BDO Transfer Pricing News

As global tax scrutiny intensifies and regulatory frameworks become more sophisticated, multinational enterprises (MNEs) are evolving beyond traditional compliance-based transfer pricing approaches. In Thailand, this evolution is especially evident in the rising prominence of operational transfer pricing (OTP) — a proactive and data-driven approach that ensures transfer pricing policies are closely aligned with actual business operations through real-time data integration and system connectivity.

What is Operational Transfer Pricing?

OTP is the framework MNEs use to allocate revenues and costs between associated enterprises in a way that aligns with both strategic policies and day-to-day business operations.

Unlike traditional transfer pricing, which often happens as a year-end compliance exercise, OTP is embedded into a company’s financial and operational systems, allowing for real-time or periodic monitoring. This ensures:

• Consistency across accounting, finance, tax, and operational teams
• Compliance with the arm’s length principle under the OECD transfer pricing guidelines
• Alignment with prices that independent parties would agree to in similar transactions

The key areas of focus of OTP include:

• Transaction-level accuracy: Ensure accurate pricing for transactions
• Real-time profit monitoring: Regular test of margins with target ranges
• Cross-functional accountability: Coordinated execution between finance and operation
• Data-driven adjustments: Adjusting and decisions based on information

Why is OTP Relevant in Thailand?

Thailand’s Revenue Department has increased its focus on transfer pricing transparency following the enactment of the Amendment Act on Revenue Code No. 47 (2018), along with secondary regulations on transfer pricing and alignment with the OECD base erosion and profit shifting (BEPS) action plan, particularly Action 13 on documentation and country-by-country reporting.

The key developments driving OTP relevance include:

1. Mandatory Transfer Pricing Documentation – Thai companies with annual revenue exceeding THB 200 million must prepare a local file each year.
2. Intensified Audit Activity – Tax authorities are examining intragroup transactions more closely, with a sharper focus on substance, consistency, and profit allocation.
3. Shift to a Digital Tax Environment – Increased use of data analytics, e-filing, and automatic information exchange raises the likelihood of detecting mismatches and triggering audits.

Key Components of OTP in Thailand



Transfer pricing life cycle

 

Impact of Year-end Transfer Pricing Adjustments on Value added Tax (VAT)

One critical area often overlooked in Thailand is the VAT treatment of year-end transfer pricing adjustments, especially when these involve cross-border intercompany transactions as summarised in the table below.
 

Section	Details
The Issue	Year-end transfer pricing true-up or true-down can trigger VAT complications when: No formal invoice is issued Adjustments are journal entries without VAT documents Adjustments are retrospective
Key VAT Rules	Output VAT is due when goods/services are supplied and invoiced Credit notes must be issued within six months of the original invoice Additional charges (e.g., transfer pricing top-ups) require supplementary tax invoices and are VATable if the original supply was taxable
Risk Areas	Timing mismatch between transfer pricing adjustments and VAT periods Lack of documentation for intercompany services Misclassification of adjustments as non-VATable (e.g., journal entries labeled as “intercompany settlements”)
Best Practices	Plan adjustments early for proper invoicing and VAT compliance Align tax and finance teams on transfer pricing and VAT filings Maintain documentation on service nature and pricing Issue debit/credit notes per Thai VAT rules, especially for retroactive changes
Challenges	Limited ERP flexibility in smaller subsidiaries Manual processes causing delays/errors Coordination gaps across tax, finance, and operations VAT often overlooked during transfer pricing execution
Opportunities	Early implementation of OTP reduces audit/VAT risks OTP supports faster close cycles and accurate tax forecasting Aligning with HQ standards improves governance and investor confidence

BDO Insights

Transfer pricing adjustments (true-up or true-down) made by the company at year end or in the following year may give rise to several issues and should be avoided (such as customs duty, withholding tax, and VAT). Instead, the recommended approach would be to:

• Consider more frequent adjustments (quarterly, for example)
• Maintain robust supporting information
• Explore the possibility of entering into an advance pricing agreement (APA) to gain certainty regarding transfer pricing methodologies.

OTP is no longer a “nice to have” but a critical capability for businesses operating in Thailand. With rising regulatory focus on both income tax and VAT compliance, periodic (quarterly, annually) transfer pricing adjustments must be operationally aligned and properly documented.

By embedding OTP into daily business operations — and incorporating VAT awareness — companies can move from reactive compliance to proactive tax management. This approach leads to more resilient business models, improved audit readiness, and stronger trust with tax authorities.

For more information on OPT in Thailand, please consult your regular BDO contact or the authors of this article.

Ishan Shah
Montira Sueprasit
BDO in Thailand