JANUARY 1999 ASIA-PACIFIC TAX BULLETIN
Developments
ASIA-PACIFIC
Monthly Round-Up
By Victor T. Chew
Recent developments in the Asia-Pacific region are
reported below.
TAIWAN
The Executive Yuan issued a Cabinet order on 20 June
1998 regarding the taxation on futures and stock options
(No. 8700122120).
According to the order, a transaction tax will be imposed
on transactions involving futures and stock options. For
futures transactions, the rate will be a minimum of 0.025%
and a maximum of 0.15% on the amount of the transac-
tion. For transactions involving stock options, the rate will
be a minimum of 0.125% and a maximum of 0.75% on the
amount of the transaction.
The exact rates will be decided later by the Ministry of
Finance with the approval of the Executive Yuan. The
transaction tax on futures and stock options must be with-
held by the dealer of the transaction on the day of the
transaction.
THAILAND
The social security system in Thailand is regulated by the
Social Security Act B.E. 2533 (1990) and Social Security
Act (No. 2) B.E. 2537 (1994). The changes indicated
below were recently introduced.
An old age pension scheme is to be introduced in Decem-
ber 1998. Contributions from employees, employers and
the government will each be 3% of wages. The old age
pension will be payable when the employee reaches 55
years of age and has paid contributions for at least 15
years. Also covered by these contributions will be a child
allowance programme, which will provide for payments in
respect of a maximum of two children if the insured per-
son has paid contributions for at least one year.
Contributions for death, illness and disability, originally
introduced in 1990 for firms employing at least ten work-
ers, are payable by employees and employers at the rate of
1% of wages. From 2 September 1998, there is voluntary
coverage for the self-employed. The contributions provide
for payments to be made on death, illness or disability.
© 1999 IBFD Publications BV
33
VIETNAM
The Prime Minister signed a decree on 12 October 1998,
providing for changes in the rates of special sales tax on
goods and services. The rates to be applied with effect
from 1 January 1999 are as follows.
Goods:
(a) Cigarettes and cigars:
– 65% on cigarettes produced from imported materials
and cigars;
– 45% on filter cigarettes (local raw materials); and
– 25% on non-filter cigarettes.
(b) Spirits:
– 15% on medicinal alcohol registered with the Ministry
of Health; and
– 20% to 70% on liquor (including ethyl alcohol),
depending on the proof (alcohol strength).
(c) Beer (all types):
– 75% on bottled and fresh beer;
– 65% on canned beer; and
– 50% on other kinds of beer.
(d) Cars:
– 100% on cars with 5 or fewer seats;
– 60% on cars with 6 to 15 seats; and
– 30% on cars with 16 to 24 seats.
(e) Other:
– 15% on gas, naphtha and any kind of material used to
produce gas;
– 20% on air-conditioners under 90,000 BTU; and
– 20% on playing cards.
Products will not be taxable if they are exported or are
imported as gifts from foreign organizations or individu-
als. Goods which are tax free under the import/export tax
regulations will also be exempt from the special sales tax,
as will humanitarian aid and diplomatic immunity goods.
Services:
– 20% on dance halls, discotheques, massage parlours
and karaoke bars;
– 25% on casinos and laser games;
– 20% on car and horse racing betting tickets; and
– 20% on golfing business: sales of membership and
green fees.
34 ASIA-PACIFIC TAX BULLETIN
TAX TREATIES
The Thailand–Spain tax treaty entered into force.
Singapore’s treaties with Estonia, Latvia and Lithuania
were initialled.
CONFERENCES
KPMG’s 1998 Asia-Pacific Tax Conference, “Asia:
Opportunity or Risk”, was held in Bangkok on 24 and 25
November 1998. The speakers discussed how countries in
the region regard the economic crisis and the prognosis for
AUSTRALIA
High Court Cases
By Dr John Azzi*
I. NATURE OF INCOME FROM DEBT
DEFEASANCE ARRANGEMENT
In FCT v. Orica Ltd. (formerly ICI Australia Ltd.),1 the
issue before the High Court was whether a debt defeasance
arrangement that generated an accounting gain (i.e. the
difference between the net present value and the face value
of various debentures) was assessable:
– under Section 25(1) of the Income Tax Assessment
Act 1936 as ordinary income;
– under Section 25A of the Act as profit arising from a
profit-making scheme; or
– under Part IIIA of the Act as a capital gain.
Because of restrictions on further borrowing and the
amount owing (i.e. about AUD 98 million) on various
debentures redeemable between 30 November 1986 and
31 January 2000, the taxpayer entered into a series of
arrangements (Principal Assumption Agreement
(“PAA”)) with a tax-exempt body, the Melbourne and
Metropolitan Board of Works (“MMBW”). Under the
PAA, in return for the immediate payment by the taxpayer
of about AUD 62 million (i.e. the aggregate of the present
values of total debt owing), the MMBW agreed to assume
the taxpayer’s obligations under the various debentures as
and when they became due.
The net result from these transactions was shown in the
taxpayer’s profit and loss statement as an “extraordinary
profit” of about AUD 36 million, i.e. the difference
between the principal liability in respect of the debentures
and the amount paid to the MMBW.
By a notice of assessment dated 23 April 1990, the Aus-
tralian Tax Office (“ATO”) added the amount of extraordi-
nary profit to the taxpayer’s taxable income for the year
ended 30 September 1986 on the basis that the difference
© 1999 IBFD Publications BV
JANUARY 1999
recovery. Acquisition and divestiture strategies were
reviewed. Regional tax developments relating to financing
infrastructure projects, use of financial instruments, trans-
fer pricing and indirect taxes were also analysed.
The Inter-Pacific Bar Association will hold its 9th Annual
Meeting and Conference in Bangkok from 30 April to 4
May 1999. All IPBA Committees, including the Tax Law
and Cross-Border Investment committees, will be holding
meetings during the conference. This conference is open
to both lawyers and non-lawyers, and there will be special
programmes for accompanying guests. For more details,
please contact Jane Puranananda; e-mail:
dejudom@loxinfo.co.th.
between the liability disposed of and the amount paid
under the PAA was a gain that constituted assessable
income.
The ATO’s interpretation of the facts was accepted by the
trial judge in the Federal Court, who also held that Divi-
sion 16E of Part III of the Act (dealing with discounted
and deferred interest securities) applied so that the extraor-
dinary profit was assessable progressively in accordance
with those provisions. The trial judge further held that the
amount included in the assessment notice did not consti-
tute a taxable gain under Part IIIA of the Act because the
PAA did not give rise to an asset.
On appeal, the Full Federal Court, by majority (2:1),
reversed the trial judge’s decision and held that the “gain”
(if any) was not ordinary income (under Section 25(1))
and that it arose from an unusual and isolated transaction
which was not assessable under Section 25A because the
difference in amount arising when the debentures matured
and when the defeasance arrangement was made was cap-
ital. The Court, however, agreed that the rights arising
under the PAA did not give rise to an asset for purposes of
Part IIIA of the Act.
The High Court decided as follows:
(1) Income according to ordinary concepts: The majority
of the High Court held that the benefit received by the
taxpayer was the discharge of its liabilities (which
were of a capital nature) pursuant to the PAA and that
on no account did that amount to receipt of income at
the time the PAA was entered into. The judges charac-
terized the benefit derived by the taxpayer as a reduc-
* Senior Research Associate, International Bureau of Fiscal Documentation,
Amsterdam.
1. Handed down on 12 May 1998.