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The Legal 500 Hall of Fame highlights individuals who have received constant praise by their clients for continued excellence. The Hall of Fame highlights, to clients, the law firm partners who are at the pinnacle of the profession. In Europe, Middle East and Africa, the criteria for entry is to have been recognised by The Legal 500 as one of the elite leading lawyers for seven consecutive years. These partners are highlighted below and throughout the editorial.

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Editorial

Press releases and law firm thought leadership

This page is dedicated to keeping readers informed of the latest news and thought leadership articles from law firms across the globe.

If your firm wishes to publish press releases or articles, please contact Shehab Khurshid on +44 (0) 207 396 5689 or shehab.khurshid@legalease.co.uk

 

Challenges of cryptocurrency taxation

21 Apr 2018 at 04:00 / NEWSPAPER SECTION: BUSINESS

Challenges of cryptocurrency taxation

Business Conversion Tax Incentives

4 Apr 2018 at 04:00 / NEWSPAPER SECTION: BUSINESS

Business Conversion Tax Incentives

Decree encouraging individuals to adopt company structures raises questions and problems that are still being resolved

Tax incentives often appear attractive in theory, but the reality of attempting to claim them can often cause difficulties for taxpayers.

Such has been the case with attempts to promote the conversion of businesses traditionally operated by those liable only for personal income tax (PIT) -- individuals, non-juristic ordinary partnerships and groups of persons -- into corporate entities such as a company limited or registered partnership. The ultimate goal is to encourage and better monitor tax compliance.

To this end, the government issued Royal Decree No.630 (RD 630) to exempt PIT, value added-tax (VAT), specific business tax (SBT) and stamp duties for individuals who made the conversion by means of transferring assets and goods used in their businesses to a newly incorporated company or registered partnership. The transactions otherwise would have been subject to taxes as for a sale.

The decree has now expired, although there are reports that an extension to the end of this year is being considered to give individuals one last chance before possibly facing a tough tax audit.

The notification of the Revenue Department director-general issued under the decree requires that, in order for tax incentives to apply, the assets transferred must have been utilised in the individual's business, and the transfer must be made in exchange for new shares issued by the new company.

Further, the individual undertaking the transfer must receive the shares with a value that is not less than the transferred assets. In the case of immovable properties, the value of the shares must be equal to the value of the properties appraised by the Land Department, or the cost price, whichever is greater. In claiming the tax incentives, the individual and the new company had to submit declaration forms to the Revenue and Land departments.

This type of business transfer often involves not only the two main parties to the transaction, namely the transferor and the transferee, but also other stakeholders through contracts with trade partners. Some properties may be subject to mortgages or held as loan collateral, in which case the financial institution may demand early repayment in exchange for the release from encumbrances before the transfer can be registered.

Difficulties could also arise with immovable properties owned by several individuals if some wish to convert the joint business into a new company while others would prefer to maintain the status quo. The transformation under this scenario may not be entirely tax-free, so one must consider which parts of the properties are eligible for privileges. For the portion that is not qualified, there may be a recapture of the taxes. In this regard, the Revenue Department advised in a recent ruling as follows:

n Where all co-owners of immovable properties transfer all of their ownership interest in exchange for the registered capital of a new company, they would be entitled to the tax exemptions granted under RD 630.

n Where only one co-owner transfers ownership, in order for such individual to benefit from the tax exemption, "his ownership portion of immovable property must firstly be separated from the common ownership before the transfer to the new company".

The trouble here is that this interpretation was issued after the deadline for transfers expired, and imposes a new requirement that was not mentioned in RD 630 or in any notification.

Such a requirement is impractical because, in order to separate the co-owned properties at the Land Department, the official must conduct a cadastral survey to divide the properties, which normally takes around three months. In any case, settlement among the co-owners could take forever.

It is understandable that the Revenue Department may not want a newly set-up company to become a co-owner of such properties with the remaining individuals, since co-ownership and joint use could constitute an unincorporated joint venture between the new company and the remaining individuals -- similar to a non-juristic ordinary partnership from a tax aspect. But what else could taxpayers do to solve this problem if the properties have already been transferred and this condition just came out recently?

Further, another revenue ruling dealt with an interesting question from an individual: if an asset was utilised in a business before the transfer, must the new company carry on the same line of business, or could it operate other businesses? The department responded: "In order for the individual taxpayer to be entitled to the exemptions for the transfer of assets and goods under RD 630, the new company must carry on the same line of business that had been operated by the individual before the conversion." In short, business continuity is the key to the tax privileges.

Theoretically, this is a rational requirement so that the tax exemptions will be granted only for a genuine business conversion. However, as it was never mentioned in RD 630 and in the subsequent notification, a few taxpayers may have missed it and an audit could be catastrophic for the taxpayer.

Most importantly, the department has never made it clear how long the original business must be maintained, as the business in the hands of the new company may need to be changed, depending on commercial needs.

If indeed the government follows through and extends the deadline for business conversions, it should certainly use this opportunity to clear up these problems.

By Rachanee Prasongprasit and Professor Piphob Veraphong of LawAlliance Limited. They can be reached at admin@lawalliance.co.th

New transfer pricing regime imminent

20 Mar 2018 at 04:00 / NEWSPAPER SECTION: BUSINESS

New transfer pricing regime imminent

Vague 'justifiable grounds' excuse becomes a thing of the past as regulations brought up to international standards

Spouses and tax demands

6 Mar 2018 at 04:00 / NEWSPAPER SECTION:

Spouses and tax demands

Last year we were treated to some tortuous legal arguments about whether the Revenue Department could try to collect tax from former prime minister Thaksin Shinawatra on a share sale, even if it was made through the stock market, based on a summons issued to his son many years ago.

A senior cabinet minister admitted at the time that such an attempt would need to rely on a "miracle of law", but the government is intent on pursuing the case no matter how many more years it takes. One interesting question arises: could the taxman apply a similar concept to assess a taxpayer based on a summons served on his or her spouse?

While taxpayers are entitled to defend against all tax claims, evidence goes stale and witnesses' memories get hazy with the passage of time. To be fair to them, the statute of limitations imposes a timeframe within which tax authorities need to exercise their power diligently.

Where income tax is concerned, if an official suspects errors in a tax return, the Revenue Code requires that he or she must "issue a summons to the person who filed such tax return" for audit purposes within two years from the day the return was filed. The deadline can be extended to five years if tax evasion is suspected, or if a tax refund is being contested. In a case where no tax return has been filed, the law does not really impose any deadline and the general rule of 10 years will apply instead.

After issuing a summons and conducting an audit, tax authorities may decide to issue a tax assessment letter, which will empower them to confiscate assets without having to petition for a court order.

Cases arise from time to time in which a deadline expires and tax authorities are unable to issue a summons directly to the correct person. Can the Revenue Department actually rely on a summons issued to a taxpayer's spouse in order to pursue an assessment against the taxpayer? If this happened to you, what legal arguments could you use to defend yourself?

In other words, can a spouse, who receives a summons related to his or her own tax matter, be treated as an "agent" of the taxpayer simply because the Revenue Code contains a provision that requires the incomes of married persons to be itemised in the same tax return?

In one precedent case, the department assessed tax against a politician and subsequently claimed that the summons issued to him could be treated as a summons issued to his wife, so that it could assess tax against her as well. This assertion was based on the provision in the Revenue Code (modified in 2013), which treats the income earned by a wife as her husband's for tax purposes. The same provision holds the husband liable for the wife's tax, together with a tax return filing on her account.

The court rejected the taxman's argument. It said: "The purpose of such a provision in the Revenue Code was only to identify the person who was liable to pay and file tax. The law still requires the tax assessment official to issue a summons so as to allow the taxpayer to understand the potential liabilities of the tax assessment. As the assessment official failed to issue a summons to the wife for inquiries, the tax assessment on the wife, including the ruling by the Appeal Committee in favour of the Revenue Department, was not legitimate."

To be fair, the Revenue Department is not only one that has tried the "agent" argument. In another Supreme Court case, a taxpayer who had failed to file a return and pay taxes for 2001 was assessed by the department. The man asserted that, since his wife had filed her tax return, by declaring in Form PND 90 that he had no income on which to pay tax, it meant that he had already filed via his wife's return. Consequently, he argued, the Revenue Department's issuance of a summons to him after two years from the deadline, based on the 10-year rule for a taxpayer who fails to file a return, was not legitimate.

The Supreme Court threw out this argument as well. It said: "Since the tax return filing of a wife, with a declaration that her husband had no income, could not be counted as the husband's tax return filing, the Revenue Department's issuance of a summons was legitimate."

In the department's case against the former prime minister, based on the sale of shares by his children in 2006, it failed to serve a summons on him by March 31, 2012 (five years from March 31, 2007, the tax filing deadline in question) but claimed the summons had already been issued to him within the five-year deadline via his children. This, it said, was based on the judgement of the Supreme Court's Criminal Division for Holders of Political Positions that Thaksin's children had sold shares for his benefit.

Whether the above interpretation is correct or not, it seems that where there is no related precedent case stating that the person receiving a summons can include a nominee or an agent, the Revenue Department appears bound by law to issue a summons within the deadline directly to a person against whom it intends to assess tax.

Written by Rachanee Prasongprasit and Professor Piphob Veraphong of LawAlliance Limited.

They can be reached at admin@lawalliance.co.th

Double taxation on mortgage release

20 Feb 2018 at 06:57

 

Newspaper section: business

Double taxation on mortgage release

 

Most people understand that the discharge of a debt by a creditor, or by someone else for the benefit of a debtor, could result in the debtor having taxable income equivalent to the amount of debt discharged. Likewise, when a buyer undertakes to pay off a seller’s debt in exchange for goods or services, the sum of debt released will be treated as part of the sale revenue received by the seller. On the buyer’s side, the same sum will be treated as acquisition costs for income tax purposes.

 

Based on this principle, the Revenue Department issued Instruction Por 82/2542 concerning the calculation of specific business tax (SBT) on the sale of immovable property. Clause 6(3) states that when a sale of mortgaged land is registered with the Land Department, the amount of “mortgage liability” shall be included in gross receipts and subject to SBT at the rate of 3.3%.

 

For example, if a plot of land, with a fair market value of 230 and mortgage liability of 130, is sold in exchange for 100 in cash, the total price for tax purposes is equal to the sum of the released mortgage (130) and the cash received (100), or 230. This seems straightforward and there should be no interpretation issue.

 

To register the ownership transfer, the buyer and seller need to use the one-page purchase and sale agreement form provided by the Land Department. Because space on the form is limited, there is little chance to explain many details, so only brief summaries are possible in each paragraph. This can be a problem leading to double taxation on the released mortgage.

 

In one precedent case, the parties filled in the following information on the one-page form for registering the ownership transfer:

 

1. The purchase and sale price is 230;

 

2. The seller has already received full payment; and

 

3. The buyer will undertake to carry over the mortgage liability of the seller.

 

As the seller was receiving a monetary benefit of 230, comprising cash of 100 and mortgage release of 130, it calculated net profit tax and paid SBT on the total consideration amount of 230.

 

However, Revenue Department officials had a different calculation in mind. They claimed that as the price stated in clause 1 was 230 and the parties had confirmed “full payment” in clause 2, it meant the mortgage release in clause 3 was a separate item and must be added to the sale price, making the total consideration 230+130 = 360. As such, both net profit tax and SBT must be calculated based on 360 rather than 230, effectively resulting in double taxation of the mortgage release.

 

To most people, this would appear to be a minor miscommunication between the taxpayer and the taxman. If both parties are acting honestly, any discrepancy could be resolved by supporting evidence. This could include as a bank deposit/transfer slip proving the actual cash amount paid, bank confirmation of the mortgage amount released, seller’s profit and loss account showing the actual sale revenue, buyer’s records showing the actual acquisition cost, and confirmation by a licensed auditor of the total consideration. The figures can be reconciled to confirm the total value of the transaction.

 

In the course of a tax audit, the seller presented the necessary documents to prove that the released mortgage was already included and the amount in clause 1 stated the total consideration. Unfortunately, the tax authorities refused to budge from their position. They insisted that the one-page purchase and sale agreement was an official document binding both parties and was, therefore, the most reliable evidence. As well, they claimed that Por 82/2542 required the mortgage liability in clause 3 to be included in the amount in clause 1, resulting in a total taxable amount of 360.

 

Sadly, the Board of Appeal, which should have corrected the erroneous tax assessment, agreed with the taxman by looking only at the one-page document of the Land Department.

 

The Tax Court ruled that the seller had never disputed that the amount of the released mortgage must be included in the tax base pursuant to the terms of Por 82/2542, but the seller was able to prove beyond doubt that the mortgage amount in clause 3 was already included in the total sale price in Clause 1 and subject to all taxes. Hence, the tax assessment was voided. But the Revenue Department is not finished, and the matter has now gone to the Court of Appeal.

 

What does this precedent case tell us? Not much from a tax policy point of view. However, from a risk management perspective, it does offer a few lessons.

 

First, you need to be very careful when you produce an official document, as someday it could come back and hurt you. Second, when tax authorities want to attack you, no matter how good your supporting documents are, they will simply ignore them and pretend to rely solely on the “official” documents. Hence, never omit even the smallest item in a document. Choosing a capable person to handle the transfer registration will also reduce the incidental risk.

 

The most important lesson, however, is the moral of the story. This tax dispute should never have arisen if everyone in the system had performed their duties with integrity, transparency and justice.

 

By Professor Piphob Veraphong and Rachanee Prasongprasit of Law Alliance Limited. They can be reached at admin@lawalliance.co.th

 

How to use the tax treaty with Cambodia

February 2018 - Tax & Private Client. Legal Developments by LawAlliance Limited.

More articles by this firm.

 

23 Jan 2018 at 04:00 / NEWSPAPER SECTION: BUSINESS

 

How to use the tax treaty with Cambodia

 

The new double-taxation agreement between Thailand and Cambodia officially took effect on Jan 1 for withholding tax and corporate income tax. The two countries only signed the agreement on Sept 7 last year but rushed to complete the ratification process on Dec 26. This super-fast track is a part of a consolidated strategic action plan for the Asean Economic Community (AEC) to support regional competitiveness.

 

The Agreement between Thailand and Cambodia for the Avoidance of Double Taxation, as it is formally known, is of great interest to Thai businesses given the scale of their investments in the neighbouring country. These include businesses ranging from banking, construction and power production to telecommunications, hotels and resorts, entertainment, hospitals and wellness.

 

Cambodia has one of the most business-friendly investment regimes in Asia. Full foreign ownership is allowed for any business, with foreign businesses receiving the same treatment as their local counterparts. There are no legal requirements on local content of goods, or for price and label controls. Consequently, Cambodia can be a good logistics base for Thai investors.

 

Thai companies that qualify: Similar to most tax treaty models, the new DTT grants benefits only to a resident of Thailand and Cambodia. In the case of a Thai corporate entity, "resident" means those liable to tax in Thailand by reason of "place of incorporation, place of management, principal place of business or any other criterion of a similar nature". A company that pays Thai tax merely by reason of having income sourced in Thailand is generally not considered a tax resident and therefore not eligible.

 

Unlike old tax treaties, the DTT makes it very clear that state and local authorities of both countries are also considered tax residents for the purpose of DTT benefits even if they do not pay tax in that country. This will help eliminate interpretation disputes.

 

In determining tax residency status, regardless of what a treaty states, Thai tax authorities tend to focus solely on the place of incorporation, while Cambodian tax practitioners view the place of management and principal place of business as the key. The DTT features a tiebreaker which clearly states that where a company is a tax resident in both countries at the same time, the place of incorporation will prevail in determining tax residency status.

 

Permanent Establishment or PE: A Thai company carrying on business in Cambodia will be deemed to have a PE in Cambodia and pay Cambodian income tax where there is a building site, construction, installation or assembly project, or related supervisory activities for more than six months. For other service activities, if the same or related project continues in Cambodia for more than an aggregate period(s) of 183 days during any 12-month period, it will constitute a PE and trigger tax in Cambodia.

 

For exploration or exploitation of natural resources including the operation of substantial equipment, an aggregate period(s) of more than 90 days within any 12-month period will be sufficient to create a PE. Notwithstanding, the PE provisions of the treaty do have some unique features, for example:

 

While the use of facilities and maintenance of a stock of goods solely for the purpose of delivery are clearly excluded from the PE definition, having an agent that habitually maintains inventory in Cambodia from which it regularly delivers goods on behalf of the Thai company could create a PE in Cambodia;

 

A Thai insurance company that collects premiums from customers in Cambodia through an agent could also be deemed to have a PE in Cambodia; and

 

For an agent in Cambodia to be treated as a PE for a Thai company, not only must it carry out its activities "wholly or almost wholly" on behalf of the Thai company, but the conditions of the commercial and financial relationship between them must differ from those that would have been made between independent enterprises.

 

In other words, independent agent status, which will be exempted from the PE tax, will be determined not only by the frequency of activities acting for the Thai company but also by the terms of their engagement.

 

Withholding tax: Cambodia normally imposes 14% withholding tax on what it deems to be fees paid for "technical services". As Article 13 of the treaty allows Cambodia to continue to collect such tax but at the reduced rate of 10%, whoever plans to export services from Thailand to Cambodia should watch for further clarifications from Cambodian tax authorities.

 

As for other types of income received by the Thai company, the 10% withholding tax will be applied (reduced from 14%) to the following:

 

dividends;

 

interest where the beneficial owner is a financial institution or an insurance company. As the DTT allows the maximum tax rate of 15% to be imposed on other types of entities, the normal rate of 14% will apply in other cases; and

 

royalties including rents paid for the utilisation of industrial, commercial or scientific equipment;

 

Capital gains: Article 14 allows Cambodia to collect withholding tax on capital gains from the sale of shares in a Cambodian company. Cambodia currently does not impose tax on such gains, though it imposes a 0.1% registration tax (similar to stamp duty) on the transfer value. Nonetheless, the Thai company is still required to include capital gains earned from the sale of Cambodian shares in its Thai tax base.

 

Tax-sparing credit: Last but not least, the treaty also offers the elimination of double taxation by way of a credit method -- meaning Thailand must allow a Thai company to use Cambodian tax as a credit against Thai tax as long as the credit does not exceed Thai tax on the amount in question.

 

The most unique feature of the DTT is that the credit method includes a "tax-sparing credit", which unlike other tax treaties applies not only to dividends but also other income. That is, taxes on any income that is exempted or reduced in Cambodia due to an investment promotion law will continue to be treated as a tax credit as if there had been no such incentives, for a period of 10 years starting from Jan 1 this year.

 

 

By Rachanee Prasongprasit and Professor Piphob Veraphong of LawAlliance Limited. They can be reached at

admin@lawalliance.co.th

 

Preserving your tax appeal rights

February 2018 - Tax & Private Client. Legal Developments by LawAlliance Limited.

More articles by this firm.

7 Feb 2018 at 04:00 28 / NEWSPAPER SECTION: BUSINESS

Preserving your tax appeal rights

 

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.

 

By Rachanee Prasongprasit and Professor Piphob Veraphong. They can be reached at admin@lawalliance.co.th

 

Preserving your tax appeal rights

February 2018 - Tax & Private Client. Legal Developments by LawAlliance Limited.

More articles by this firm.

7 Feb 2018 at 04:00 28 / NEWSPAPER SECTION: BUSINESS

Preserving your tax appeal rights

 

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.

 

By Rachanee Prasongprasit and Professor Piphob Veraphong. They can be reached at admin@lawalliance.co.th

 

Flip-flop on treatment of exports of services

October 2017 - Tax & Private Client. Legal Developments by LawAlliance Limited.

More articles by this firm.

17 Oct 2017 at 04:00 / NEWSPAPER SECTION: BUSINESS 

Flip-flop on treatment of exports of services 

Trying to prove an export of services is quite elusive in respect of time and place, and different parties have different views on what should be considered as exportation for tax purposes. For this reason, the number of problems encountered in applying zero-rated value-added tax (VAT) to services has reached epic levels.

Deductibility of guaranteed amounts by fund sponsors

October 2017 - Tax & Private Client. Legal Developments by LawAlliance Limited.

More articles by this firm.

3 Oct 2017 at 04:00 / NEWSPAPER SECTION: BUSINESS

Deductibility of guaranteed amounts by fund sponsors

Property funds have long been popular with investors in Thailand, where the mutual-fund structure is being phased out and funds are being converted to real estate investment trusts or REITs. Raising funds from investors through such vehicles often involves a guarantee from the originator to increase confidence in the investment. This can be the starting point for problems on the tax front.

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