Thailand Half Year Corporate Income Tax Returns - How to file them without fear of the 20% tax shortfall penalty
Tax Advantage Article | August 2008
Half-year corporate income 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 for filing the tax return and paying the half-year tax amount.
Section 67 bis of the Revenue Code prescribes the basis on which half-year tax is required to be computed and paid, as follows:
And Section 67 ter of the Revenue Code prescribes that in the event 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%, the entity is subject to a 20% penalty on the shortfall half-year tax payment.
However, Section 67 ter law states four more very important words … “without a reasonable excuse”.
That is, the 20% penalty under Section 67 ter of the Revenue Code cannot be imposed when an entity has a “reasonable excuse” for underestimating its net profit.
It is another one of the tax-facts-of-life in Thailand that irrespective of a “reasonable excuse” being honestly legitimate or completely convoluted, it's almost impossible to get a Thailand Revenue Department officer to believe you.
The easiest and safest way for corporate entities to have a "reasonable excuse" is to follow Departmental Instruction No Paw 50/2537 issued to Revenue officers on 31 August 1994.
The Paw 50 Instruction to Revenue officers 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 income tax return with an estimated net profit amount and the half-year tax payment is not less than one-half of the tax payment 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 the 20% penalty on a company that 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” that is prescribed in Paw 50 because it had estimated a net profit amount for the 2548 year and its half-year tax payment for the 2548 year was not less not less than one-half of its tax payment 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 and its half-year tax payment was not lower than one-half of its tax payment for the previous year, the company had the "reasonable excuse” that is 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 and paying half-year tax not less than one-half of your previous year's tax, you will have a “reasonable excuse”!
This Tax Advantage Article is general information only. It should not be used to determine any matter without consulting with an experienced Thailand tax advisor.
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