New tax legislation to comply with Fatca

New tax legislation to comply with Fatca

On March 4 last year, Thailand and the United States entered into an agreement to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (Fatca), which Washington introduced in 2010 in an attempt to discourage tax evasion by US citizens holding assets abroad.

The cabinet subsequently approved a bill to implement the Fatca Agreement and for Thailand to apply to the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes. Both developments made headlines given their potential impact on Thailand's position in the international tax administration area. Now, a year later, the National Legislative Assembly (NLA) has approved first reading of the bill and the Finance Ministry is arranging public hearings.

As well, the Revenue Department this month began testing an online system for submitting information on "US Reportable Accounts" by financial institutions. In order to comply with the Fatca Agreement, financial institutions must identify US reportable accounts, collect the information and submit it to the relevant authority, in this case the Thai Revenue Department, which will then forward it to the US Internal Revenue Service (IRS).

The bill approved by the NLA does not specify the scope of information to be reported. Instead, Section 3 of the bill refers back to the "Exchange of Information with Respect to Reportable Accounts" as defined in Article 2 of the Fatca Agreement. The finance minister will have the power to issue a ministerial regulation to enforce the law.

The Revenue Code and other existing laws governing financial institutions prohibit the disclosure of taxpayers' and customers' information, and offenders can face criminal charges. For instance, Section 154 of the Financial Institutions Business Act BE 2551 (2008), imposes a maximum of one year in prison and/or a 100,000-baht fine on a financial institution executive or employee who is privy to any activity of a financial institution that must normally be kept confidential, but divulges it to others, except under specific circumstances, such as the need to comply with requirements under the law.

In order to enable personnel of financial institutions to hand over information to the Revenue Department without being punished, the new bill defines a "person with duty to report" (commercial banks, securities companies, life and non-life insurance companies, derivatives traders and custodians, falling within specific criteria, for which a Royal Decree will be enacted). These entities will be obliged to collect and submit information to the Revenue Department under the methods and conditions to be announced in the ministerial regulation.

Where it appears to the revenue official that the "person with duty to report" violates or is in default of the reporting duty, the official may issue a warning and call for the behaviour to be corrected. Failure to correct the default can result in an administrative fine of 100,000 baht plus a daily fine of 10,000 baht until corrections are made.

On the tax side, Section 10 of the Revenue Code normally prohibits a tax official from disclosing information on a taxpayer and/or other relevant parties to any other persons unless the disclosure is authorised under a specific law. Thus, the new bill will contain a mechanism that authorises revenue officials to carry out the following duties to fulfill Thailand's obligations under the Fatca Agreement:

Exchange information with an authorised official of the US government in accordance with the timing and methods agreed under the Fatca Agreement. For instance, Thailand is required to submit annual information concerning US Reportable Accounts within nine months of the following calendar year.

Disclose information that needs to be exchanged between authorised officials of the Thai and US governments upon the request of the relevant government authorities to fulfill their duties under the laws. This may involve submitting information that the Revenue Department obtains from the IRS to the Anti-Money Laundering Office, where the information exchanged appears to indicate tax evasion or attempted tax evasion under the newly introduced Section 37 ter of the Revenue Code.

Require the directors, managers, persons with authority to manage, or employees of, or persons related to, the "person with duty to report", to report, make statements, provide written explanations or submit accounts and documentation, including any other evidence, to fulfill duties under the bill.

Take any actions necessary to fulfill duties under the bill.

While information may be revealed in accordance with the requirements under the laws, a person, irrespective of whether he or she is an employee of a financial institution or a revenue official, is not allowed to reveal the information for any other use. Otherwise, such person may be subject to criminal charges and a penalty of up to one year in jail and/or a 100,000-baht fine.

All in all, it seems that there are fewer and fewer places for tax dodgers to hide nowadays.


By Rachanee Prasongprasit and Professor Piphob Veraphong. They can be reached at admin@lawalliance.co.th

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