Bangkok Post, Thailand, Tax Corner Column.

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Dec. 4--You will be surprised to learn that the Revenue Department has given a green light for you to deduct any losses that are incurred from lending funds to your subsidiary, without following the bad debt regulations, if you simply change the nature of the transaction from debt financing into equity financing in your subsidiary.

During the current economic crisis, the entitlement to a tax deduction for a corporation can substantially extend the life of that corporation.

If you would like to invest in your subsidiary, what happens if the subsidiary does not perform well?

In order for you to write off the loss incurred from such investment, the only way under the current law is to qualify such loss as a bad debt under Section 65 bis (9) and Ministerial Regulation (No. 186) of the Revenue Code.

Having said this, it is not that simple to follow all the conditions set out in these regulations and as such you may well lose the opportunity to write off any loss.

One simple technique to avoid this is to convert the loan into equity by investing in shares in the subsidiary. In this way, you will become a shareholder of the subsidiary and if the subsidiary gets into a problem, you can dissolve and liquidate the subsidiary after the conversion. Thereafter, you can write off the capital loss incurred from the investment in the subsidiary.