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Introduction to transfer pricing in Thailand
Transfer pricing rules
- Thailand’s transfer pricing legislations are contained in Section 35 ter, Section 71 bis and Section 71 ter of the Revenue Code.
- Ministerial Regulation No. 369 (B.E. 2563) (‘MR 369’) – rules and conditions for adjustments that can be made by the Thai Revenue Department (‘TRD’) to the income and expenses.
- Ministerial Regulation No. 370 (B.E. 2563) (‘MR 370’) – exemption threshold for mandatory transfer pricing documentation requirement.
- Notification of Director-General of Revenue Department No. 400 (B.E. 2564) (‘DGN 400’) – detailed guidelines on how transfer pricing adjustments are to be made.
- Notification of Director-General of Revenue Department No. 407 (B.E. 2564) (‘DGN 407’) – mandatory items to be included in transfer pricing documentation.
- Notification of Director-General of Revenue Department No. 408 (B.E. 2564) (‘DGN 408’) – Country-by-Country (’CbC”) reporting requirement regulation.
- The transfer pricing rules apply to Thai juristic company or juristic partnership, including Thai branches of overseas companies.
- Preparation of transfer pricing documentation is mandatory.
- Effective from accounting years commencing on or after 1 January 2019.
- Thailand transfer pricing regulations are mostly consistent with the concept of the OECD Transfer Pricing Guideline, 2017.
Transfer pricing methods
- Acceptable transfer pricing methods include comparable uncontrolled price, resale price, cost plus, transactional net margin and profit split. Other methods can also be used if justifiable and appropriate but the taxpayers must obtain approval from the Director-General of TRD.
- The preparation of transfer pricing documentation is mandatory.
- Taxpayers with having annual income greater than THB 200 million and having related party need to disclose the list of related party, details of related party transactions in the transfer pricing disclosure form with their annual income tax return.
- In the Local File, taxpayers disclose the details about their domestic and cross border related party dealings: type of transaction, summary of intercompany contracts, benchmarking and/or documentation to support to the arm’s length nature of the transactions. In addition, details of business restructurings (current and immediate past year), and the impact of such restructuring on the business profits of the taxpayer; and details of the transfer of intangible assets along with the impact of such transfer of intangible assets on the business profit of the taxpayer are mandatorily required to disclose.
- The more significant and the broader the scope of a taxpayer’s related dealings, the more likely the TRD is to review those dealings. Taxpayers with significant level of dealings, lower profit than industry standard or business restructuring is at the greatest risk of review.
- The TRD has published transfer pricing disclosure guidelines which allow taxpayers to understand the TRD’s perception.
Transfer pricing documentation
Preparation of transfer pricing documentation
- Preparation of Thai transfer pricing documentation is mandatory.
- Thai transfer pricing disclosure form must be prepared and submitted by the due date for filing the annual income tax return and need to be in Thai language.
- Thai Local File must be prepared according to the DGN 407 and be submitted in Thai language.
- Transfer pricing disclosure form - submit with annual income tax return; within 150 days after each financial year end (mandatory online filing).
- Transfer pricing documentation (Master and Local File) - submit within 60 days after receiving request from TRD.
- Submission of CbC reporting by ultimate parent entity or Thai surrogate entity must be made within 12 months from financial year-end. Submission of CbC reporting by a subsidiary carrying on business in Thailand must be made within 60 days after receiving request from TRD.
Master and Thai local file
- Thailand’s Master and Thai Local File reporting requirements are legislated under Section 71 ter of the Revenue Code.
- Thailand’s CbC reporting requirements are legislated under DGN 408.
- The CbC reporting implements Action 13 of the OECD’s Base Erosion and Profit Shifting (‘BEPS’) action plan.
- For accounting years commencing on or after 1 January 2019, taxpayers are required to lodge the following statements with the TRD: Transfer pricing disclosure form, master file and Thai local file.
- For accounting years commencing on or after 1 January 2021, taxpayers are required to lodge the following statements with the TRD: Transfer pricing disclosure form, master file, Thai local file and CbC report. CbC reporting notification to the TRD is required.
- The TRD has implemented its own Thai Local File contents reporting requirements under DGN 407.
Some risk factors for challenge
- Risk factors include significant related party dealings, low profit from industry standard, or business restructuring.
- Penalty for incomplete transfer pricing documentation, failure to submit, late submission or incorrect disclosure; penalty not exceeding THB 200,000 for each case (but it will be subject to discretion by the TRD on justification).
- For any transfer pricing adjustment made by the TRD - penalty of up to 100% of tax shortfall amount plus surcharge of 1.5% per month of tax shortfall amount (but capped at 100% of tax shortfall amount).
Statue of limitations on transfer pricing assessments
- Generally, 5 years.
Economic analysis and how to demonstrate an arm’s length result
- The TRD’s preference is that local comparable companies are selected. However, the TRD may accept non-Thai comparable companies if local comparable companies are not available.
- MR 369 provides the guidelines for benchmarking. Internal comparables for benchmarking analysis (i.e. the same or similar transactions that the taxpayer has with unrelated parties) must be considered before any Thai or non-Thai external comparables for benchmarking analysis (i.e. the same or similar transactions between unrelated parties).
Advance Pricing Agreements (APAs), dispute avoidance and resolution
- APAs allows taxpayers to reach an agreement with the TRD on the future application of the arm’s length principles to intercompany dealings with international related parties.
- APAs provides a mechanism for managing and mitigating transfer pricing risk by providing a greater certainty on a prospective basis.
- Where taxpayers obtain an APA and continue to meet its requirements, the TRD will not impose any additional income tax to the agreed payable based on the pricing worked out under the APA on the covered cross border dealings.
- APA generally covers a period of three-five years and may be reviewed if trading circumstances materially change. APAs are also subject to an annual reporting requirement.
- Thailand has an extensive treaty network and the Mutual Agreement Procedure (‘MAP’) will often be available when double taxation occurs.
- Only Bilateral APA is acceptable by the TRD.
- Taxpayers with annual income less than THB 200 million are exempt from mandatory transfer pricing documentation requirement. In practice, the preparation of transfer pricing documentation is recommended to support the arm’s length transactions and mitigate transfer pricing risk during tax audit.
- The TRD has provided criteria of ‘benchmarking analysis exemption’ for Local File under DGN 407.
- When assessing transfer pricing arrangements, the TRD will seek to understand the facts and individual circumstances effecting the taxpayer as a result of COVID-19. The TRD will look at: the functions, assets and risk of the taxpayer, before and after COVID-19, the impact of COVID-19 on the economic circumstances, changes in transfer pricing arrangements, and changes in business strategy.
- As the analysis of comparable company benchmarking may not reliably support arm’s length outcomes where taxpayers are impacted by COVID-19, the TRD will seek to understand the taxpayers’ financial outcomes that would have been achieved ‘but for’ the impact of COVID-19. This may involve an analysis showing the changes in revenue and expenses with an explanation for variances resulting from COVID-19, details of profitability adjusted to outcomes that would have occurred from COVID-19 and the rationale and evidence for reduction in sales and extraordinary items.