Spouses and tax demands

6 Mar 2018 at 04:00 / NEWSPAPER
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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