Thai Revenue Department (“Revenue Department”) is the body that governs and deals with the transfer pricing aspects in Thailand.
On 16 May 2002, the Revenue Department introduced its transfer pricing guidelines in the form of Departmental Instruction (“DI”) No. Paw. 113/2545. The purpose of the transfer pricing guidelines is to assist taxpayers in setting arm’s-length prices for their transactions with related parties while providing direction to revenue officers in reviewing whether taxpayers’ related party transactions are in compliance with the arm’s-length principle.
On 21st November 2018, Revenue Code Amendment Act (No 47) was gazetted and puts into effect the resolution of the government of Thailand to enact the new transfer pricing tax laws.
The transfer pricing law in Thailand will be in force for accounting periods starting on or after 1 January 2019. The first filing date of transfer pricing disclosure form will be on 30 May 2020 for the fiscal year ending 31 December 2019 and August 2020 for the fiscal year ending 31 March 2020.
What type of documentations are required?
The following documents will be required to be prepared by taxpayers:
A report, known as the disclosure form filed with the annual corporate tax return that contains information on the relationship between entities and the value of intercompany transactions in each accounting period; and
Three-tiered transfer pricing documentation based on Action 13 of the Organisation for Economic Co-operation and Development (“OECD”) Base Erosion and Profit Shifting (“BEPS”), i.e. local file, master file and country-by-country (“CbC”) report. The contents of the master and local files will be specified in ministerial regulations and the CBC reporting requirement is expected to be contained in secondary legislation.
Who is required to prepare the documentation?
Companies with annual turnover in excess of THB 200 million per year are required to submit the transfer pricing disclosure form which contains information on the related party transactions, at the time of filing their annual tax returns.
Taxpayers with total revenue of less than THB 200 million will be exempt from the requirement to file the disclosure form and transfer pricing documentation.
To date, there are no information on the threshold applied for the implementation of the CbC reporting and master file. Revenue threshold could be applied for CbC report and master file once the new regulations come into effect.
When are the documentations due for lodgement?
There is no specific regulation requiring transfer pricing documentation to be prepared and lodged annually in Thailand. However, the Revenue Department typically requests transfer pricing documentation before tax/transfer pricing audits.
What to include in a transfer pricing documentation?
The DI 113 specifically outlines the content requirements for the Thai transfer pricing documentation. The list of documentation which should be prepared and retained by the taxpayers include the following:
1. Documentation indicating the structure and relationship between business entities within the same group, including the structure and nature of business carried on by each entity;
2. Budgets, business plans and financial projections;
3. Documentation indicating taxpayers’ business strategies as well as the reasons for adopting such strategies;
4. Documentation indicating sales and operating results and the nature of its transactions with business entities within the same group;
5. Documentation indicating the reasons for entering into international transactions with business entities within the same group;
6. Pricing policies, product profitability, relevant market information and profit sharing of each business entity. Consideration should be given to functions performed, assets utilised and risks assumed of the related business entities;
7. Documentation supporting selection of the transfer pricing method;
8. Where several methods are considered, documentation indicating details of the methods apart from the method stated in (7) and the reasons for rejection of these methods. These documents should be created at the same time the decision is made to select the method in (7);
9. Documentation used as evidence indicating the negotiation positions taken by the taxpayer in relation to the transaction with business entities within the same group and the basis for those negotiating positions; and
10. Other related documentation in determining the transfer price (if any).
Which transfer pricing method to apply?
It is worth noting that Thailand is not a member of the OECD. However, the Revenue Department has adopted the arm’s-length principle and authorises the use of transfer pricing methodologies (e.g. comparable uncontrolled price, resale price method, cost plus method, transactional net margin method, and profit split method) endorsed by the OECD Guidelines in order to determine the market price of a transaction.
The comparable uncontrolled price method, the resale price method, or the cost plus method are preferred over the transactional net margin method and the profit split method. However, there is no hierarchy of these three methods.
What type of comparables are accepted?
It is advisable for transfer pricing documentation to be reviewed and updated yearly with comparable benchmarks updated every two years. The Revenue Department has a strong preference for Thai comparable benchmarks. However, if none are available then foreign benchmarks can be accepted as long as they are comparable.
Will the taxpayer be penalised for not preparing the transfer pricing documentation?
Failure to file the required report and/or additional documents/evidence or to submit incomplete/incorrect documents or evidence without a reasonable cause is subject to penalties.
Any person who fails to comply with the requirement under Section 71, or files a report, document or other evidence as required under Section 71 inaccurately or incompletely without justifiable ground, shall be liable to a fine of not more than THB 200,000.
How is the transfer pricing audit conducted?
There is no specific transfer pricing audit in Thailand; it is undertaken as part of the normal tax audit process. However, the Revenue Department begins the investigation process by issuing a letter requesting taxpayers, under their supervision, to provide information and documents on the adopted transfer pricing practices. Targets are selected for investigation based on their analysis of the tax returns submitted, and information obtained from the ‘business operation visit’, whereby the revenue officers visit companies under their supervision at least once a year to understand the business and ensure tax compliance.
The transfer pricing documentation is reviewed by the Revenue Department’s transfer pricing team. Based on this review and analysis, the revenue officers typically raise questions and require more detailed explanations and related documents. Depending on how well the transfer pricing practices are documented and the completeness of the supporting documents, the request for additional information and documents can take many rounds.
The Revenue Department generally requires six months to analyse the information/ documents and reach a conclusion. After notifying the taxpayer of the outstanding issues, the clarification and negotiation process between the taxpayer and the Revenue Department may take an additional three to 12 months.
The statutory limitation period for a tax officer to request for the submission and evidence of information needed for analysing the transfer pricing documentation is within 5 years from the date of submission of the transfer pricing disclosure form.
Contact Transfer Pricing Solutions. We can assist with the preparation of transfer pricing documentation locally and regionally, Master File and Local File to comply with the OECD and also local legislation.
+61 (3) 59117001
+ 603 2298 7153
Contributed by our Consultant Kaval Aulakh
Kaval works as a consultant for Transfer Pricing Solutions Australia, Transfer Pricing Solutions Asia and Transfer Pricing Solutions Malaysia. Kaval has more than five years of experience in various areas of transfer pricing assignments such as transfer pricing documentation, comparability studies, shared costs allocation and Mutual Agreement Procedure (MAP).
In her spare time, Kaval enjoys socialising, reading and playing badminton.
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