The Government recently issued an Emergency Decree aimed at incentivizing taxpayers to regularize their tax affairs on a forward looking basis.  Any tax examination, inquiry, assessment, payment demands or criminal prosecution in respect of income generated prior to 1 January 2016 will be waived.  The Emergency Decree for the so-called ‘tax audit exemption program’ is in force and available to taxpayers from 1 January 2016.

 

Eligible taxpayers

• Companies and juristic partnerships whose revenue does not exceed THB 500 million for any accounting period ending on or before 31 December 2015 can apply for the tax audit exemption program. This would invariably include Small Medium Enterprises (SMEs). 

Which taxes will be exempt from audit and for what period?

• Income tax, VAT, specific business tax (SBT), withholding tax and/or stamp duty due by an eligible company, juristic partnership or SME will be exempt from audit if such taxes relate to income generated or expenses incurred in any accounting period ending on or before 31 December 2015. 

Disqualification from the tax audit exemption program

In the following instances the tax audit exemption program will not be available:

• If the eligible company, juristic partnership or SME is in the process of being investigated under a summons issued or enquiry made by the Revenue Department before 1 January 2016;

• If the eligible company, juristic partnership or SME issued or used a fake tax invoice or avoided the payment of tax by declaring false expenses;

•  If the eligible company, juristic partnership or SME is being investigated by the police, prosecutor or court; or

• If the eligible company, juristic partnership or SME has claimed, or submitted a claim, for a refund of income tax, VAT, SBT and/or stamp duty. 

Process and conditions to apply for the tax audit exemption program

If the eligible company, partnership or SME wishes to apply for the tax audit exemption program it must notify and register with the Revenue Department before 15 March 2016. In addition, the eligible company, juristic partnership or SME must, from 1 January 2016 onwards:

• File its corporate income tax returns, VAT returns and SBT returns when they fall due for submission and pay taxes by the due date;

• Comply with the stamp duty obligations for all instruments that are subject to stamp duty from January 2016; 

• Prepare accounting records and financial statements that reflect an accurate financial position of the business for the accounting periods commencing on or after 1 January 2016; and

• Commit no action resulting in the avoidance to pay any tax from 1 January 2016.
  

Failure to comply with the above conditions will result in the tax audit exemption program being revoked retrospectively from 1 January 2016. 

Additional benefits for SMEs

In order to encourage SMEs to join the tax audit exemption program, the Government issued Royal Decree No 595 that provides the following corporate income tax exemption to qualifying SMEs:

• Exemption from corporate income tax on profit arising in the accounting period commencing on or after 1 January 2016 but not later than 31 December 2016; and

• Exemption from corporate income tax on profit not in excess of THB 300,000 and reduction in corporate income tax to 10% on profit exceeding THB 300,000 arising in the accounting period commencing on or after 1 January 2017 but not later than 31 December 2017. The qualifying SMEs must:

• be established prior to 1 January 2016;

• have paid up capital not exceeding THB 5 million and annual turnover not exceeding THB 30 million,

• elect to join the tax audit exemption program; and

• comply with the conditions of the tax audit exemption program. 

After the utilization of the additional tax benefits discussed above, the SME will still be entitled to the reduced SME tax rates under Royal Decree No 530.

The objective of the tax audit exemption program is to bring more taxpayers intothe system and encourage tax compliance, which should, in the long term,improve overall revenue collection.

Tax payers are often reluctant to voluntarily correct non-compliance as they are concernedthat it may trigger a tax audit for previous years. This could be both timeconsuming and result in additional liabilities. Thus, the intention of thisprogram is to provide certainty to taxpayers that no tax audit will beconducted by the Revenue Department in respect of the past years.

Although the certainty is promised, there is a concern from some taxpayers that theRevenue Department will specifically scrutinize and audit the future taxperiods of eligible companies, juristic  partnerships or SMEs that haveelected into the tax audit exemption program.  It is therefore imperativethat the taxpayers that decide to take advantage of the program correctlyadminister their tax affairs going forward. 

The program may be particularly advantageous to taxpayers with a history of taxnon-compliance, in the context of acquisition of an entity with historic taxexposures, or taxpayers planning to expand their business, especially in lightof future opportunities presented by the AEC. Additionally,taxpayers wishing to obtain a bank loan may be forced to improve their taxcompliance.  From 1 January 2016, the Ministry of Finance and the Bank ofThailand require that financial institutions request that a loan applicantprovides its accounting records and financial statements, which have beensubmitted to the Revenue Department for tax filing purposes, in support of theloan application.

KPMG Tax Team is available to assist clients in assessing whether the auditexemption program would meet their needs and improving tax compliance goingforward.  The window of opportunity exists until 15 March 2016.