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Half-Year Corporate Tax Returns -
How to file them without fear of the 20% shortfall penalty
 
Steven Herring | August 2013
 
Half-year corporate tax returns are required to be filed within 2 months after the end of an entity's half-year, and for most corporate entities in Thailand, 31 August is the last day to file half-year tax returns and pay half-year tax.
 
Section 67 bis of the Revenue Code prescribes the basis on which the half-year tax shall be computed and paid, as follows:
 
·         For listed entities and banks and financial institutions – half-year tax shall be computed and paid on the actual net profit amount for the half-year;
·         For all other corporate entities – half-year tax shall be computed and paid on one-half of an estimated net profit amount for the entire year.
 
And Section 67 ter of the Revenue Code prescribes that in the case an entity estimates its net profit for an entire year at an amount lower than its actual net profit for the entire year by more than 25%, then the entity is subject to a 20% penalty on the shortfall half-year tax payment.
 
However, Section 67 ter prescribes four more very important words … “without a reasonable excuse”. That is, the 20% penalty cannot be imposed when an entity has a "reasonable excuse" for underestimating its net profit.
 
It is one of the tax-facts-of-life in Thailand that irrespective of a "reasonable excuse" being legitimate or completely convoluted, it's almost impossible to get a Thailand Revenue officer to believe you.
 
And the easiest and safest way for corporate entities that are required to pay half-year tax computed on one-half of an estimated net profit amount for the entire year without fear of the 20% shortfall penalty being imposed is to follow Departmental Instruction No Paw 50/2537 issued on 31 August 1994.
 
Paw 50 is an Instruction to Revenue officers advising them what constitutes a “reasonable excuse” for an entity’s estimated net profit being lower than its actual net profit by more than 25%. It is not an Instruction about the amount of tax liability on the net profit estimate, and whilst many tax advisors in Thailand create confusion about this matter, the intention of the Paw 50 Instruction is pretty clear in its meaning, as follows:
 
“In the case of an entity that is required to prepare an estimated net profit amount and the entity files a half-year corporate tax return with an estimated net profit amount that is not less than one-half of the actual net profit amount for the previous year, this case shall be treated as a reasonable excuse.”
 
Evidence of this meaning of the Paw 50 Instruction can be found in Tax Ruling No Gor Khor 0706 (Gor Mor 02) 3106 dated 11 October 2550.
 
The Revenue audit officers sought to impose 20% penalty under Section 67 ter on a company that had estimated its net profit for the 2548 year at an amount lower than its actual net profit for the 2548 year by more than 25%.
 
The company argued to the Revenue audit officers that it had the "reasonable excuse" prescribed in Departmental Instruction No Paw 50 because it had estimated its half-year net profit for the 2548 year at an amount not less than one-half of its actual net profit for the 2547 year.
 
And after the case being referred to the Revenue Department's lawyers, the Tax Ruling was that, as the company had filed its half-year income tax return with an estimated half-year net profit amount not lower than one-half of its actual net profit amount for the previous financial year, then the company had the "reasonable excuse" prescribed in Paw 50 and therefore, the company did not have to pay the 20% penalty under Section 67 ter of the Revenue Code.
 
Accordingly, by simply estimating a net profit amount for the current year that is not less than the actual net profit amount for the previous year, an entity will have the required "reasonable excuse".
This Tax Advantage Article is general information only. It should not be used to determine matters without consulting with an experienced Thailand tax advisor.
 
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