Thailand’s Customs Department and Revenue Department 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.
Customs typically focuses on customs duty shortfalls resulting from under-declaration of the import value of goods when importers fail to include related royalty payments in the value of the goods. The current position is that a royalty must be included in the import price for the customs valuation if any of the following three conditions is met:
The position of Customs, thus, is that royalties paid to parent companies or other related foreign companies must be included in the import value of all goods purchased from the parent and/or related companies. The importer has the burden of proof that the royalty payments do not satisfy one of the three conditions and thus are not to be included in the import value for duty payment.
There are reports that Customs has access to the Revenue Department’s database and can use this to identify taxpayers who have submitted withholding tax on royalty payments on Form PND 54. Based on a taxpayer’s withholding tax records, Customs can determine the exact amount of royalty paid. Thus, Customs officials could be expected to assume that the amount of this royalty payment must need to 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, the taxpayer then would 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 would also be liable for the value added tax (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.
Importers need to be aware that Customs is now able to determine the royalty value using internal data records, thus making it unnecessary to request such data from taxpayers. The burden of proof now lies with the taxpayer. In this regard, if a company has paid royalty without including the royalty as an import value of imported goods, the company needs to consider how to defend its position if challenged by Customs.
The Revenue Department can also use Customs’ database to obtain taxpayers’ past Customs filing data. Generally, the Revenue Department gains access to taxpayer export entry information filed with Customs. Revenue reconciliation between corporate income tax and VAT filings is one of the items the Revenue Department generally asks for when it conducts a tax audit. Further, the Revenue Department also compares the export value, according to the Customs database, against the value of export in the VAT returns and revenue disclosed for corporate income tax purposes. If the export value according to the Customs database is significantly greater than that declared in a tax return, the Revenue Department would then assume that the taxpayer underreported revenue for corporate income tax purposes.
Under a provision of the tax law, the export of goods abroad is deemed to be a sale in Thailand unless the relevant goods are identified under one of the following categories:
If a taxpayer is unable to prove that the exported goods come under one of these categories, the market price of the goods at the time of export is to be included as income for corporate income tax purposes and for the accounting period during which the goods are exported. To the extent any income is underreported, the exporting company is liable for income tax on additional sales revenue plus a penalty up to the amount of 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, Revenue would assume that the goods were sold locally and thus were subject to VAT (at a rate of 7%). 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.
Read an October 2016 report prepared by the KPMG member firm in Thailand
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