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 Transfer Pricing (“TP”) Law in Thailand has recently 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 new 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 newly introduced 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 Thai Revenue Department (“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.
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.
Thailand follows the transfer pricing methods outlined in Chapter II of the OECD Guidelines, namely:
- Comparable uncontrolled price (CUP) method;
- Cost-plus method;
- Resale price method;
- Profit split method;
- Transactional net margin (TNMM) method.
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 Business Online transfer pricing database.
The tax authority normally focusses on the interquartile range in a transactional net margin method (TNMM) analysis.
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.
In addition, on 18 June 2019, there was a draft Ministerial Regulation on TP documentation lodgement submitted for Thai Cabinet’s further consideration. The details of the draft have not yet been publicized or given any in-depth details yet. We believe that the TP guidance will be publicized within the 3rd quarter of 2019.