However, buyers will often enquire more generally as to whether its advisers deems the whole method of sale the developer is using as being `safe'. Unfortunately for the buyer, there is no practical way a buyer's legal team could correctly and in an informed way provide a thorough conclusion, without actually conducting due diligence as if it were advising the developer itself. This would be cost prohibitive for the buyer, that is - to pay its lawyer to conduct the same scope of due diligence as if it were acting for the developer, and impractical not forgetting the fact that there will be a great deal of tax and accounting matters included in the mix.

Typically, a buyer will not instruct an accountant or a tax adviser to look into the developer's sale structure, in the belief that if there is an issue, it will be the developer that will be responsible. Sometimes, buyers do take the trouble to at least make preliminary enquiries with independent tax and accounting advisers, in conjunction with legal advice as to whether a structure includes risk or not.

Tax and accounting position of the `jointly owned' company

A now common feature of the sales structures in place in the property market includes the use of BVI's or other offshore entities and also includes a scheme under which buyers participate in a company which has a controlling interest in a local Thai company (subject to the restrictions on % foreign ownership) through weighted voting rights. An issue which may arise from such a structure, post-completion of registration of leases, when all the owners take control of the entity which participates in the local Thai entity, is the tax and accounting position of that entity and whether the owners will be left with, after spending what they believe to be a capped and disclosed figure in relation to purchase price; service charge; share purchase price etc - an outstanding tax liability inherent and existing in the company to which all the leases are registered.

This can be solved by proactive disclosure on the part of the developer. A developer and its advisers should have thought forward to a time when its interest in the central company in which owners will participate will have ceased to exist and the owners then become responsible for the ongoing administration of the company. A warranty and representation that this company will be `clean' is not sufficient on its own, especially without any penalty in the event the company is not made `clean' and also the matter of which entity should the owners pursue if they are left with a company which is not `clean' arises. Therefore, there ought to be disclosure by the developer and its advisers on what the approximate (only an approximate balance will be possible) accounting and tax position of the relevant entity or entities will be.

Is it possible to `legally' control an asset through shares and remit all funds offshore?

Where a buyer is thinking about entering into an arrangement where a large proportion or all of a purchase price is remitted offshore, it will naturally want to know if there is any risk for it as a purchaser in such an arrangement. If the net result of a purchase is that the owners become shareholders in the companies in the scheme and that they also become responsible for maintenance of the companies, directors of the companies and participants in the development and a tax investigation commences in relation to how those units were sold - the Revenue Department may want to interview and discuss the method of purchase with buyers to make sure that tax laws have not been breached. Additionally, the Revenue Department, if concluding that there is an outstanding liability, will have to elect to choose which entity (corporate or individual) or liable. Such an episode, whether concluded positively or negatively would not be an ideal experience for a holiday buyer. A developer cannot of course be responsible for an unannounced tax investigation. A developer can be responsible for taking actions necessary to minimize the likelihood of such an event occurring.

When a buyer looks at the sales contracts and makes an enquiry as to whether an offshore payment is legal or not will not as the market becomes more adept and experienced, warrant a satisfactory `yes' or `no' answer. Instead, it will become necessary to share with owners, the advice the developer has received in order for the owners to establish what they are buying into and becoming part of. If a company outside of Thailand has provided a service outside of Thailand then it would appear conclusive that it can be paid outside of Thailand. It is for tax advisers experienced in such matters to provide guidance on whether grey areas pose risk or not.

Developers will have to think carefully about whether their arrangement is not only robust but explainable and understandable for a buyer.

Contractual Protections

In addition to incurring the expense of engaging a legal adviser, an accountant and an on and off-shore international tax adviser to ascertain there are risks or exposures to the eventual owners in a project, a buyer can adopt lines of enquiry which can ascertain the strength of reliance a developer has taken or not in relation to its own advice. No developer's lawyer would wish to be liable to each and every buyer and would naturally avoid such a relationship by insisting that buyer's seek their own legal advice and conduct due diligence.

However, in terms of the set-up of the development the questions "To what extent has the developer taken accounting and tax advice regarding the following issues?" and "To what extent has the developer varied from the advice it has received?" (i.e. has the developer materially ignored advice as to what activities are legitimately offshore and legitimately onshore, may be asked at the outset and indemnities for loss as a result of breach of representations and warranties revolving around this issue may be put in place. Importantly, the entity which provides the indemnity must be unconnected with the ultimate owners so they do not become the indemnifiers of themselves.

A series of indemnities can further extend to the event that there is a tax investigation. It should be the developer that answers questions; accepts responsibility for its previous actions and without expense or cost to owners. This is controversial for developers but will certainly focus on the strength of advice they receive as to the integrity of any structure which involves offshore elements.

Summary - Examine a sales structure thoroughly

Developers can take positive action by disclosing not only contracts but also the methods by which they will ensure any companies which the owners may collectively be responsible for will be managed from an accounting and tax perspective. Additionally, as developers ought to be responsible in the event of any tax investigation, whether positive or negative in outcome, an assurance or comfort that the burden of responding and defending an investigation should be provided regardless of speculation or confidence that an investigation will never occur.

Buyers should also consider extending the remit of their advice beyond legal services, to tax from tax advisers who are familiar with such schemes.