Taxing foreign income in capital-importing countries : Thailand's perspective

This paper proposes a framework for analyzing international-income taxation. The standard approach, involving the user cost of capital, is extended to incorporate the role of tax policy implemented by the home country. Tax provisions of home countries vary significantly. Of particular relevance are: (a) whether remitted earnings are taxed at home; (b) if so, whether they receive any unilateral tax relief, that is, deduction or foreign tax credit; (c) whether the home country accepts tax sparing; and (d) the scope and extent of deductible expenses, which generally differ from those of the host. Also of interest to the host are firms'international tax planning opportunities. Thailand has sought and achieved double-taxation agreement with most of its trading partners. It has attracted substantial foreign investments and collected the attendant revenue. Its tax policy remains vulnerable in many areas, however. There are, for example, inadequate safeguards against excessive leverage, transfer pricing, and treaty shopping. Its strategy concerning tax incentives could also be strengthened to remove the barriers for extending the treaty network and enhancing regional coordination.