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Directors’ Liabilities In View of Constitutional Court
Corporate and individual taxpayers are required to follow and comply with the requirements under tax legislation. Failure to comply with tax law may result in either civil liabilities, or criminal liabilities. Civil liabilities under Thai tax laws includes asset seizure, and penalty and surcharge (interest), whereas criminal liabilities include imprisonment and criminal charges. When a corporate taxpayer is involved in criminal tax offences, it is interesting to examine a corporate directors' scope of responsibilities and management. Taxand Thailand analyses the Constitutional Court's recent ruling that was released to the Supreme Court, which covers corporate director criminal liabilities. The result of this ruling impacts directors in numerous areas, including tax regimes.
Criminal Tax Liabilities
In many cases of tax avoidance, supporting evidence suggests that corporate directors were considered to be directly and intentionally involved in tax avoiding activities. The government and tax authorities are required to follow the 'burden of proof' rule, and the court is required to rule its decision based on the apparent intentions of specified directors.
Civil liability, for tax purposes, results in the accused being required to compensate the tax debt in terms of asset and monies, whereas criminal liability is to punish the taxpayer by way of state sanction to eliminate 'bad faith' activities.
In the Thai tax regime, the criminal liabilities can be found from the relevant tax laws including Revenue Code, Customs Laws, Excise Laws and Property Tax Laws. These laws suggest punishments for the taxpayer involved in 'tax fraud' activities, for example, issuing fraudulent VAT invoices, the smuggling of imported goods, fraudulent excise stamp duty and false declarations.
The corporate taxpayer(s) cannot be punished with imprisonment, but the directors or management who act on behalf of the corporate entity, can be subject to such punishment.
Constitutional Court's Ruling
In late March 2012, the Constitutional Court issued its decision to the Supreme Court in relation to the case of Direct Sale Law where the Managing Director of a direct sale company in Thailand was named as responsible for a direct sale. The main issue for the Constitutional Court to consider is whether the provisions of the Direct Sale Law contradicted the Thai Constitution.
Under the Direct Sale Law, the managing director, manager or person(s) responsible for the operation of the company, is/are jointly liable for the criminal punishment with their company, if the company is punished. That is unless the innocence of the named person(s) can be proven. With this provision of law, the government has no need to prove that the person(s) are intentionally committing criminal activities.
The Court ruled that such provision of Direct Sale Law conflicts with the rule of 'presumption of innocence' under the Thai Constitution, and the Rule of Law which is acceptable by the Universal Declaration of Human Rights and International Covenant on Civil and Political Rights and Thailand ratified to commit to such rules.
The Court further ruled that a presumption clause under the Direct Sale Law accounts for the status of person(s) but does not adhere to the facts that demonstrate the person intentionally committed criminal offences. In this regard, the Court viewed that to shift the burden of proof to the accused person is to limit the person(s) rights and freedoms, and therefore not enforceable.
Under the Thai tax regime, various provisions of tax laws shift the burden of proof in criminal offences to the directors and management of the corporate taxpayer, especially in the context of tax evasion. We envisage that future practices of the Thai tax authorities will be more heavily scrutinised to provide evidence of the taxpayer(s) guilt. Accordingly, current tax compliance and tax risk management practices should be properly reviewed and reconsidered in response to this ruling.
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