Thailand Law Journal 2013 Fall Issue 1 Volume 16

Section 77 which was amended by 11th revenue code amendment act B.E. 2525 in order to fill the gap of the law to prevent abusive corporate veiling. It provides the definition of the word "produce" to mean "agriculture doing, natural resource mining, good transforming,….no matter such businesses are committed by the tax payer himself or by others who have agreement with the tax payer to do such business.

The reason of the parliament on this enactment is that it wants to collect tax as much as it can. In the past, troubles occurred when some companies tried to evade the tax by making a contract with another company to produce the goods in their orders and sell it to the former one as they wanted. The latter company would be forced by the former one to stamp the emblem of trademark of the former company while the former company was the one who provide packaging, quality standard features, color and ingredients of all products to the latter. Moreover, there was an agreement between two of them that the latter company could not produce those goods to other companies.

The Thai Revenue Department then filed a law suit to that company to collect the tax as "producer" rate (which is higher than the "purchaser" rate). However, the court decided that the former company was the purchaser not the producer because it did not transform the goods it bought from the latter company into the new goods, therefore it was not defined as "producing" according to the definition given in Revenue Code section 77.⁷⁹

Accordingly, due to the amended law, any person or company cannot decrease tax burden by using the above method and have to be liable for the high tax rate as a producer.⁸⁰

Additionally, piercing the corporate veil is not applied only in the legislative acts; it is also applied in the court decision.

The Thai courts will use piercing the corporate veil doctrine by using section 5 of Civil and Commercial Code which states that "Everyone must, in the exercise of his rights and the performance of his obligations, act in good faith."⁸¹ Often, courts use these two elements:

1. Alter ego
The situation when a corporation is just an instrument of shareholders. The assets of corporations are like the assets of shareholders and not enough to run a corporation's business.⁸²

Additionally, when the corporation is dominated by only some amount of shareholders, it can be said that such corporation is just a "sham" of the shareholders. In addition, in case that the parent corporation dominates and controls all of their subsidiaries which all of their shares are held by the parent corporation. These acts may leads to equitability of the courts to apply piercing the corporate veil doctrine.⁸³

2. Fraud or Bad Faith act shall be proven.
The courts may enforce piercing the corporate veil doctrine when there is an occurrence of unfaithful act, beside alter ego, for example:
1. Shareholders or directors of the corporation run the pierced corporate as a puppet.
2. Shareholders use their personal assets confound with those of the corporation.
3. Using the corporation to corruptly seek for their own personal benefit or transferring the corporation's asset to themselves.
4. Running the business of the corporation as a personal business or publicly show that the business of the corporation is not separated from personal business.
5. Fraudulent, dishonest or unlawful acts occur.
6. Using the corporation to evade the law, debts or liability.
7. The corporation has so low capital that is not enough for expected liability in future that can occur from running the business.

Therefore, when these circumstances occur, Thai courts may use piercing the corporate veil doctrine as much as they can to maintain equity in society.⁸⁴

Epilogue

In sum, from all of the discussions above, it is quite obvious that piercing the corporate veil doctrine appears in many countries' law such as United States and Japan. Thailand adopted this doctrinal framework since B.E. 2460 (1917 A.D.) in Trading with
the Enemy Act and in the court decisions. However, the codification of this doctrine has not been obvious yet in either Thai law, Japanese law or U.S. law.

Considering from the existed problems in Thailand, the court will hold the defendant to be liable with his corporation in the debts of the corporation if that person corruptly used the "separate legal entity concept". Moreover, that person used the corporate decisively as the veil to evade his contractual obligation.

Some scholars said that from the Thai Supreme Court decisions as a guideline,⁸⁵ the courts have applied section 5 of Civil and Commercial Code⁸⁶ as a vehicle leading to piercing the corporate veil doctrine as "Good Faith" doctrine⁸⁷ Therefore, there is no necessity to codify piercing the corporate veil doctrine.⁸⁸

However, law amendment and codification should be taken into account in order to decrease the amount of using the corporation as a veil from limited liability concept. The amendment should be aimed to define an exception of limited liability or separate legal entity of the corporation. This can lead to more effective ways to fix the problems, prevent and define the liability of the person who abusively uses the limited liability doctrine. For Thailand, arranging piercing the corporate veil doctrine in form of an exception in some specific law may not be the most optimized way to serve justice because in order to solve the problems regarding abusive application of limited liability rule, amendment of all of relevant specific laws is required, which consumes lots of time and budget.

79. Id.

80. Id.

81. Pramuan Kotmaiphaeng Lae Phanit [Civil and Commercial Code] § 5.

82. ChiRaMongkhonPhaNit, supra note 11 at 28.

83. Id.

84. Id. at 28.

85. Please note that in Civil Law system, cases are not the source of the law. However, the courts often use precedent cases as a guideline of the way to interpret the text in the code.

86. TCCC Section 5: "Every person must, in the exercise of his rights and in the performance of his obligations, act in good faith."

87. ChiRaMongkhonPhaNit, supra note 11 at 29.

88. The sources of the law in Civil Law system are only codes, statutes and regulations.