Thai companies may find slew of tax changes challenging
Recent tax reforms and proposals for what could be characterised as an overhaul of the tax regime here may prove challenging for Thai businesses and foreign companies doing business in Thailand as tax computations and rules become more complicated, thereby increasing the strain on internal tax compliance resources.
Traditionally, the computation, filing and payment of taxes in Thailand has been viewed mainly as a clerical function falling under the purview of the accounting/finance function or some other non-tax professional inside the organisation. This has been a consistent approach throughout Asia, where paying taxes is seen as a sign of good corporate citizenship.
This stands in stark contrast to Western perceptions of the tax man as an over-reaching intruder into the wealth and lives of free peoples; an intrusion to be avoided, but not evaded. The prevailing mentality in these countries is that one should never pay more tax than required by law. This view of one's obligations to pay tax was emphatically set out in the now famous words of Judge Learned Hand in a 1935 US Supreme Court case:
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."
These contrasting views help explain the different perceptions of the role of tax professionals as "tax advisors" in the West and "tax preparers" in Asia.
In many Asian countries, including Thailand, companies have for various reasons been reluctant to use the services of professionals to assist in preparing tax returns or for tax advice. One reason is that the management team has confidence it can manage on their own without the assistance of an outside advisor. Another reason is that management, rightly or wrongly, may not trust the advice received from tax professionals and would rather go directly to the tax authority for resolution of any questions of interpretation. They may also simply believe that the cost of the tax advice is not worth the tax they can save. Significant changes and an updating of the taxation systems in many Asian countries, and particularly in Thailand, may be about to change this.
Thailand has seen a flurry of recent tax and tax-related reforms, clarifications and updates. These include such items as:
_ Introduction of deferred tax accounting requirements for financial statement reporting set to take effect from January 2013;
_ Reduction of the corporate income tax rates for both large corporations and SME's;
_ Revisions to the mergers and amalgamation rules, including the recent announcement of a Royal Decree clarifying the tax-exempt nature of a share swap;
_ Proposed introduction of anti-avoidance measures to ensure the tax base does not erode, especially in light of the reduction in corporate tax rates discussed above, including such measures as interest disallowance under thin-capitalisation rules, current income inclusion for controlled foreign companies; formalisation of the transfer pricing rules and implementation of a general anti-avoidance principal;
_ Promulgation of a group of measures to aid the flood recovery effort.
This pace of reform is almost mind-numbing - even for tax professionals who follow such things for a living. Taxpayers will likely find it increasingly challenging to keep abreast of all the changes. Internal resource constraints and limited expertise of in-house tax-focused personnel may not prove sufficient in addressing the increasing tax risks associated with the expanding scope and complexity of new tax rules and the additional compliance burden being placed on taxpayers. While increased tax risk may be bad news for the corporate taxpayer charged with properly reporting and paying taxes, it is even more so for the responsible officer required to sign and certify that the tax return and financial statements "are correct, complete and true". These increased risks will certainly impact the go-it-alone attitude of some management teams and shine a light on the value that tax professionals can add in reviewing, advising and facilitating tax computations and tax positions. Tax is often the second-largest expense in the financial statement and properly focusing on this item will be an increasing must for management. Taxpayers may find that now is a good time to start building a relationship with a tax advisor in order to ensure that the sweeping changes in the tax laws and regulations do not catch them off-guard and result in greater audit risk.
This information is intended as a general guide only. Tax law is complex and professional advice should be taken before acting on the information provided.
Jonathan Blaine is an Associate Principal at KPMG Thailand.