Taxing authority and tax law
Tax authority: Thai Revenue Department (TRD)
Tax Law: General TP-relevant provisions of the Thai tax code (dealing with exchanges at below-market price):
- Sections 65 bis (4) and (7); §70 ter; §65 ter (13), (14), (15) and (19); and §79/3 under the Thai Revenue Code
- Double Tax Agreements between Thailand and other countries
- Standard Accounting Nos. 37 and 47
Transfer pricing guideline: Departmental Instruction No. Paw. 113/2545
Relevant regulations and rulings
On 16 May 2002, the TRD issued its guideline specifically addressing transfer pricing. The TP guideline, Departmental Instruction No. Paw. 113/2545, is written in the form of an internal departmental instruction which provides guidance to tax officials for tax audit purposes.
On 23 April 2010, the TRD issued the Bilateral Advanced Pricing Agreement (BAPA) guideline stipulating the guidelines on the BAPA process, including procedures for BAPA applications; level of information required; circumstances under which the TRD may discontinue a BAPA; and taxpayer compliance after a BAPA is concluded.
OECD guidelines treatment
The TP guideline generally follows the model of the OECD guidelines, including allowing all methods allowed under the OECD guidelines. This includes supporting material beyond the scope of the OECD guidelines. The OECD guidelines are not binding on the TRD. The OECD guidelines may, however, be persuasive in areas not addressed by the Thai Transfer Pricing guideline.
Priorities/pricing methods
The TRD accepts CUP, Resale Price and Cost Plus. Other commercially used methods are also acceptable, such as the OECD’s Profit Split and TNMM.
Transfer pricing penalties
There is no explicit penalty for TP assessments. Nor is there an explicit penalty for not having TP documentation.
However, for tax shortfalls in general, if a company is assessed by the TRD, a penalty of 100% or 200% of the tax shortfall and a 1.5% per month surcharge may be imposed. The 1.5% monthly surcharge is capped at 100% of the tax shortfall amount.
Penalty relief
In the event of a transfer pricing adjustment, there is no formal penalty relief for having in place TP documentation.
Penalties may be reduced by half or waived if the taxpayer voluntarily files a return and accounts for the tax shortfall. Surcharges are a form of interest and cannot be reduced. Contemporaneous documents cannot be used to reduce the penalty for a transfer pricing shortfall. However, they are important for the defense of transfer pricing should a tax audit take place.
Documentation requirements
The following extensive contemporaneous documentation is specified:
- The structure and relationships between business entities within the same group, including the structure and nature of business carried on by each entity
- Budgets, business plans and financial projections
- Taxpayers’ business strategies and the reasons for adopting those strategies
- Sales and operating results and the nature of transactions between business entities within the same group
- Reasons for entering into international transactions with business entities in the same group
- Pricing policies, product profitability, relevant market information and profit sharing of each business entity
- Functions performed, assets utilized and risks assumed by the related business entities should all be considered
- Support for the particular method chosen
- Where other methods have been considered, details of those methods and the reasons for their rejection (contemporaneously documented)
- Evidence supporting the negotiation positions taken by the taxpayer in relation to the transactions with business entities in the same group and the basis for those negotiating positions
- Other relevant documentation (if any) supporting the transfer prices
Documentation deadlines
The taxpayer is required to submit the transfer pricing documentation as and when requested by the TRD within the submission date stipulated in the requesting letter. However, the taxpayer may request for an extension of the submission if necessary. Such a request is required to be a written letter for submission to the TRD. In general, the extension granted from the TRD is up to one month after receiving the letter.
Statute of limitations on transfer pricing assessments
Under Section 19 of the Thai tax code, the statute of limitations is two years from the date of filing the tax return. This period is extendible to five years if tax evasion or fraud is suspected.
Return disclosures/related-party disclosures
No disclosure of the existence or non-existence of transfer pricing documentation is required to be submitted with a tax return. Nor does any documentation need to be filed with a tax return.
Under the Thai Federation of Accounting Professions and Securities and Exchange Commission of Thailand (SEC) regulations, the related party transactions of companies listed on the SEC must be disclosed in the company’s financial statements and annual report. Non-listed companies are not required to disclose related-party transactions in their financial statements.
Audit risk/transfer pricing scrutiny
Scrutiny of transfer pricing during a tax audit or inquiry in Thailand is common and the risk to the average multinational company is moderately- to slightly-high. The TRD expects taxpayers to cooperate in providing relevant transfer pricing support documentation. It is likely that failure to do so will lead to a tax audit.
Generally, the TRD makes transfer pricing adjustments to the deductibility of expense items through its annual routine visits to taxpayers to review their business operations. During such checks, if officials find any transactions warranting further scrutiny (including deductibility of expenses arising from intercompany transactions), a further investigation will be conducted. In most cases, the taxpayer under investigation will be required to add back the expenses (to the extent deemed excessive) to taxable income and pay the additional tax arising. The final tax adjustments are then generally settled by way of negotiations.
Since 2006, there has been more aggressive enforcement by the TRD in all areas of tax, especially transfer pricing. The increased level of enforcement mainly arises from tax collection pressure on the TRD to compensate for customs duty and excise tax shortfalls.
APA opportunity
Given that the formal BAPA guideline has been issued in April 2010, TRD actively encourages taxpayers to enter into an APA due to reasons such as allowing a greater degree of certainty in terms of future taxes to be paid, and eliminating double taxation pursuant to double tax treaties signed between Thailand and other jurisdictions.
Currently, TRD is active in negotiating APAs with Japan. Since the issuance of the Thai transfer pricing guideline and BAPA guideline in 2002 and 2010, respectively, there were four BAPAs concluded between Thailand and Japan to date. Currently, there are fifteen BAPAs that are in the process of being reviewed and negotiated.
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