We have recently learnt that the Thai Customs Department (Customs) and Revenue Department (RD) have started sharing their taxpayer databases.  Each department can now access the other’s database in order to obtain taxpayers’ tax and duty payments records, primarily for use in tax audits. We highlight below some of our experiences and the potential impact on taxpayers.

Currently, Customs focuses heavily on duty shortfalls that are a result of what they deem under-declaration of goods’ import value when importers fail to include related royalty payments in the value of said goods. 

 

Thailand’s current customs valuation approach per Customs Notification No.70/2555, which accords with the WTO’s valuation agreement, states that a royalty must be included in the import price for the customs valuation if any of the following three conditions are met:

 

(1) The royalty fee is related to the imported goods; 

(2) The royalty fee must be paid by the buyer, either directly or indirectly (separately from the imported value declared in the invoice and import entry); or

(3) The royalty fee payment is a condition of sale of the imported goods.

 

In our experience, Customs consistently challenges that royalties paid to parent companies or other related companies abroad should be included in the import value of all goods purchased from the parent and/or related companies.  It is the onus of the importer to prove to Customs that their royalty payments do not fulfill the above conditions and thus should not be included in the import value for duty payment.

 

We have recently learned that Customs can access the RD’s database to identify taxpayers who have submitted withholding tax on royalty payments using the RD’s Form PND 54.  Based on taxpayer’s withholding tax records, Customs can determine the exact amount of royalty paid and will likely assume that said royalty should be included as part of the import value of goods imported into Thailand by the taxpayer for duty payment purposes.  If a taxpayer is unable to prove to Customs that the royalty in question does not fall under any of the three conditions above, the taxpayer will be assessed the duty shortfall, plus a penalty of two times the amount of duty shortfall and a surcharge of 1.5% of the duty shortfall per month.  In addition, a taxpayer in this case is also liable for the VAT shortfall of 7% of the royalty amount plus a penalty equal to the VAT liability and surcharge of 1.5% of the shortfall per month. 

 

In view of the above, we would like to caution that Customs is now able to determine the royalty value using their internal data records, making it unnecessary to request data from taxpayers.  The burden of proof now lies with the taxpayer.  In this regard, if a company has paid royalty without including such royalty as import value of imported goods, it should be prepared to defend its position if challenged by Customs.  Should your company require assistance in assessing the risk related to this matter, KPMG would be happy to assist. 

Similarly, the RD can now utilize Customs’ database to obtain taxpayers’ past Customs filing data.  Generally, the RD accesses taxpayers export entry information filed with Customs.  Revenue reconciliation between corporate income tax (CIT) and VAT filings is one of the items the RD generally asks for when it conducts a tax audit.  Further, the RD also compares the export value according to the Customs database against the value of export in the VAT returns, and revenue disclosed for CIT purposes.  If the export value according to the Customs database is significantly higher than that declared in a CIT return, the RD would assume that the taxpayer under-declared revenue for CIT purposes.  Under the Section 70 ter of the Revenue Code, the export of goods abroad is deemed to be a sale in Thailand unless the relevant goods fall under one of the following categories: 

 

(1) Sample goods or goods for research purposes;

(2) Transit goods;

(3) Goods imported into Thailand and re-exported to the sender within one year from the import; or

(4) Goods exported out of Thailand and returned to the sender in Thailand within one year from their export date. 

 

If a taxpayer is unable to prove that the goods exported fall under one of the above categories, the market price of goods at the time of export should be included as income for CIT purposes for the accounting period in which the goods are exported.  To the extent any income is under-declared, the exporting company is liable for income tax on additional sales revenue plus penalty up to an amount equal to the additional tax liability, and a surcharge of 1.5% of the tax liability per month.  

 

On the other hand, if the export value according to the Customs database is significantly lower than the export amount declared in a VAT return, the RD would assume that the goods were sold locally and thus should be subject to 7% VAT.  If a taxpayer is unable to prove that the goods were for export and therefore eligible for 0% VAT, the 7% VAT would be assessed together with penalty and a surcharge of 1.5% of the VAT amount per month.  

 

We recommend that taxpayers maintain appropriate documentation to support the treatment adopted and any differences between the customs, CIT and VAT records.

 

Should your company require KPMG‘s assistance in any tax dispute with the RD, please do not hesitate to contact us.

KPMG in Thailand won two awards from 2016 International Tax Review Awards: National Tax Firm and Tax Disputes & Litigation Firm 

 

KPMG was also recognized as the Asia Tax Firm , Asia International Tax Firm , Asia Indirect Tax Firm and Asia Global Executive Mobility Firm