Claiming that you are innocent will not be of much help when dealing with a situation involving with a “false” or an “incorrect” tax invoice. Where a “false tax invoice” is issued, not only the issuer but also the customer, who inadvertently credits such input tax, is often regarded as a wrongdoer under the Revenue Code.
The consequence on the customer’s side is, besides the prohibition from crediting the input tax specified in the false tax invoice, Section 89 (7) of the Revenue Code imposes the penalties of 200% of the tax amount, irrespective of whether or not there is a shortfall of the tax payment. While the assessment officials are authorized to consider the reduction of the penalties when there is a reasonable cause, e.g. full cooperation of the taxpayers in the course of the tax audit, they do not have such authority in case of the utilization of the “false tax invoice”, unless the Director-General of the Revenue Department will order them to do so.
Similar to the false tax invoice, input tax under an “incorrect tax invoice” is not allowed to be credited against the output tax. However, where such input tax is claimed, Section 89 (3) and (4) imposes penalties of only 100% of the input tax amount that appears in the incorrect tax invoice rather than 200%, and the assessment official is empowered to reduce the penalties amount.
In respect of what should be considered as the “false tax invoice”, Section 89 (7) provides in its second paragraph that a “false tax invoice” is deemed to exist if the customer “cannot prove the identity of the issuer”. This does not mean that the customer can be saved merely by identifying who is an issuer of the tax invoice or by proving that the issuer is a VAT registrant. In a number of court precedent cases, it was ruled that, as the one benefited from the tax invoice, the customer was required to prove that it actually purchased the goods, or received services, from the issuer of such tax invoice.
For example, where a customer entered into a number of contracts to purchase the goods from various distributors, who in turn ordered the goods from their suppliers and requested the suppliers to issue tax invoices to the customer directly, it was ruled that the customer was not allowed to use the tax invoices of the suppliers in crediting the input tax. Based on the flow of the contractual obligations, the court explained that “…. The person who was legally allowed to issue the tax invoice for the sale of goods must be the VAT registrant who sold such goods to the Plaintiff (customer) only. Those who did not sell the goods were not allowed to issue the tax invoice on other’s behalf …” Further, the Supreme Court in the subsequent case also emphasized that “in proving the genuineness of the transactions, the payments and the recipient of the prices, the customer must also prove that there were genuine purchases of the goods from, and payment of the prices to, the issuer of the tax invoices, in consistent with what appeared in such tax invoices.”
Thus, the tax invoices issued by a person other than the seller of the goods of the agreed contract are treated as “illegitimate tax invoices”, for which the customer fails to “prove the identity of the issuer”, and constituted the “false tax invoices”. The customer would be subject to the penalties of 200% even if it could identify the issuer of the tax invoice. Yet, this is not the end of the story.
As the court set out the rule that the “false tax invoice” includes the one issued by a “person who has no right to issue” under Section 82/5(5) of the Revenue Code, what’s about the tax invoice issued by a seller of the goods before its VAT registration as well as the tax invoice mistakenly issued in a non-VAT transaction? In another word, should they be considered as “false tax invoices” and subject to the 200% penalties, or incorrect tax invoices and subject to only 100% penalties?
Last year, the Chonburi Area Revenue Office sought a revenue ruling from the Revenue Head Office for the situation where business operators credited input tax for which the tax invoices were issued by the “person who has no right to issue the tax invoice”. For instance, some tax invoices were mistakenly issued by the suppliers of domestic transportation, which was the business exempted from VAT (by misunderstanding that such business was vatable), and some tax invoices were issued by the suppliers before they were registered for VAT. After realizing that they were not allowed to credit such input tax, the business operators filed an amended Form PP.30 for the relevant months to add back the non-creditable input tax, together with the shortfall VAT payment and the penalties of 100% under Section 89 (4), rather than the 200% under Section 89 (7).
The Revenue Department considered the cases as “incorrect tax invoices” and replied to Chonburi Area Revenue Office that “If the business operators could prove that there were the genuine buy-sell of goods or services, for which VATs were mistakenly collected as indicated in the relevant tax invoices, they were not deemed as the “false tax invoice”. Thus, only the penalties under Section 89 (4) would apply”.
While the penalties for crediting input tax under the “incorrect tax invoice” is not as harsh as those of the “false tax invoice”, they are always applied with no excuse. Further, where a business is considered as being deceptive in utilizing the “false tax invoice” or the “illegitimate tax invoices”, its director, manager and/or the authorized persons may be subject to a criminal charges of 3 month to 7 years imprisonment as well.