, ThaiBev personnel are required to accept and follow it. ThaiBev has a duty to maintain transparency in its operations and protect the interests of its shareholders by considering tax risk factors, both present and future.
b) We are committed to tax transparency responsibilities towards our stakeholders in the widest sense in line with our sustainability approach. In that spirit of transparency and continued disclosure we have decided to publish our tax policy.
c) We are transparent about our approach to tax and will communicate our tax policy in an understandable, timely and transparent manner. We believe that this tax transparency is a cornerstone of good tax governance.
d) Furthermore, we support efforts to ensure that companies are appropriately transparent in their economic contribution. In order to provide greater insight and clarity, we are committed to transparency and accountability in disclosure on taxation in ThaiBev’s regional tax report indicating revenue, operating profit and taxes paid.
Tax Reporting FY2019
Remark (*) excluding share of profits from normal operation of investment in associates and joint ventures.9
|Country / Region
||Total revenue (THB)
||Profit (loss) before tax (*) (THB)
||Tax Expense (THB)
Note to Myanmar - Two subsidiaries in Myanmar have been granted the income tax exemption for a period of 5 years from Myanmar Investment Commission which expired in December 2018.
Note to Asia Pacific region- Hong Kong and Singapore adopts a territorial source principle of taxation. Only profits which have a source in Hong Kong and Singapore are taxable there. Profits sourced elsewhere are not subject to Hong Kong Profits Tax and Singapore Corporate Income Tax.
EFFECTIVE TAX RATE
ThaiBev’s effective tax rate explanations
Remark (*) including share of profits from normal operation of investment in associates and joint ventures.
|CONSOLIDATED FINANCIAL REPORTING (THB)
|EARNINGS BEFORE TAX(*)
|REPORTED TAX RATE (IN %)
|CASH INCOME TAX PAID (THB)
|CASH TAX RATE (IN %)
The cash tax rate in FY2019 significantly dropped to 19.2% from 28.9% in the prior year – this is because generally, the cash tax paid in any particular year may differ from the tax accrued on profits for the year while 50% of income tax charged on the income derived in FY2019 will become due in 2020.
A large majority of the Group’s income is derived from Thailand which is subject to the CIT at 20%. However, the reported tax rate in FY2019 is 16.7% which is slightly lower. From the annual report, the reconciliations of the ETR provide reasons as follows:
“Effect of different tax rates in foreign jurisdictions” represents the income derived in a foreign jurisdiction with a different domestic rate. The rate reconciliation was assumed at a 20% tax rate on all financial income as the starting point. A portion of income derived by International Beverage Holding Ltd. (“IBHL”), a Hong Kong subsidiary, with a lower tax rate at 16.5% and income derived by The Grand Royal Group (“GRG”), a Myanmar subsidiary with a higher tax rate at 25%, would decrease the income tax by THB 20m.
“Income not subject to tax” are the most significant tax effect and decrease the income tax by THB 1,866m. Majority non-taxable income arises from the portion of offshore income derived by IBHL due to its substantive investments in Asian Pacific and Hong Kong has adopted the territorial rule where income derived offshore will not be taxable in Hong Kong and thereby decrease the income tax by THB 892m.
The second majority arises from the income derived by ThaiBev which is qualified under the IHQ and IBC regime during 2019 which decrease the income tax by THB 464m. Due to the fact that Thailand joined OECD's Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in 2017, the IHQ regime was abolished to be complied with the OECD’s suggestion. Thereafter, Thailand government has replaced with the International Business Center (“IBC”)
regime in compliance with the OECD’s Inclusive Framework.
As ThaiBev aims to achieve sustainability and competitiveness in terms of taxation, and act at all times with relevant international standards, ThaiBev has continued in applying IBC by converting the IHQ to the IBC in June 2019. The IBC regime gives the preferential income tax rates of between 3% and 8% depending upon its annual expenditure to be spent in Thailand in each respective tax year during the concession period. For the fiscal year ended September 2019, ThaiBev has adopted the income tax rate at 3% for corporate income tax purposes as it achieved qualifying expenditure of THB 600m per annum.
Dividend income received by ThaiBev is exempt from Thai tax due to the tax legislation exemption rule for the Thai parent company on dividends received from its subsidiaries.
Apart from that, two of ThaiBev’s subsidiaries have obtained tax privileges from Thailand Board of Investment relating to the projects of electricity generation from biogas at distilleries and production of beverage respectively. The privileges granted include the tax exemption for the income derived from the promoted businesses for 8 years from the date on which income is first derived from the promoted businesses. The income derived by the two subsidiaries would not be subject to Thai corporate income tax and thereby decrease the income tax by THB 176m.
ThaiBev’s foreign subsidiaries have also obtained several tax privileges which include:
“Expenses not deductible for tax purposes”
- Tax privileges provided by Myanmar Investment Commission to the Grand Royal Group (“GRG”) in Myanmar for a period of 5 years, which has already expired in December 2018. Thus, income derived during the tax holiday period was not taxable and thereby decreased the income tax by THB 144m.
- Tax privileges provided by the Vietnamese authority to Sabeco in Vietnam subsidiaries (“Sabeco”) for investing in the areas with difficult social economic conditions i.e. Quang Ngai, Soc Trang and Ha Tinh which decreased the income tax by THB 144m. The provided tax privileges include:
- Reduced income tax rate at 15% of taxable profit for a period of 12 years starting from 2010;
- A 50% reduction in income tax for 7 succeeding years (2016-2022) which decreased the income tax by THB 25m.; and
- Tax exemption on dividend and share of profits from associates
mainly represents the interest expenses incurred by Sabeco which are disallowed by the local tax authorities due to exceeding the restricted threshold and thereby increased the income tax by THB 261m. Vietnam has recently introduced restrictions on the level of tax deductible interest which follows the recommendation of the OECD in its BEPS initiative.
There is an additional income tax expense of THB 293m which arises from the dividend of THB 1,500m paid by Great Brands Limited to Sermsuk as it is an eliminated item in the consolidated financial statements which should be taxable at 20%.
GRG has incurred the donation expenses which is not allowed by the Myanmar tax authorities and thereby increased the income tax expense by THB 4.4m.
Apart from the non-deductible items, there are several tax effects decreasing the income tax expense by THB 124m. which include:
“Recognition of previously unrecognized tax losses”
- 50% and 100% additional tax deductions granted by the Thai tax authorities for a period of five years from the acquisition of new capital expenditure during 2016-2017 which decreased the income tax by THB 28m.
- 200% tax deductions arising from the donation to public hospitals or for public health and public donation to educational and sport institutions which decreased the income tax by THB 54m.
- Timing differences arising from GRG i.e. depreciation, unrealized loss and provision of THB 46m.
mainly represents the reversal of losses incurred by Sermsuk in the preceding years which increased the income tax by THB 39m. Whilst, there were the deferred tax assets recognized by CAC and tax loss unitization by Sabeco in 2019 which decreased the income tax by THB 34m.
“Current year losses for which no deferred tax asset”
increases the income tax expense by THB 369m. due to the current year tax loss which was not recognized by IBHL in the deferred tax assets in the current year.