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Global transfer pricing guide

Transfer pricing - Thailand

30 Jul 2023

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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.
OECD guidance
  • Thailand transfer pricing regulations are mostly consistent with the concept of the OECD Transfer Pricing Guideline, 2022.
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 the Thai Revenue Department.
Self-assessment
  • 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 a 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

  • Under the Thai transfer pricing documentation requirement under Thai transfer pricing law, there are 4 types of documents as follows:

    • Transfer pricing disclosure form: this form is to disclose list of related parties, details/amounts of related party transactions for online submission with annual income tax return on annual basis (i.e. 150 days after the end of the accounting year). The form must be followed by official form and submitted in Thai language.

    • Transfer pricing local file: this document is to disclose local taxpayer’s detail, including business overview, shareholding structure, detail of related party transactions, function performed, risk assumed, and asset used analysis, benchmarking analysis, etc.

      • The local file must be followed by DGN 407 for the accounting period starting on or after 1 January 2021 and be submitted in Thai language.

      • The benchmarking analysis exemption is applicable only if certain conditions are met.

      • The local file must be submitted within 60 days after receipt of a formal written notice from the Thai Revenue Department (or 180 days for 1st time notice). The request can be made within 5 years after the due date of the transfer pricing disclosure form.

      • Therefore, the local file must be kept available in taxpayer’s business place for 5 years.

    • Transfer pricing master file: this document is to disclose inter-company arrangements of the Multinational Enterprise (MNE) group at the global level.

      • The master file must be submitted within 60 days after receipt of a formal written notice from the Thai Revenue Department (or 180 days for 1st time notice). The request can be made within 5 years after the due date of the transfer pricing disclosure form.

      • Therefore, the master file must be kept available in taxpayer’s business place for 5 years.

      • The master file can be prepared in English or Thai language. If the master file is prepared in English, TRD in practice may request taxpayer to translate into Thai language.

    • Country-by-country reporting (CbCR): it is to disclose allocation of revenue, profits, and taxes among jurisdictions that members of Multinational Enterprise (MNE) operate.

      • The CbCR is applicable for the accounting period starting on or after 1 January 2021.

      • MNE with a consolidated group revenue exceeding THB 28,000 million (or equivalent in other foreign currency thresholds) for the prior accounting period is obliged to prepare and submit the CbCR.

      • Submission of CbCR by the UPE or surrogate parent entity must be made within 12 months from the accounting year end. The CbCR must be followed OECD format and submitted in English language in XML file.

      • UPE may appoint a Thai entity to be a surrogate parent entity and file CbCR on behalf of the group with certain conditions applied.

      • CbCR notification is required in Thailand. Submission of the CbCR notification must be through a separate CbCR notification portal on the Thai Revenue Department website. The notification will be made as soon as possible and no later than 12 months from the accounting year end. If the MNE group has more than one related company carrying on business in Thailand, the MNE group can appoint one of Thai related entities to do the notification on behalf of other related entities in Thailand.

Master and 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
  • The potential red flags that may trigger the TRD’s attention for transfer pricing audit are listed below:
    • Having a significant volume of intercompany transactions with related parties.
    • Having consecutive operating losses, having profit margin below industry average, or having a significant amount of loss carried forward.
    • Having high management or royalty payments with related parties.
    • Having different prices or margins for same or similar products/services between related and unrelated parties.
    • Having different prices or margins for the same or similar products/services between BOI and non-BOI businesses.
    • Having different prices or margins for the same or similar products/services before and after the tax holiday periods.
    • Making payments to tax haven jurisdictions.
Penalties
  • 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).
  • The Thai Revenue Department officers can also impose penalties (up to 100% of tax shortfall amount) and surcharges (1.5% per month of tax shortfall amount) from the transfer pricing adjustment if it cannot be proven that the compensation of a particular entity or controlled transaction is aligned with the functional profile of the taxpayer and falls within the arm’s length range.
  • The statute of limitations on transfer pricing assessments is 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).
  • The use of interquartile range is generally accepted by the TRD.
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 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 change materially. 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.
  • APA guidance for taxpayers is available.
Exemptions
  • 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.
Related developments
COVID-19
  • 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.

For further information on transfer pricing in Thailand please contact:

Thailand 120x120 round image.png

Narumol Limprasert
T +66 2 205 8121
E narumol.limprasert@th.gt.com

  
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