Earlier this year, the Revenue Department issued notifications that require extra information to be specified in tax invoices and debit or credit notes. On the surface, these notifications may not appear very exciting compared with those relevant to mergers and acquisitions, real estate investment trusts or some capital market transactions. But they could cause headaches for businesses that are not aware of the implications.
The key notification adds more requirements to the basic information a tax invoice must contain. Currently such documents must contain the heading "Tax Invoice", the issuing date, names and addresses of the issuer and customer, serial numbers, types and quantities of goods/services, and the amount of VAT. Effective from next year, the invoice must also specify the following:
- tax ID of customers;
- whether the issuer is a head office or a branch (by specifying the branch office registration number obtained from the Revenue Department), and
- whether the customer is a head office or a branch (by specifying the registration number).
However, if one takes a closer look, the notification could generate a crucial issue if a VAT operator fails to comply with the requirements. The concern is shared by customers equally if they are under the VAT system.
For a start, a tax invoice that fails to specify the contents required under the Revenue Code could lead to disallowance of input VAT. In the value-added tax system, a VAT business operator must calculate VAT on a monthly basis by crediting VAT paid to another VAT business operator against that charged from its customers. Where a VAT business receives a tax invoice that does not specify the contents specifically required by the new notifications, the Revenue Code explicitly prohibits the crediting of such input VAT.
This may not be the only damage. In a case where the business claims input VAT without realising that there is an error or omission in the contents of the invoice, under Form Paw. Paw. 09, such business will be deemed as crediting illegitimate input VAT. This could lead to maximum penalties up to 100% of such input VAT amount regardless of whether it results in underpayment of monthly VAT or not.
For instance, let's say a company files a Paw. Paw. 30 form with total input VAT amount of 100 (in which excess VAT of 60 is included) and total output VAT is declared as 20. Even though the calculation will not result in any shortfall of the monthly VAT payment (as no payment will be made to the Revenue Department anyway even if the input VAT were adjusted down to 40), the company will be penalised for filing a Paw. Paw. 30 with excessive input VAT.
Further, where a VAT business has a number of branches, the Revenue Code requires a separate monthly VAT to be calculated and filed for the head office and each branch, unless the department has approved a consolidated calculation in advance. Thus, specifying the correct head office and the branch numbers of the issuer and of the customer will be significant. You will no longer be able to claim input VAT of one branch at another branch of head office anymore, as it can be traced back easily via the VAT registration number of each office.
An example of the significance of this can be seen in a Supreme Court Case in 2010, in which a Honda car dealer with a number of branches mixed up the input VAT of one branch with that of the head office. The court ruled that, since the head office credited the input VAT incurred by a branch office, it was considered illegitimate based on the wrong tax invoice, which caused the head office to pay less VAT than it was allowed. Hence, the Revenue Department had the authority to impose penalties and surcharges even if the branch office was paying higher VAT due to the reduced amount of input VAT claimed by the head office.
The court stressed that, even though the head office and the branches were the same legal entity, VAT computation must be separated unless the director-general of the Revenue Department has approved their consolidation.
Luckily, due to the expiration of the statutory limitation period, and the Revenue Department's technical failure in the litigation process, the company in the above case incurred minimal payments. Not all VAT business operators might be as lucky.
Another question is whether the issuer of a tax invoice who fails to specify additional contents will be subject to any penalties. Or should a minimum fine be imposed for each mistake? There is vague wording in the Revenue Code which states: "Where a tax invoice is not issued and handed to the buyer of goods or the customer of the services as required in Division 10, penalties equal to twice the amount of the VAT under such tax invoice will be imposed."
In fact, a 200% penalty should be imposed only in the case where no tax invoice is issued to the customer at all. It is a bit unclear if such a hefty penalty should apply in a case where the invoice is not issued in compliance with Division 10 of Chapter IV of Title II of the Revenue Code. Perhaps the department has planned to treat the breach as material, as if there were no tax invoice issued at all, instead of a minor transgression subject to a small fine.
Also note that the department has issued another notification stating that the same types of additional contents must be specified in a debit note and credit note. Since errors in a note could also lead to under/over calculation of input/output VAT, which would be subject to the penalties, and perhaps surcharges (if this caused a missing VAT payment), VAT business operators should be aware of the changes to the contents in tax invoices and administer their documents properly.
By Rachanee Prasongprasit and Professor Piphob Veraphong. They can be reached at firstname.lastname@example.org
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