Transfer Pricing
Advisory services covering the analysis of related-party transactions, the preparation of transfer pricing documentation, and risk assessment for groups with cross-border or domestic transactions between affiliated companies.
Why transfer pricing matters to corporate business
Transactions between related companies or juristic partnerships, as defined in Section 71 bis of the Revenue Code, are transactions that the assessment official has the authority to examine in order to determine whether the price or consideration recorded in the enterprise's accounts is consistent with the arm's length principle — that is, the price or terms that unrelated enterprises would apply between themselves in comparable circumstances.
If the price in a related-party transaction does not conform to that principle, the assessment official may have the authority to adjust the enterprise's income or expenses to the market price, which may give rise to additional tax, penalties, and surcharges under the Revenue Code. Managing transfer pricing risk is therefore a matter of real significance for the group's tax cost and its long-term business planning.
The Thai legal framework for transfer pricing
Before Thailand had a specific legal regime for transfer pricing, the Revenue Department relied on its general powers under Section 65 bis and Section 65 ter of the Revenue Code, together with Departmental Instruction No. Paw. 113/2545, to examine and adjust income or expenses in related-party transactions. Thailand now has a specific regime under Section 71 bis and Section 71 ter of the Revenue Code, which sets the framework for disclosure, the submission of supporting documentation, and the assessment official's authority to request additional documents or evidence.
Revenue threshold, disclosure obligations, and requests for additional documents
Ministerial Regulation No. 370 (B.E. 2563 (2020)), issued under paragraph three of Section 71 ter of the Revenue Code, prescribes the criteria for determining who is required to submit documents or evidence under Section 71 ter of the Revenue Code, with a revenue threshold of THB 200 million as one of the elements. Paragraph one of Section 71 ter of the Revenue Code imposes the obligation to file a report on related-party relationships and the value of related-party transactions, and the Notification of the Director-General of the Revenue Department on Income Tax (No. 400) prescribes the rules, procedures, and conditions for adjusting income and expenses under Section 71 bis. Whether a particular company has an obligation under the law in a particular accounting period must, however, be analyzed on the specific facts of that company, including all the elements under the Ministerial Regulation and the relevant secondary legislation; it cannot be concluded from the revenue threshold alone.
- Annual reporting obligation. A company or juristic partnership that is related within the meaning of paragraph two of Section 71 bis and is not exempted under Ministerial Regulation No. 370 (B.E. 2563 (2020)) is required to file a report on related-party relationships and the value of related-party transactions under paragraph one of Section 71 ter of the Revenue Code · All the elements prescribed by law must be considered, not the revenue threshold alone
- Filing deadline. The annual report under paragraph one of Section 71 ter of the Revenue Code must be filed together with the corporate income tax return within the time limit under Section 69 · The specific deadline for each company's accounting period must be considered
- Requests for additional documents. Under Section 71 ter of the Revenue Code, the assessment official may issue a written notice requiring the company to submit documents or evidence supporting its pricing within the prescribed time · Preparing supporting documentation in advance reduces the risk if such a notice is received
Transfer pricing documentation in practice
In practice, demonstrating that the price in a related-party transaction is appropriate relies on several types of documents and analyses, depending on the nature of the transaction and the organizational structure. These documents play an important role in supporting the company's position, both in the mandatory reporting process and where the assessment official issues a written notice requesting additional information.
Note: The Local File, the Master File, and benchmarking analysis are tools and supporting documents used in international practice. The extent to which Thai law requires a company to prepare or submit these documents depends on the relevant notifications and secondary legislation, which must be considered on the facts of each case.
Transfer pricing audit and assessment risk
Transfer pricing risk is not limited to being selected for a tax audit; it extends to the legal consequences that may arise during the audit process or after a notice is issued. Understanding the scope of each type of risk allows the company to put appropriate preventive measures in place.
The role of the tax law consultant in transfer pricing
Effective management of transfer pricing risk requires a thorough understanding of tax law, the business structure, and the facts of the transactions. The tax law consultant's role is to help the company work through these processes in a systematic way.
- Analyzing the facts and the transaction structure. Understanding the organizational structure, the relationships between the enterprises, and the nature of the transactions before analyzing transfer pricing risk in the correct legal context
- Setting the transfer pricing policy and documentation approach. Designing a transfer pricing policy consistent with the arm's length principle and the business structure, and establishing a systematic approach to preparing and managing supporting documentation
- Assessing risk and preparing for a tax audit. Assessing the level of risk of each type of transaction, setting priorities, and preparing a supporting documentation system that can respond effectively to an audit
- Supporting explanations to the assessment official. Providing legal assistance and data preparation where the company receives a notice under Section 71 ter of the Revenue Code, including explaining the facts and the law to the assessment official
Frequently asked questions
Which companies should assess their legal obligations relating to transfer pricing?
A company or juristic partnership that transacts with related enterprises, as defined in Section 71 bis of the Revenue Code, should have its legal position assessed — particularly corporate groups with cross-border transactions, intra-group service transactions, transfers of assets or rights, and financial transactions between related enterprises. A company whose revenue reaches the threshold prescribed in secondary legislation may have additional obligations, which must be considered on the facts of each case.
How does the THB 200 million revenue threshold relate to transfer pricing obligations under Thai law?
Ministerial Regulation No. 370 (B.E. 2563 (2020)), issued under paragraph three of Section 71 ter of the Revenue Code, prescribes the criteria for determining who is required to submit documents or evidence under Section 71 ter of the Revenue Code, with a revenue threshold of THB 200 million as one of the elements. However, whether a particular company has an obligation under the law must be analyzed on the specific facts under the Ministerial Regulation and all the relevant secondary legislation; it cannot be concluded from the revenue threshold alone without considering the other elements.
When should the Transfer Pricing Disclosure Form be filed?
The Transfer Pricing Disclosure Form — the report on related companies or juristic partnerships and the total value of related-party transactions under paragraph one of Section 71 ter of the Revenue Code — must be filed together with the corporate income tax return within the time limit under Section 69, in the form and in accordance with the rules prescribed by the Notification of the Director-General of the Revenue Department issued under paragraph one of Section 71 ter. The Notification of the Director-General of the Revenue Department on Income Tax (No. 407), by contrast, sets out the rules on the documents or evidence that the assessment official may, by written notice, require to be submitted additionally under paragraph two of Section 71 ter of the Revenue Code, which is a process separate from the annual report. The deadline and conditions applicable to each case must be considered according to the accounting period and the specific facts of each taxpayer, and should therefore be analyzed case by case.
What is the risk if there is no transfer pricing documentation?
If the assessment official issues a written notice requesting documents or evidence under Section 71 ter of the Revenue Code and the company is unable to submit documentation supporting the appropriateness of its prices within the time limit, the assessment official may use the methods prescribed by law to adjust income or expenses to the market price, which may lead to an additional tax assessment, together with penalties and surcharges under the Revenue Code. Preparing supporting documentation in advance is therefore of real significance in managing this risk.
How can a tax law consultant help manage transfer pricing risk?
A tax law consultant can help analyze the transaction structure and the relationships between the enterprises, assess the risk of a tax audit, set a transfer pricing policy consistent with the arm's length principle, prepare supporting documentation in practice, and support the company's explanations to the assessment official if a written notice requesting additional documents or evidence is received. For further details, see our retained corporate tax advisory service (Thai)
Assess your group's transfer pricing structure
Transfer pricing documentation and risk assessment deliver the best results when begun before a tax audit — an initial discussion will define the scope of work.
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