THAILAND - Transfer pricing regulatory regime and documentation requirements
On 21 November 2018, Revenue Code Amendment Act (No. 47) B.E. 2561 (2018) was gazetted, introducing legislative provisions to codify the transfer pricing regulatory regime.
Broadly and among other matters, the Amendment:
- Codifies transfer pricing rules and relief;
- Introduces mandatory transfer pricing documentation requirements;
- Mandates filing of transfer pricing disclosure forms by certain taxpayers;
- Imparts specific powers to Assessment Officers to impose transfer pricing adjustments;
- Institutes a specific penalty regime for non-compliance.
Transfer pricing documentation rules, disclosure requirements and penalty regime
The Thai Revenue Code already had express provisions in Section 65 bis (4) requiring all taxpayers to follow market-driven prices while undertaking any transaction. The newly enacted transfer pricing legislation codifies the arm’s length principle into the Revenue Code and imparts specific powers to Assessment Officers to impose transfer pricing adjustments on either income or expense arising from non-arm’s length transactions. The Amendment further defines relations where two companies or juristic partnerships would be considered related for transfer pricing purposes.
What is required?
All taxpayers who enter into related party transactions are required to ensure that the transactions or arrangements are entered into on an arm’s length basis. To substantiate their positions, taxpayers are required to prepare transfer pricing documentation establishing the arm’s length nature of their related party transactions. Such documentation would be required to be reproduced before the Assessment Officer when requested during an audit.
In addition, the legislation mandates for certain taxpayers who breach the specified revenue threshold (to be specified later through a Ministerial Regulation, but would not be less than THB 200 million) to prepare a transfer pricing disclosure form and submit this to the Revenue Department along with their corporate tax return.
What is the penalty for non-compliance?
The legislation empowers an Assessment Officer to adjust the income or expenses of companies or registered partnerships to the amount of income to be received or expenditure to be paid as if they were independent parties for the calculation of net taxable profit or assessable income for tax purposes.
Furthermore, non-submission of the required transfer pricing disclosure form within the prescribed period, or provision of incorrect information without justifiable reasons, may lead to the imposition of a penalty not exceeding THB 200,000.
When does the new law take effect?
The new regulations will apply for accounting periods starting on or after 1 January 2019.
With the law now in place, the Revenue Department is expected to propose secondary legislation to the Cabinet of Thailand, which is expected to cover matters such as comparability analysis, determination of arm’s length range, consideration of condition for special transactions, etc.
In addition, Thailand as a member of OECD’s Inclusive Framework on Base Erosion and Profit and Shifting (BEPS) has committed to implement the four minimum standards of the BEPS package which includes application of Action Plan 13 which mandates a three-tiered transfer pricing documentation [Country-by-Country Report (CbCR), Master File and Local File]. With the transfer pricing law now in place, CbCR and Master File regulations are also expected to be implemented soon.