What Is Transfer Pricing, and How Does Thailand Enforce It?

What Is the Arm’s Length Principle?

The core of the transfer pricing rules is the arm’s length principle, which requires transactions between affiliated companies to follow the prices and terms that independent parties would agree under normal market conditions.

If a transfer price is higher or lower than the market price without a clear business reason — for example, where a foreign parent company charges its Thai subsidiary an unusually high management service fee — the Revenue Department has the power under Section 71 bis to adjust the transfer price to the market price and recalculate the corporate income tax in full, together with penalties and surcharges. A summons for an audit must be issued within two years from the date the return was filed; where there is evidence or reasonable cause to suspect an intention to evade tax, the Director-General may approve an extension, but to no more than five years (Section 19).

Who Counts as an “Affiliated Company” Under Thai Law?

Paragraph two of Section 71 bis defines “companies or juristic partnerships that are related to each other” (related parties) in the following 3 ways:

• One juristic person holds shares in, or is a partner in, the other juristic person, whether directly or indirectly, amounting to not less than 50 percent of the total capital
• The same shareholder or partner holds shares in, or is a partner in, both juristic person A and juristic person B, whether directly or indirectly, amounting to not less than 50 percent of the total capital
• Juristic persons are related to each other in terms of capital, management or control in such a way that one cannot operate independently of the other, as prescribed by ministerial regulation

A point many companies overlook is that Thai law counts both direct and indirect relationships. A second-tier subsidiary in the same group that does not hold shares directly in the other company may therefore still count as a related party.

Thresholds for Preparing TP Documentation

Under paragraph one of Section 71 ter, a company or juristic partnership must file the report on related companies or juristic partnerships (the Disclosure Form, or TP form) with the Revenue Department together with its P.N.D. 50 return if it meets both of the following 2 criteria:

• Criterion 1: It is related to another company or juristic partnership within the meaning of paragraph two of Section 71 bis, whether or not the relationship exists throughout the accounting period, and whether or not there are transactions between them in that accounting period
• Criterion 2: Its revenue from or in consequence of its business in that accounting period exceeds 200 million baht (an entity with revenue of not more than 200 million baht is exempt under paragraph three of Section 71 ter, read with clause 1 of Ministerial Regulation No. 370 (B.E. 2563 (2020)))

Although the law sets the revenue threshold at 200 million baht, in practice the Revenue Department can also examine the transfer prices of smaller companies if a routine tax audit reveals suspicious conduct. Companies that transact with affiliated companies should therefore always keep documentation supporting their transfer prices, whether or not they reach the threshold.

Transfer Pricing Methods Accepted Under Thai Law

Notification of the Director-General of the Revenue Department on Income Tax (No. 400) prescribes transfer pricing methods in line with the OECD Transfer Pricing Guidelines, with 5 main methods:

• Comparable Uncontrolled Price (CUP): compares the price with similar transactions in the market; suited to goods with a clear market price, such as commodities
• Resale Price Method (RPM): works back from the resale price less an appropriate gross margin; suited to distributors that add little value to the goods
• Cost Plus Method (CPM): starts from cost plus an appropriate profit margin; suited to manufacturers or service providers
• Transactional Net Margin Method (TNMM): compares the net profit margin from intragroup transactions with that of comparable companies in the market; this is the most widely used method in Thailand
• Profit Split Method (PSM): divides the group’s combined profit according to each party’s contribution; suited to complex transactions in which both parties contribute to value creation

TP Documentation Required (3-Tier Approach)

The Thai Revenue Department has partly adopted the 3-tier documentation approach of OECD BEPS Action 13. Under Thai law, the documents can be grouped as follows:

• Group-level information (known in practice as the Master File): an overview of the group, its intragroup structure, its group-level TP policy, and its significant intangibles. Thai law sets no group revenue threshold for this information; it is included in the list of documents under clause 2 of Notification of the Director-General of the Revenue Department on Income Tax (No. 407), which must be submitted upon receipt of a written notice under paragraph two of Section 71 ter. The consolidated group revenue threshold of not less than 28,000 million baht is the threshold for the Country-by-Country Report under clause 5 of the Notification (No. 408), not the threshold for group-level information.
• Local File: information on transactions between affiliated companies that is specific to Thailand, covering the functional analysis, the selection of the transfer pricing method, and the demonstration that each transaction is at arm’s length
• Disclosure Form (TP form): a summary disclosure form that must be filed with the Revenue Department together with the P.N.D. 50 return every year, within the filing deadline under Section 69 (150 days from the last day of the accounting period, extended by a further 8 days for online filing under the Notification of the Ministry of Finance on the Extension of the Deadline for Filing Returns and Paying Tax via the Internet (No. 7), which applies to returns due up to 31 January 2027 (B.E. 2570)). For the information to be reported and the statutory basis, see the related-party report under Section 71 ter (Thai)

Penalties for Failing to Prepare or File TP Documents

The Revenue Code sets out clear penalties for anyone who fails to comply with Section 71 ter, or who files a report, document or evidence showing incorrect or incomplete information without reasonable cause (Section 35 ter):

• Failure to file the Disclosure Form: a fine of not more than 200,000 baht
• Filing incomplete or incorrect information without reasonable cause: a fine of not more than 200,000 baht
• Failure to submit TP documents upon receipt of a written notice: a fine of not more than 200,000 baht
• Additional tax from a transfer pricing adjustment: a penalty of one or two times the tax shortfall (Sections 22 and 26), plus a surcharge of 1.5% per month, with the surcharge capped at the amount of tax payable (Section 27)

The most significant risk is not the fine for failing to file documents but a transfer pricing adjustment and an additional tax assessment by the Revenue Department. Where a company has large transactions, the additional tax payable can reach tens or hundreds of millions of baht.

Transactions Commonly Scrutinized in Audits of Thai Companies

Transactions between affiliated companies that commonly become issues in Revenue Department audits include:

• Management service fees: a foreign parent company charges its Thai subsidiary a management fee without evidence of the services actually received
• Royalty fees: payments for copyrights or know-how to affiliated companies at above-market rates
• Interest on intercompany loans: interest rates that are unusually far above or below market rates
• Sales of goods between affiliated companies: prices charged to affiliated companies that differ significantly from the prices charged to outside customers
• Shared services: a charging basis that does not match the benefit each company actually receives

How to Prepare Before a Revenue Department Audit

Advance preparation is the most important element of transfer pricing under the principles of preventive law. Companies should take the following steps now:

• Adopt a group transfer pricing policy (Group TP Policy) that sets in advance the pricing method and criteria for each type of transaction
• Keep evidence that services were actually provided, such as reports, emails and invoices with clear descriptions, for every management service fee and royalty
• Carry out an annual benchmarking study comparing transfer prices with comparable transactions in the market, using databases such as Bureau van Dijk or ORBIS
• Apply for an advance pricing arrangement (APA) with the Revenue Department for high-value or complex transactions, to fix the pricing method in advance and reduce the risk of additional assessments in the future. When an APA or a MAP (a request for the tax authorities of two countries to consult each other under a tax treaty) should be considered, and the documents used to assess the matter, are explained on our APA and MAP support service page
• Understand the legal basis the assessment official relies on: read the assessment official’s power to adjust transfer prices under Section 71 bis (Thai), which explains the elements under Ministerial Regulation No. 369 (B.E. 2563 (2020)) and the right to claim a tax refund after an adjustment
• Seek advice from a TP specialist before entering into any new transaction with an affiliated company, especially transactions involving intangible assets or business restructuring

Frequently Asked Questions About Transfer Pricing

Transfer pricing in Thailand is based on Section 71 bis (the power to adjust transfer prices), Section 71 ter (the duty to file reports and documents) and Section 35 ter (fines) of the Revenue Code, which apply to accounting periods beginning on or after 1 January 2019 (B.E. 2562). The questions below summarize what transfer pricing means, the relationships the law counts, who must file the report, and the consequences of non-compliance.

What is transfer pricing?

Transfer pricing is the setting of prices and terms for transactions between related companies or juristic partnerships, such as the prices of goods, service fees, interest and royalties. Section 71 bis of the Revenue Code empowers the assessment official to adjust income and expenses to the amounts that independent contracting parties would set (the market price, or arm’s length price) where there is reason to believe that profits have been shifted.

Which companies are treated as related under Section 71 bis?

Paragraph two of Section 71 bis sets out 3 categories: (1) one juristic person holds shares in, or is a partner in, another juristic person, directly or indirectly, amounting to not less than fifty percent of the total capital; (2) a shareholder holding not less than fifty percent of the shares in one juristic person also holds not less than fifty percent of the shares in another juristic person; and (3) juristic persons are related in terms of capital, management or control such that one cannot operate independently of the other, as prescribed by ministerial regulation.

Who must file the related-party transaction report (Disclosure Form)?

Section 71 ter requires companies or juristic partnerships that are related within the meaning of paragraph two of Section 71 bis to prepare a report on their related parties and the total value of the transactions between them, and to file it together with their return within the deadline under Section 69. Under Ministerial Regulation No. 370 (B.E. 2563 (2020)), this does not apply to an entity whose revenue in the accounting period does not exceed 200 million baht.

What are the penalties for not filing the transfer pricing report or documents?

Section 35 ter imposes a fine of not more than two hundred thousand baht on anyone who fails to comply with Section 71 ter, or who files a report, document or evidence showing incorrect or incomplete information without reasonable cause. The larger risk is a transfer price adjustment under Section 71 bis, followed by an additional tax assessment with penalties and surcharges.