The Thai Revenue Department has significantly expanded its review of transfer pricing policies for Thai companies in recent years. The stricter transfer pricing rules, outlined in the Transfer Pricing Act, are effective as of 1 January 2019. One of the reasons for the amendment was the OECD’s BEPS Action Plan, which Thailand joined in June 2017.
The Transfer Pricing Act, which amends the Revenue Code, essentially stipulates the following:
a) Definition of the term “affiliated companies”
The newly inserted Section 71 paragraph 2 states that companies are “affiliated” if one of the following conditions applies:
- One company directly or indirectly holds at least 50% of the shares in the other company.
- The shareholders of one company directly or indirectly hold at least 50% of the shares in the other company.
- The companies are interconnected in terms of capital, management or control so that they cannot be run independently of each other.
- Details will be determined by a ministerial regulation (yet to be issued).
b) Reporting obligation
Section 71 ter requires companies to prepare and file a transfer pricing report together with the tax return, provided that their revenue in the tax year in question exceeds THB 200 million (approx. EUR 5 million). Companies whose revenue is below this threshold are not required to prepare such reports (unless explicitly requested during a general tax audit). Details will be determined by a ministerial regulation (yet to be issued).
The Revenue Department may request additional information from the taxpayer within five years of the due date of the transfer pricing report. The requested information must then be submitted within 180 days.
Taxpayers who submit the transfer pricing documentation or the additional requested information incorrectly, incompletely or late can be fined up to THB 200,000 (approx. EUR 5,000).
In recent years, it has been observed that the tax authorities are adopting a more aggressive audit practice in the area of transfer pricing. In addition, the permanent reduction of the Thai corporate tax rate to 20% since 2013, the reform of the income tax system in 2017, and the considerable investment in the country’s infrastructure have increased the pressure on the tax authorities to use the remaining tax resources more effectively.
Hence, it is to be expected that the tax authorities will focus even more on transfer pricing reviews. The new transfer pricing rules mean large companies (annual turnover > THB 200 million) have to provide transfer pricing documentation to justify the transfer prices in transactions with affiliated companies. Multinational companies can use their worldwide transfer pricing study, which is used for example in Germany and has already been accepted by the German tax authorities (in the context of an advanced pricing agreement or within the framework of a tax audit).