IN 2013, the government reduced the corporate income tax rate from 30 per cent to 20 per cent as a tax incentive for international companies to invest in Thailand. However, while the tax rate was reduced, the withholding tax rate remained the same. This has resulted in a greater demand for withholding tax refunds.
Customers of service companies generally have to withhold tax on payments of fees at the rate of 3 per cent. Therefore, those service companies will need to maintain a profit margin of at least 15 per cent, instead of 10 per cent as before, so that the final income tax expense is equal to the amount of the withholding tax credit, meaning no tax refund will be required.
Unlike value-added tax (VAT), where overpayments can be carried forward to the next period, the withholding tax credit must be used in the same year. This means that the taxpayer has to request a refund in the same year. The claim for a withholding tax refund can be made by using either form PND50 at the same time as the normal tax filing, or by filing form Kor 10 within three years from the last day of the period for filing tax returns.
The Revenue officers must ensure that taxpayers comply with the tax regulations and be satisfied that they are entitled to receive a refund. This requires the officers to carry out tax investigations. These investigations will generally focus on the completeness and timing of revenue recognition, which must reconcile with the VAT returns. On the other hand, an investigation into expenses would focus on their deductibility and timing, including whether the company itself appropriately withheld tax before making payments to suppliers.
Delays are often encountered by taxpayers and can be frustrating. There are cash flow costs and lost opportunities for generating revenue. If working capital is limited, a long wait for a refund might result in the need to borrow funds. As with any debt, interest will need to be paid on a loan, further lowering a company’s profit.
Even if waiting for a refund is anticipated, the taxpayer can accelerate the refund process by preparing in advance. The taxpayer should be able to self-assess tax position, identify and manage its own tax risks before submitting the refund application. Also, being prepared in advance for any tax investigation will always help. Having sufficient documents available, such as the withholding tax certificates, preparing reconciliation and maintaining additional supporting documents, is important. Showing transparency and coordination in answering and addressing questions asked by the officers will help speed up the refund process. And, having a good relationship with the officers by being willing to fully cooperate will definitely support the refund.
Another (common) way to obtain a refund faster is to write a follow-up letter to the officers showing that the taxpayer is still actively pursuing the refund. And if a case ever did need to go to court, having robust documentary evidence is essential.
The taxpayer also has the right to request interest on the amount to be refunded according to the law. This states that interest will accrue from the day following the closing date of a period of three months counting from the last day for filing returns. While the process can be time consuming, interest received together with the refund will help a company reduce losses in the event of any delay. However, requesting interest on a refund is not common as it may impair a good relationship with the officers.
Of course, the least welcome scenario is taking the case to court. According to a Supreme Court judgement, the court views that the Revenue Code does not specifically provide a deadline for an officer to consider a tax refund.
This means that where the officer does not make a decision on the request within an “appropriate time”, the taxpayer should have the right to bring the case to the court.
Knowing your rights is important. It’s essential to protect your interests. But first and foremost, conducting a tax risk assessment and being prepared for a tax investigation are sensible preparations before entering into the tax refund process. With good self-preparation, a taxpayer can hasten the refund process, minimise its cost and avoid going through a number of unwelcome scenarios.