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By Napaporn Vatcharanukul, May 2013
In my January 2013 Tax Advantage Article, I shared with foreign company CFOs and CEOs, 10 truths about claiming Thailand tax refunds.
And due to the kind requests I've received for more information, I would now like to share with you some of my management tips for those 10 truths.
1. There is no automatic tax refund system in Thailand, your company will always be audited
It perhaps may help you a little to know that it was one of the conditions of the International Monetary Fund’s bailout of Thailand following the 1997 Economic Crash that forced the Thailand Revenue Department into the tax audit action. Prior to that, only a very small number of tax investigations were actually carried out by the Revenue Department officers. But that all changed after the 1997 Economic Crash, and from that time up until present time, it’s a 99% certainly that a Thailand company’s tax refund claim will be investigated (audited) by Revenue Department audit officers.
So, my management tip for this matter is, because you cannot avoid the tax investigation, whether your Thailand company is a subsidiary of a giant multinational, a major international or a just a local small and medium enterprise business, and whether your Thailand company’s tax refund claim is 100 thousand baht or a 100 million baht, management really does need to prepare for the tax investigation in advance by making a truthful and honest assessment of the company's tax compliance risks prior to any tax refund claim being submitted to the Thailand Revenue Department.
2. There is no "taxpayer rights" charter in Thailand
The truth I shared with you about this matter was that Thailand has no charter that recognizes any “taxpayer rights” as advance countries may have, and therefore, in Thailand, the Revenue Department officers treat their “rights” as being more important than your “rights”.
Again, this superiority of Revenue's rights over your rights is due, to a large extent, to the demands imposed on the Thailand Revenue Department under the IMF's bailout of Thailand following the 1997 Economic Crash.
My management tip for this matter is not to make any “rights” an issue for Thailand Revenue Department officers, because speaking from experience, doing so will only make them dig in and make the tax refund claim a whole lot more difficult for you and your Thailand company.
3. Why should a resource owner refund money to a resource user
I also shared with you the truth that Thailand Revenue officers believe foreigners come to Thailand to use the resources of Thailand for their own benefit (not for the country’s benefit). And when confronted by a foreigner claiming a tax refund from them, Revenue officers cannot reconcile in their minds why they should. Not only Thailand Revenue officers feel like this, many developing country people in the world feel like this (it stems I think, maybe? from “globalization” policies).
My management tip for this truth is therefore for foreigners to be aware of it ... and to also prepare for it ... by expecting and preparing for challenges by the Thailand Revenue audit officers for all sorts of issues and matters that Thailand Revenue officers may interpret as stemming from any “globalization” policy, such as, for example, cost allocation charges from the foreign parent company to the Thailand company, royalty payments, management and technical fees paid to the foreign parent company, and overseas traveling expenses, just to name a few of the more common of the challenges.
4. Ways will be found to delay or avoid paying tax refund claims
The truth I shared with you about this matter is that the Audit Division officers are very well trained (by the older officers) in delay and avoidance tactics, such as extending tax refund claim cases, and even freezing tax refund claim cases.
The older officers were the ones who had to deal with the criticisms of the Revenue Department and the demands of the International Monetary Fund following the 1997 Economic Crisis, and whether or not it’s right and proper to do so, they learned ways to meet the criticisms and the demands to collect more taxes for the state.
My tip for managing this truth is to ensure that you regularly and constantly follow-up your tax refund claim investigation with the Audit Division officers, because if you just leave your case with the Revenue officers without any follow-up action, you will be giving them a sign that it’s ok for them to delay or avoid your case.
5. Be aware of your own staff's co-operation with Thailand Revenue officers
Another truth I shared with you is that Revenue Audit officers also delay and avoid paying tax refund claims, particularly to profit-making companies in Thailand, by getting close to company Thai staff and convincing them to shorten the tax investigation process, save tax liability for the company and/or for the good of the country.
Foreign company CFOs and CEOs need to realize that it is not nice at all for Khon Thais to be confronted by a Thailand Revenue officer using tactics like this, and they are left with very little and often no choice.
Speaking from experience again, this tactic is generally employed by Audit Division Managers who are not getting what they want or they need (I'll explain more about this under the next truth), and if this tactic is used on your Thai staff, management should jump on it straight away by going to meet with the Director of the particular Revenue Area Office to sort out what it actually is that is wanted or needed (and the reason for that want or need).
6. The Thailand Revenue Department is a fully 100% compliant bureaucracy
The truth I shared with you about this matter is that, as the Thailand Revenue Department is a fully 100% compliant bureaucracy, this causes the Audit Division officers to have to “satisfy”’ the bureaucracy, which in Thailand takes precedence over any need to “satisfy” a company’s tax refund claim.
Management needs is have some understanding of this, and the best way I can explain it is by example. Let's say the Audit Team finished its audit work and reported back to your Thai staff that everything looks all right. But in fact, the Audit Team does not have any power to report that. That power rests wholly and solely within the Revenue Department's bureaucracy. And if, whether because the bureaucracy is falling behind its tax collection budgets or for any other reason, the bureaucracy denies the tax refund claim or is looking for a certain amount of tax compensation to be taken out of the tax refund claim, then the Audit Team has no choice but to satisfy the needs of the bureaucracy.
If the Audit Team comes back to you about any new matter or issue, it’s a good bet that this is what’s happened. And my tip for this matter is to recognize that your case is no longer a tax refund investigation case, but a tax refund bargaining case. See my further comments on this under the next truth.
7. Never automatically expect Thailand Revenue Department officers have to follow the laws
Continuing on with my above example, let's say the Revenue Department's bureaucracy has accepted your tax refund claim, but that it needs a certain amount of tax compensation to be taken out of the tax refund to your company, and in order to satisy that need, the Audit Team comes back to you and says, oh, we've now found that the company has under-paid its half-year tax and the company must pay the 20% surcharge for under-paying its half-year tax liability.
All the other issues, matters and discussions with the Audit Team will now be forgotten, and the case now concentrates solely on an amount to be taken out of your tax refund because the company under-paid it's half-yearly tax liability.
In fact, the Audit Team has already checked this matter and found nothing to be wrong, but yet, because of the bureaucracy’s need, it’s now a tax matter for the company.
Thus, management should not automatically expect in Thailand that the Audit Division officers have to follow the laws, and my tip for managing this truth is to make a quick decision, because as the case is no longer a tax investigation case but a tax bargaining case, you only have two ways to go – either choose the pay and appeal way – or choose the bargaining way.
8. Know when to outsource tax refund claim assistance work
The 8th truth I shared with you was to know when to outsource tax refund claim assistance work, and as I mentioned, this truth requires assessment of the capabilities of staff handling the tax refund claim investigation.
In Thailand, the tax investigation process is very time consuming, there are processes to undertake, many pieces of information, documents and answers to be given, and there are many different Revenue audit officers and bureaucratic upper level officers involved. And if there are staff struggles with any of these, my experience is that the end result will not be a nice one.
My management tip for this truth is therefore to honestly assess the capabilities and the time constraints of staff, in order to know when it’s proper and appropriate to outsource tax refund claim assistance work.
9. Know who to outsource tax refund claim investigations assistance work
Another truth I shared with you was that, in Thailand, tax advisory experts are not tax investigations experts.
A specialist tax investigations consultant has an in-depth understanding of how the Revenue officers and the Revenue Department’s bureaucracy works, has an in-depth understanding of the many factors and influences on the tax refund claim, such as for example, whether the Audit officer’s and/or the bureaucracy’s challenges are real or whether they are just testing-the-water, has appropriate strategies for dealing with the officers and the bureaucracy, has the ability to talk at the Revenue Director’s level, and has the ability to negotiate matters with the officers and the bureaucracy to close the case as quickly as possible for a successful result.
10. Manage Thai taxes in order to avoid having to claim refunds
My final truth that I shared with you was that, in Thailand, it is necessary for foreign CFOs and CEOs of Thailand companies to spend more time than what they would do back home, managing Thailand tax refund positions.
My management tips for this truth are:
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For withholding tax refund positions, which are generally speaking, because the net profit result of the Thailand company is not high enough to absorb the withholding tax that has been deducted from gross income, a management plan to avoid this position by either forgoing (writing back) some tax deductions or delaying or deferring expense charges to another year can save a company a lot of trouble in Thailand; and
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Similarly for value added tax refund positions, if a company's Input VAT exceeds its Output VAT on a monthly basis, plans to avoid the VAT refund position through, for example, deferring Input VAT credits to another month with excess Output VAT, or filing of the appropriate Revenue Dept application forms (for export businesses) can also save a company a lot of trouble in Thailand. |
