AS A LONG-TIME professional in the taxation field, I often receive questions from businesses regarding tax-audit activities of the authorities and how to effectively minimise the likelihood of such audits, especially when it is time to request for tax refunds.
Businesses, especially multinational companies operating in foreign jurisdictions, are generally uncertain about taking any course of action that may lead to tax audits and, as such, they may inadvertently lose out on opportunities to pay taxes in a more efficient manner. For example, it is not uncommon for companies operating in countries such as Thailand to forgo tax refunds in order to avoid the tax audits that would accompany the refund claims. In effect, from the companies’ perspective, the potential costs of a tax audit (eg tax authorities assessing additional taxes/penalties, time and effort of management and employees accommodating the tax authorities during the audit, companies name and reputation being adversely affected, etc) could far outweigh the tax refund available.
In Myanmar, however, things are a bit different and tax audits are extremely rare. Generally, the commonly agreed practice is for taxpayers to prepare their tax returns with guidance from the Myanmar Inland Revenue Department (MIRD). Taxpayers and tax authorities collaborate on the tax return preparation and taxpayers do not file the returns until the tax authorities agree that the tax return they prepared together is accurate and complete. As such, local companies rarely are in a position of having over- or under-paid their income taxes for a given tax period.
If by chance a company overpays its income taxes for a given tax year, it can request a tax credit in the following year’s tax return. Another possibility is to request for a tax refund – but most companies do not generally opt for this method. Regardless, such cases of having over- or under-paid taxes generally arises when a local company transacts with foreign companies from tax treaty nations. As mentioned in our last article, “Does PE exist in Myanmar?”, foreign companies that wish to apply tax treaty rates when transacting with local entities should request the local entities to apply for a withholding tax certificate from the MIRD to exempt or reduce their withholding tax obligation.
More likely than performing tax audits due to MIRD’s perceived income tax inconsistencies, the MIRD may alternatively raise the selling price of goods for certain local companies and impose a corresponding upward tax adjustment for commercial tax purposes. In such cases, the additional commercial tax due also automatically triggers additional income tax liabilities on the increased value of the goods for such companies.
The last tax audit supposedly occurred several years ago, whereupon the Myanmar Ministry of Industry requested the MIRD to audit two distillery companies. These two companies were subject to a tax audit and, as a result, had to pay additional income tax and penalties.
While local companies generally are not subject to tax audits, companies are advised to continue consulting the MIRD when preparing their tax returns. And, in order to avoid any tax adjustments due to differences in tax treatments as per domestic tax laws and tax treaties, local companies that transact with foreign companies from treaty nations should also consult the MIRD to confirm the appropriate withholding tax treatment.
Source: The Nations