Starting from June 2021, the new annual interest rate on Tax Reserve Certificates (TRC) to taxpayers will be revised downward to 0.05% from previous rate of 0.0833%, i.e. monthly interest income of $0.0042 per $100 purchase amount. TRC bears simple interest, with interest calculated monthly (including part of a month) from the date of purchase to the date of payment of tax.
Usually, this occurs when estimated / additional assessments for prior years are issued to taxpayers due to outstanding tax issues with the IRD, or when the IRD is conducting field audit on taxpayers. When the taxpayer objects against such assessment, the IRD may order the tax in dispute to be held over conditionally by purchasing a TRC, which will create cash flow burden to taxpayers. The TRC will only be refunded to the taxpayers when the taxpayers successfully win the case.
Tax representative could, on behalf of the taxpayer, negotiates with the IRD on the amount of TRC to be issued so as to relieve the cash flow burden of the taxpayer. The IRD may not accept the taxpayer’s proposal and may request for additional case analysis, but taking the initiatives to start the negotiation is an essential step of the whole progress.
Points to Note
Tax Administration appears to be a simple and boring topic, but tactics and strategies to handle tax dispute cases with the IRD are of paramount importance. Interest on TRC is low and would create significant cash burden on taxpayers. As such, expediting the tax dispute review and negotiation process to reach compromised settlement could be the way out.
We are also observing an increasing number of cases being investigated by Field Audit unit (Unit 4) of the IRD in Year 2021. If taxpayers are being investigated under field audit, huge burden would be created for taxpayers from the perspective of provision of detailed explanation and complete documentation, as well as the IRD’s request on payment of “protective” tax based on its estimation of taxpayers’ understated profits.
We have a separate tax team focusing on Tax Investigation and Field Audit cases. You are welcome to contact us for details of relevant risk of particular cases in this regard.
