Competitiveness: Principle Based to Replace Rule Based Accounting

9.32-Principle base accounting to replace rule base accounting and the impact on Thai elite, by Pukky, this blog’s neutral business and economics analyst

Tax Loop-Holes will be a thing of the past

Tax Loop-Holes will be a thing of the past

Well, well the global financial crisis is going to see a rush to principle based accounting, that concept that the spirit of the accounting of the accounting law, is more important than the rules written to guide accounting practices, become the accounting principle of the world.

And well, well while Thailand goes on an accounting witch-hunt of Thaksin, doing all sort of legal interpretations as Thailand is still very much rule based, a great many new accounting principles are being set into concrete. And guess who is going to get zapped the most when the dust, from a formal switch to principle based and all those rulings on Thaksin that is putting into concrete many principles, settles? The answer is the Thai elite, who very much hate Thaksin, themselves.

It is no big secret at all, that most Thai busunessmen, once a bit sophisticated at taxation matters, would head to set up off-shore companies to shelter their taxes. Even Sondhi, the head of PAD, even with Manager being bankrupt, but still with about 20-30 companies in his hands, is also using off-shore companies to shelter his taxes. Indeed, it is a wonder how many international tax companies the likes of PriceWaterHouseCoopers are in Thailand. Well, why not? When the rich elite Thais and most of the companies in the Thai Stock Market, in the thousands, are involved with setting up tax shelter companies, all over the globe.

Yet going after those seeking shelter from tax loopholes, has been very difficult for Thai authorities. That is because for a long time, Thailand has had a tax policy based on “rules”. And this is why it is so hard to go after Thaksin, because when you have rules, you can never get around having “holes” to those rules. This means, as regulators goes on a long-road of closing holes, tax attorneys also goes on a long road of finding holes to those “holes patching”. It is a never ending game of cat and mouse, with rule based.

But with principle based, the courts will only have to incite the all inclusive “spirit of the law” to crack down on those using tax loop-holes. Tax attorneys world wide, therefore have been crying foul, since invoking the words “spirit of the law” has a great deal to do with “interpretations”.

While in the US, the damaged is expected to be tamed by the judiciary system that uses ordinary people, the jury of their peers concept, in passing judgement, with the judges only acting as a conductor, so if tax cases goes to court, the defense still have a good case against arbitrate rulings. But in Thailand, where judges do the deciding who is right or wrong, principle based accounting, will certainly take on a great deal of meaning. That is, as always, if one is well connected, the judges will probably rule one way, but if one is being sought after, such as Thaksin, the judges will practically have a free hand in interpreting the “principle or the spirit” behind the law.

God saves the rich Thais, because in a few years when principle based accounting hits, it is going to cost them now, to buy judges and not to just buy loopholes from the likes of PriceWaterHouse.

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