Transfer Pricing -Thailand
[Oct 2019]
Embedded Files
Transfer Pricing Rules (Thailand)
The main tax legislation is the Thai Revenue Code ("TRC"). The transfer pricing rules are contained within Sections 65bis (4), 65bis (7), 65ter (13), 65ter (14), 65ter (15), 65ter (19), 70ter, 71 bis, 71 ter and 79/3 TRC, the Thai Accounting Standards numbers 18 and 24, the Departmental Instruction No. Paw. 113/2545 (DI 113), and the Guidance on the Advance Pricing Agreement ("APA") Process (April 2010).
The Thai Revenue Department (“TRD”) will focus on an interaffiliate company who is involved in a business transaction which transfers its asset or sells a product, provides services or financial transactions with, or without, remuneration where the price is lower than arm’s length prices (“The Market Prices”). The company should prepare a reasonable cause or an acceptable reason for said transaction including all supporting documentation, and submit these to the assessment officer until they accept the explanations of the company.
The Transfer Pricing (“TP”) Law in Thailand has added some sections within the TRC that were enacted on 21st November 2018 and take effect for all accounting periods commencing on or after 1st January 2019. The TP regulations affect companies that have revenues of more than THB 200 million during the accounting period, which requires them to disclose their related-party transactions by filing a Statutory TP Disclosure Form in accordance with the TRC together with their annual Corporate Income Tax (“CIT”) Return. This Statutory TP Disclosure Form is required to provide information concerning the Company’s relationships between its related-party entities and the value of inter-company transactions. Therefore, the TRD seeks to focus on ensuring greater transparency between related-party companies who are involved in business transactions within groups of companies, in particular where the price of transactions is lower than arm’s length pricing (i.e., below ‘market price’), which includes: transfers of assets, sales of products, provision of services, financial transactions with/without remuneration.
When transfer pricing documentation is requested by the tax authority, taxpayers will be given 60 days to prepare and deliver the documentation in the form to be announced by Director-General. It can be extended to 120 days if the tax payers have justifiable reasons for being unable to meet the 60 days deadline.
The statute of limitations for the assessment of transfer pricing adjustments under Section 71 bis of TRC is five years from the date of submission of the Statutory TP Disclosure form, which is filed together with the annual income tax return. Where fraud or tax evasion is suspected (or an income tax return is not filed) the statute of limitation for maintaining relevant documents has also increased to five years. Failure to comply with statutory transfer pricing disclosure or submitting incorrect information, will be subject to a penalty not exceeding Baht 200,000.
A summary of the new Sections added to the Thai Revenue Code set out below (see linkedin presentation).
Section 71 bis
[Power to make TP adjustments] Provides tax assessment officers with authority to adjust income and expenses for corporate income tax, cross-border withholding tax and profit remittance tax purposes to arrive at the income and expenses as if the related companies or partnerships had operated independently (i.e. the arm's length standard).
[Related parties] Defines related companies or partnerships.
[Double taxation relief (?)] Indicates the prescription period for claiming a tax refund where the tax assessment officers make a transfer pricing adjustment under this section. Tax refunds resulting from a transfer pricing adjustment can be requested within 3 years from the due date for filing of the tax return or within 60 days of receiving written notice of a transfer pricing adjustment from the tax officers.
Section 71 ter
[Introduction of TP disclosure form] Requires companies or partnerships with related party transactions to file a report (disclosure form) with the annual corporate tax return, which provides information on the relationship between entities and the value of intercompany transactions.
[Request of TP doc from TRD] Tax assessment officers, upon approval from the Director-General of the Thai Revenue Department ("TRD"), can request transfer pricing documentation within 5 years after the submission of the disclosure form. The documentation will be due 180 days after receiving a notification from the TRD for the first time. Thereafter, the files will be due within 60 days with possible extension to 120 days upon request.
[TP reporting requirements (revenue threshold!)] The disclosure form or transfer pricing documentation will not be required if the company or partnership has revenues less than the amount to be stipulated in the Ministerial Regulations, which should not be less than THB 200 million, or other reasons to be specified.
Section 35 ter
[Tax fine (!)] Failure to lodge the disclosure form or transfer pricing documentation by the due date or lodgement of incomplete/incorrect disclosure form or transfer pricing documentation will result in a fine not exceeding Baht 200,000.
Who is a Related Party under Thai TP laws?
[Vertical Structure] A JURISTIC PERSON who holds shares or becomes a partner of another juristic person, directly or indirectly with no less than 50 percent of the total equity
[Horizontal Structure] A SHAREHOLDER or A PARTNER who directly or indirectly holds shares or is a partner of A JURISTIC PERSON with no less than 50 percent of the total equity, AND also who directly or indirectly holds shares or is a partner of ANOTHER JURISTIC PERSON with no less than 50 percent of the total equity; or
[Control] JURISTIC PERSONS who are related by way of SHAREHOLDING, MANAGEMENT, or CONTROL whereby one juristic person is not able to act independently from one other juristic person as defined in the Ministerial Regulation [...coming soon...]
Objective of TP Documentation
To ensure that taxpayers give appropriate consideration to transfer pricing requirements in establishing prices and other conditions for transactions between associated enterprises and in reporting the income derived from such transactions in their tax returns.” -- Documentation requirements create awareness and a culture of compliance. Tax-payers are forced to take in a position, with regards to transfer pricing rules.
To provide tax administrations with the information necessary to conduct an informed transfer pricing risk assessment. -- The Documentation provides tax-authorities with a clear overview of the activities of a multinational enterprise. It tells them where there are risks.
To provide tax administrations with useful information to employ in conducting an appropriately thorough audit of the transfer pricing practices of entities subject to tax in their jurisdiction, although it may be necessary to supplement the documentation with additional information as the audit progresses. -- If tax-authorities think that there is a risk, the Documentation provides them with a good indication of where else to look.
Documentation and Pricing
Currently, the formal guideline for TP documentation and implementation is not completely enacted yet. We believe that TP documentation will follow similar OECD standard as previous required for documentation before the new TP law was enacted, which should be prepared and maintained to support the arm’s length pricing basis of the respective related party transactions and be available for the tax authority on request.
Although Thailand is not an OECD member country, its transfer pricing rules are based on the arm’s length principle and the OECD Guidelines. Notably, the content of a transfer pricing study should follow Chapter V of the OECD Guidelines for certain transactions, with an emphasis toward the TNMM. A transfer pricing study can be completed in Thai or English (with a Thai translation).
Tax Authority Insights
The tax authority prefers the use of local comparables in a benchmarking study, and, if a taxpayer fails use a set of local comparable companies, the TRD will conduct its own search for local comparables, and use these as a starting point to lodge a possible challenge against a taxpayer’s results.
Secret comparables may be used by the tax authority.
No specific transfer pricing database is preferred by the TRD although it does use the local transfer pricing database (dervied from the Department of Business Development, the Ministry of Commerce).
The tax authority normally focuses on the interquartile range in a Transactional Net Margin Method (TNMM) analysis.
Other Matters
Although Thailand has an extensive double tax treaty network, the competent authority has limited experience in obtaining double tax relief. No formal rules exist which determine when a taxpayer may submit an adjustment to the competent authority or whether a tax payment is required before a taxpayer can apply to the competent authority.
Bilateral Advance Pricing Agreements (APAs) can be negotiated with the tax authorities (there is no filing fee). Bilateral APA guidelines were issued in April 2010.
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