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Tougher measures against tax dodgers

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

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Published: 21 Feb 2017 at 04:00 / NEWSPAPER SECTION: BUSINESS

Tougher measures against tax dodgers

The world is entering a new era in which national tax authorities are joining hands to set up a system to hound those who dodge paying their fair share of tax by applying unacceptable tax-planning schemes.

Last year Thailand entered into an agreement with the US government to implement the Foreign Account Tax Compliance Act (Fatca), and this is only the beginning of tougher measures. In fact, Fatca does not benefit Thailand very much, as the United States is not a favourable jurisdiction for high-end tax planning for most Thais. However, supplemental legislation to support other international commitments made by Thailand is expected soon.

Earlier this year, Thailand became the 139th member of the Global Forum on Transparency and Exchange of Information for Tax Purposes, which was initiated by OECD member countries in the early 2000s. Its original aim was to deal with non-cooperative jurisdictions, but now it's a key device to deal with "base erosion and profit shifting (Beps)."

Under the Beps action plan, some aggressive tax-planning schemes, which are not necessarily illegal or sham transactions, could be the target of tax authorities from two or more jurisdictions. An example could be a transfer of shares from a Thai holding company to a first-level foreign buyer in a low-tax (or no-tax) jurisdiction, followed immediately by the resale of those shares for a much higher premium.

Also covered would be a "tax-treaty shopping" transaction that results in no taxation in two jurisdictions and reduces the tax base of the business considered as having a permanent establishment in Thailand.

As a member of the Global Forum, Thailand needs to implement the Automatic Exchange of Information protocol with other member countries based on the common reporting standard approved by the OECD. This will require changes in the law to authorise revenue officials and financial institutions to reveal and exchange taxpayers' and account holders' transactions and business information.

As Beps and Fatca enforcement begin to take full effect, it is expected that most of the shallow tax-planning schemes widely employed in Thailand will draw local tax authorities' attention or get caught in the global network.

Domestically, authorities are moving to crack down on transactions that go beyond the level of acceptable tax planning and amount to outright evasion or crime. The National Legislative Assembly just approved an amendment to the Revenue Code known as Section 37 ter. This provision treats certain tax offences as predicate offences under the Anti-Money Laundering Act. They include tax evasion or obtaining a tax refund by providing false information, evidence or statements to a revenue official, and tax evasion or attempted tax evasion by refraining from filing a tax return. Certain conditions apply:

The amount of tax evaded is at least 10 million baht during a given tax year.

The tax refund obtained by means of false information is at least 2 million baht in a tax year.

The tax evasion scheme involves transactions set up among syndicates or networks, or concealment of assessable incomes or revenues, with an intention to evade tax, and there is a behaviour to hide assets.

The director-general of the Revenue Department, along with a committee formed to screen tax offences, will consider if such crimes constitute a predicate offence. If so, they will submit relevant information and evidence to the Anti-Money Laundering Office (Amlo) for further processing. As a consequence, Amlo may seize or freeze the assets of the accused.

The government says this legislation is necessary because Thailand, a co-founder of the Asia Pacific Group on Money Laundering (APG), is required to implement the recommendations of the Financial Action Task Force (FATF) to treat certain tax crimes as offences under anti-money-laundering laws.

This raises a big concern, however. From now on, how far can a business go with tax planning without the risk of falling under the ambit of Section 37 ter? Will being caught for Beps constitute a tax crime that is a predicate offence under the Anti-Money Laundering Act? What will be the direction of Thai tax policy once the government implements Beps?

Whenever a tax dispute arises, taxpayers often face high penalties unless they simply give up and pay the tax in dispute, with reduced penalties.

With Section 37 ter in force, how much leverage will a taxpayer have left to fight a tax assessment with government auditors, especially if there is a risk of assets being seized and the business being closed down by Amlo?

The legislation is very new and taxpayers have a lot of questions. If you'd like to know more, an event is planned on March 3 at which senior authorities involved with tax audit and enforcement will discuss tax investigation policy under the legislation and the potential linking of bank accounts.

For more details, contact the organisers: 063-176-5117, 081-445-5796 or 081-821-8368, or

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

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