Thai Tax refunds and tax audit protection

The Challenges of Tax Audits and Thai Tax Refunds

Understanding tax audits and Thai tax refunds is crucial for any individual or business operating in Thailand. The Thai Revenue Department (TRD) enforces tax laws with severe authority and often with pedantic enforcements it’s vital to be prepared in case of an audit. On the other hand, knowing how to properly request and receive tax refunds can alleviate tight cashflow and financial burdens.AO has a strong track record in successfully getting clients their tax refunds and protecting clients from TRD tax audits.

The Anatomy of a Tax Audit and Thai Tax Refunds in Thailand

A tax audit in Thailand is a multi-step process that includes both informal and formal stages. The informal stage, known as a tax investigation, often involves meetings with TRD officers to discuss potential issues with taxpayer compliance. If issues remain unresolved, a formal tax audit ensues, during which TRD issues tax summons and can ultimately result in tax assessment letters. The key point is that an audit usually starts informally and escalates to a formal stage when necessary.

Factors Leading to a Tax Audit

An audit can be triggered by various factors such as:

• Submission of a Thai tax refunds request (whether corporate or personal)
• Fluctuating profits or recurring business losses
• Routine tax supervision by the Thai Revenue Department includes scrutiny of corporate income tax filings.
• Government focus on specific businesses or transactions

Tax Audits and Statute of Limitations

Tax authorities have the right to audit your business if they suspect any inadequacies or falsehoods in your tax returns. These audits can go back five years from the filing date or up to ten years in cases involving intent to evade personal income tax. The statutory limitation for tax assessment in Thailand is ten years.

Focus Areas for Thai Tax Authorities

Current areas of focus for tax authorities include:

• Review of any changes in accounting policy (e.g., inventory, revenue recognition, depreciation rate) to ensure compliance with taxation regulations.).
• Detailed reconciliation of Output VAT/Input VAT against accounting revenues and expenses, including detailed review of original tax invoices for errors and non-deductible expenses.
• Review of deductibility for management service fees or expenses allocated to Thailand by foreign affiliates.
• Review of Related-Party Disclosure Form compliance and details supporting international inter-company transactions and transfer pricing.
• Compliance with foreign currency conversion rules concerning expenses & revenues / assets & liabilities in foreign currency.
• Inventory management and stock card reporting, including non-deductible provisions for obsolete/slow moving/return/damaged items, must align with taxation standards.
• Fixed assets disposal (e.g. Review of items sold, destroyed, and written-off), including impairment or revaluation of assets for accurate taxation.
• Detailed review of sales promotion expenses, entertainment expenses, transportation and travel, etc.
• Review of supplier contract details against withholding tax rates, computation, and timing of submissions to avoid penalties.
• Review of supplier and customer contracts for applicable Stamp Duty adherence.
• Reconciliation of mid-year income tax filing estimates against year-end taxable profits to assess penalties for under-estimation greater than 25%.

Tips for a Smooth Tax Audit

1. Know the Process and Players: Always understand who is involved in the audit and what documents you’ll need to provide for corporate income tax verification. Tax audits can fluctuate significantly between one province and the next, and even between TRD offices within the same province.
2. Realistic Expectations: Mistakes can be found during the audit; the goal is to negotiate to minimize assessment and penalties.
3. Full Disclosure: Provide all the information requested by the TRD officer to expedite the process.
4. Seek Expert Advice: Consult with your tax advisor for any uncertainties regarding corporate income tax to mitigate risks effectively. AO has a successful record in navigating tax audits and achieving tax refunds for our clients.

Common Pitfalls to Avoid

1. Going Uninformed: Make sure the right person is in charge of oversight and communications during the tax audit process within your organization.
2. Overconfidence: Don’t expect to “win” on all fronts during the audit; instead, be prepared to make concessions.
3. Being Evasive: Transparency is key. Attempts to hide or obscure information can lead to severe penalties.