Thailand Taxes: Managing Tax Audits (part 2)

May 24 2010 Categories: Thailand Taxes No comments yet

This post is the continuation of yesterday post (Managing Tax Audits Part 1). But for the first visit, when tax officials will audit a company they will generally request it to send the documents at their office. Depending of the team auditing your company you will either be requested to send the documents first or to come for an interview first and then later to send the documents. Do not attend the interview yourself but send the accountant who is handling your company account or a tax lawyer if the issues are complexe. But the accountant should be your first choice.

Tips on Audit Preparation

If your accountant needs more time than offered by the officer to prepare the documents or to prepare himself/herself to the interview do not hesitate to request a delay.

Do not provide more documents than requested by the tax administration. If the investigation is related to a specific year do not provide documents for the previous year. If you assist to the meeting despite our advice do not talk too much and only answer the questions asked to you. Do not give more information than what is strictly necessary to answer the questions of the officer.

Scope of the Tax Audit

As already explained in yesterday post the tax officer will investigate either if your company (1) business transactions have all been actually and correctly recorded in the company accounts and (2) if all tax liabilities have been correctly calculated and paid.

As to the first item, the tax officer may check issues such as inventory, foreign exchange gains and losses, and depreciation; deductible expenses vs non-deductible expenses, failure to report income. Did you claim as deductible expenses, expenses that were not deductible thus artificially reducing your company taxable income. For example, it may happen that a company that has foreign workers has to use “dummy” Thai employees to fulfill the four Thai employees per foreign worker criterion. In other words the company declares Thai workers, paid withholding tax on the declared income as well as social security. But the company does not actually paid salaries to these dummy workers. If you are in this situation do not include the dummies salaries into your deductible income.

As to the second item the officer will check:

(a) if your company has paid withholding tax whenever said tax applied, whether the withholding tax has been paid at the correct rate and finally if it was paid when it was due. The withholding tax issues that cause the most trouble to companies is the 15% withholding tax on royalties payments made abroad. For example a company makes a payment to a foreign company located in a country that has a double tax treaty with Thailand. The payment was recorded “as payment for services” (no withholding tax applicable). Now depending of the content of the “service” the Revenue Department may contest the qualification of “payment for services” and claim that the payment was actually a royalty payment subjected to 15% withholding tax.

(b) If your company has paid VAT whenever it applied, when it was due, and if your company has not used disallowed VAT Input against VAT output. Many companies have gotten themselves into trouble for setting up a warehouses or sale points without registering the warehouse / sale point as a place of business of the company. Now VAT on goods applies as soon as the goods are moved out of the company premises whether the good is paid for or not. All items moved out of the company premises are treated as sold already for VAT purposes. Therefore the officer is entitled to request that the company paid VAT on all those items plus a penalty equal to double of the VAT amount. For example a company claim Input Tax on expenses paid that is not directly connected to the business (the most common mistake is to claim VAT input on entertainment expenses.

Tax Audit Results

A tax audit may end two ways. Your company did not comply fully with the law in this case it will be subjected with penalty, surcharge or fine. If this happen you should at least try to negotiate a compromise with the tax officer. If a compromise is not possible you have two options, paid the tax or to appeal the decision in written (on a specified form) to the Appeal within 30 days after receipt of the assessment and subsequently you may also appeal the Appeal Committee decision to the Tax Court within 30 days after the date of receipt of the decision of the Appeal Committee.

Note that even if you appeal you will still have to pay the tax due under the tax assessment made, pending the decision of the Appeal Committee or judgment of the Tax Court because the appeal process does not suspend the effect of the decision.

Now the tax audit may end well for you and the tax officer will find that your company fully complied with the law but even so you are not home yet. Lately we noticed that Tax officials have become more “aggressive” in their dealings with corporate taxpayers and that they will simply not let companies go (even the compliant one) with nothing and that they will try to pressure you to give up an advantage or another (for example to agree to forfeit carry forward tax losses). It might have to do with the fact that the Revenue Department this year is 170 billion THB below target or it may be the symptom of a change of attitude of the Revenue Department as a whole.

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

Originally posted 2009-10-09 04:41:43.

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