Preserving your tax appeal rights

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