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May 2017 at 04:00 / NEWSPAPER SECTION: BUSINESS
New Tax Legislation to comply with Fatca
On March 4 last year, Thailand and the United States entered
into an agreement to improve international tax compliance and to implement the
Foreign Account Tax Compliance Act (Fatca), which Washington introduced in 2010
in an attempt to discourage tax evasion by US citizens holding assets abroad.
The cabinet subsequently approved a bill to implement the
Fatca Agreement and for Thailand to apply to the OECD Global Forum on
Transparency and Exchange of Information for Tax Purposes. Both developments
made headlines given their potential impact on Thailand's position in the
international tax administration area. Now, a year later, the National
Legislative Assembly (NLA) has approved first reading of the bill and the
Finance Ministry is arranging public hearings.
As well, the Revenue Department this month began testing an
online system for submitting information on "US Reportable Accounts"
by financial institutions. In order to comply with the Fatca Agreement,
financial institutions must identify US reportable accounts, collect the
information and submit it to the relevant authority, in this case the Thai
Revenue Department, which will then forward it to the US Internal Revenue
Service (IRS).
The bill approved by the NLA does not specify the scope of
information to be reported. Instead, Section 3 of the bill refers back to the
"Exchange of Information with Respect to Reportable Accounts" as
defined in Article 2 of the Fatca Agreement. The finance minister will have the
power to issue a ministerial regulation to enforce the law.
The Revenue Code and other existing laws governing financial
institutions prohibit the disclosure of taxpayers' and customers' information,
and offenders can face criminal charges. For instance, Section 154 of the
Financial Institutions Business Act BE 2551 (2008), imposes a maximum of one
year in prison and/or a 100,000-baht fine on a financial institution executive
or employee who is privy to any activity of a financial institution that must
normally be kept confidential, but divulges it to others, except under specific
circumstances, such as the need to comply with requirements under the law.
In order to enable personnel of financial institutions to
hand over information to the Revenue Department without being punished, the new
bill defines a "person with duty to report" (commercial banks, securities
companies, life and non-life insurance companies, derivatives traders and
custodians, falling within specific criteria, for which a Royal Decree will be
enacted). These entities will be obliged to collect and submit information to
the Revenue Department under the methods and conditions to be announced in the
ministerial regulation.
Where it appears to the revenue official that the
"person with duty to report" violates or is in default of the
reporting duty, the official may issue a warning and call for the behaviour to
be corrected. Failure to correct the default can result in an administrative
fine of 100,000 baht plus a daily fine of 10,000 baht until corrections are
made.
On the tax side, Section 10 of the Revenue Code normally
prohibits a tax official from disclosing information on a taxpayer and/or other
relevant parties to any other persons unless the disclosure is authorised under
a specific law. Thus, the new bill will contain a mechanism that authorises
revenue officials to carry out the following duties to fulfill Thailand's
obligations under the Fatca Agreement:
Exchange information with an authorised official of the US
government in accordance with the timing and methods agreed under the Fatca
Agreement. For instance, Thailand is required to submit annual information
concerning US Reportable Accounts within nine months of the following calendar
year.
Disclose information that needs to be exchanged between
authorised officials of the Thai and US governments upon the request of the
relevant government authorities to fulfill their duties under the laws. This
may involve submitting information that the Revenue Department obtains from the
IRS to the Anti-Money Laundering Office, where the information exchanged
appears to indicate tax evasion or attempted tax evasion under the newly
introduced Section 37 ter of the Revenue Code.
Require the directors, managers, persons with authority to
manage, or employees of, or persons related to, the "person with duty to
report", to report, make statements, provide written explanations or
submit accounts and documentation, including any other evidence, to fulfill
duties under the bill.
Take any actions necessary to fulfill duties under the bill.
While information may be revealed in accordance with the
requirements under the laws, a person, irrespective of whether he or she is an
employee of a financial institution or a revenue official, is not allowed to
reveal the information for any other use. Otherwise, such person may be subject
to criminal charges and a penalty of up to one year in jail and/or a
100,000-baht fine.
All in all, it seems that there are fewer and fewer places
for tax dodgers to hide nowadays.
By Rachanee Prasongprasit and Professor Piphob Veraphong.
They can be reached at admin@lawalliance.co.th