Cooperating with revenue officials improves your chances of fair treatment, while proving force majeure is very difficult
If you face a challenge from tax authorities, remember that the law can protect only those who cooperate with the taxman during the audit process. This applies in all but a few exceptional cases where people can prove they are unable to cooperate in good faith because of circumstances beyond their control.
When an individual or corporate taxpayer fails to file a return, or files a return but an error is suspected, an assessment official can issue a summons to the taxpayer to answer inquiries, and to supply additional documents and evidence, within seven days of receiving the summons.
In cases where a tax return has been filed, a summons can be issued within two years from the filing date. The director-general of the Revenue Department can approve an extension to five years if tax avoidance is suspected, or if a tax refund is at issue. If the taxpayer does not file a return at all, a summons could be issued at any time within 10 years from the filing deadline for the tax year in question.
If an individual taxpayer fails to comply with a summons — not showing up to be questioned, not answering questions or not producing the requested documents — officials can issue an assessment letter, negating the taxpayer’s right to appeal to either the tax appeal committee or the tax court.
The penalties for uncooperative corporate taxpayers can be very severe financially. Section 71(1) of the Revenue Code authorises officials to assess income tax at 5% of gross revenue — instead of the normal rate of 20% of net profit.
What if the taxpayer cannot comply with a summons because of external causes? The courts tend to favour the taxpayer if they find “justifiable grounds”, and the taxpayer will not lose the right to appeal.
Nevertheless, precedent cases indicate that “justifiable grounds” must be equal, or almost equal to, force majeure or an “act of god”. In the absence of compelling proof to justify failure to cooperate with a summons, the court is likely to dismiss the taxpayer’s case.
In one case, a taxpayer claimed the required documents had been damaged by termites. In another, a taxpayer submitted a police report saying the documents had been lost but the report did not specifically identify the documents. In both cases the court ruled in favour of the Revenue Department.
Even an act of god might not be accepted if the damage is caused by the taxpayer’s own action or non-compliance with other legal requirements. For example, a limited partnership lost its financial and accounting documents in a fire at the warehouse where they were stored. But the law requires such businesses to keep those documents at their place of business, unless they receive permission to move them from the Revenue Department director-general or the accounting chief inspector. This company, the court noted, had no such permission. Clearly, compliance with all legal requirements for record-keeping is a prerequisite in any tax case.
So what constitutes an act of god under Thai tax law? In some rare cases, political events will qualify.
After the violent anti-military uprising of October 1973, key figures in the regime of the day were forced to leave the country, among them Mr A and his family. Later on, a revenue official issued a summons for Mr A to give a statement in his income tax investigation.
Of course, Mr A was unable to participate in the meeting, nor was he able to submit the required documents. The tax assessment notice was subsequently issued to Mr A and his appeal to the tax appeal committee was denied. He brought the case to the court as the last line of defence of his rights.
The Revenue Department asserted that because Mr A did not have the right to appeal against the assessment to the tax appeal committee under sections 21 and 25 of the Revenue Code, his right to appeal to the court was also prohibited.
The court took a different view. It said: “The provision of sections 21 and 25 of the Revenue Code were not so definite as to prohibit the taxpayer from appealing the assessment in all cases where they failed to cooperate with the summons, but such prohibition could apply only where there were no justifiable grounds for non-cooperation.
“Due to the political situation at the time, Mr A was not allowed to enter Thailand in order to avoid public disorder, rendering him unable to cooperate with the tax audit procedure according to the summons. Also, as Mr A did appeal against the tax assessment and filed the case to the court within the legal deadlines, he had justifiable grounds for failure to cooperate with the summons, and still had the right to file the case to the court.”
Based on this fundamental finding, for taxpayers to protect their tax appeal rights, it is necessary to comply with the requirements as specified in a summons during the tax audit process, unless they can come up with very clear proof of justifiable grounds for non-cooperation.
This article was published in NEWSPAPER SECTION: BUSINESS of Bangkok Post dated
7 Feb 2018