Have you ever wondered why your tax refund feels like it is taking the scenic route after you submit a tax return?
Some companies file their returns and receive refunds shortly afterward. No follow-up. No questions. No drama. Others, however, receive a polite message from the Thai Revenue Department (TRD) informing them that their cases have been selected for a tax audit before any refund is released.
Same form. Same deadline. Very different outcomes.
So what makes the difference?
More often than not, the answer lies in the Risk-Based Audit (RBA) system used by the TRD.
What Is Risk-Based Audit (RBA)?
“Every year, the TRD processes a large number of tax returns and refund requests. Auditing every single case in detail would be impractical and time-consuming.” Said Vachirawit Kaew-udom, Tax Director in Tax Controversy, Forvis Mazars Thailand
That is why the TRD applies a Risk-Based Audit system. The system helps assess the relative risk level of each taxpayer and determines which cases may require closer review.
In practice:
- Low-risk taxpayers, often referred to as “good taxpayers,” may receive refunds without undergoing a detailed audit.
- Higher-risk taxpayers, based on certain indicators, may be subject to a tax audit before their refunds are approved.
Importantly, RBA is not limited to refund cases. It is also a key tool used by the TRD to select taxpayers for random or targeted tax audits, even when no refund is claimed.
How Does the RBA System Work?
The exact criteria used by the RBA system are confidential. However, it is widely understood that the system evaluates a large number of risk indicators using information from tax filings and other available data sources.
These indicators are not fixed. They are reviewed and adjusted periodically and tailored based on economic conditions, policy focus, and audit priorities in a given year.
This approach allows the TRD to allocate audit resources more efficiently and focus attention on filings that may warrant closer review.
Common Factors That May Trigger RBA Attention
Based on practical experience, the following factors may increase the likelihood of a taxpayer being flagged under the RBA system. While they do not automatically result in an audit, they may prompt additional questions.
- Significant Retained Earnings
A substantial amount of retained earnings can attract attention, particularly when it is not clearly supported by business activities. The TRD may seek to understand whether this reflects profit shifting or other tax-sensitive transactions.
This has become increasingly common, especially for companies with frequent overseas payments to related parties.
- Discrepancies with External Data Sources
The RBA system does not rely solely on information reported in tax returns. It may cross-check data against other government databases, such as Customs Department records.
For example, material differences between export figures reported in VAT returns and customs data can lead to further inquiries. Aligning information across filings helps reduce this risk.
- Unusual Expense Presentation in PND 50
How expenses are grouped and reported in a corporate income tax return (PND 50) matters more than many companies expect.
Certain expense categories, such as entertainment expenses, are subject to specific deductibility limits under Thai tax law. Amounts that exceed expected thresholds or lack sufficient explanation may trigger follow-up questions and potentially broaden the scope of an audit.
Final Thoughts
The examples discussed above represent only part of what the RBA system may consider, and the TRD’s internal assessment methods continue to evolve.
The good news is that many potential risks can be identified and addressed early. A structured review can help companies better understand their risk profile under the RBA framework and reduce unexpected scrutiny.
Forvis Mazars in Thailand regularly assists companies in reviewing tax positions through an RBA-focused lens. This includes identifying potential risk areas and supporting proactive remediation before any questions arise from the tax authorities.
In tax matters, preparation and clarity go a long way. It is always better to check your health before seeing the doctor
