Tax authorities clarify transfer pricing documentation and CbCR requirements
Thailand’s Revenue Department issued a notification on 30 September 2021 that clarifies the transfer pricing documentation requirements and includes a list of the information that must be included in the documentation. A separate notification issued by the department contains a regulation for country-by-country reporting (CbCR). Both notifications are applicable for accounting periods/financial years commencing on or after 1 January 2021.
Transfer pricing documentation requirements
Thailand’s transfer pricing rules require that taxpayers engaging in transactions with related parties ensure that the transactions are on arm’s length terms, and to substantiate their positions, taxpayers must prepare documentation demonstrating the arm’s length nature of their related party transactions. A company with revenue of THB 200 million or more in an accounting period also is required to file a transfer pricing disclosure form with the Revenue Department, disclosing details of its related parties and the transactions with these parties; this form must be filed with the corporate income tax return.
The notification requires the following information and specifically mandates that transfer pricing documentation be prepared in the Thai language:
- Overview of the company and the group, including a value chain analysis;
- Details of related party contracts and transactions;
- Pricing policy adopted by the company at the time a contract is concluded with a related party;
- Functions, assets and risk analysis for each accounting period; and
- Benchmarking analysis.
The notification also sets out the criteria for certain companies to be excluded from the annual benchmarking analysis requirement. These are:
- Companies fulfilling all of the following conditions:
- Revenue not exceeding THB 500 million during the accounting period;
- No transactions with related parties that are subject to a different corporate income tax rate;
- No transactions with offshore related parties; and
- None of the related parties entering a transaction with the company has tax losses that can be utilized as a tax-deductible expense for corporate income tax purposes in the accounting period.
- Companies that have concluded a specific agreement with a competent authority in Thailand (e.g., advance pricing agreement).
Although the above entities are exempt from preparing an annual benchmarking analysis, they are not exempt from preparing a transfer pricing policy report that contains details of the functions performed, assets utilized and risks borne. The document must include all the prescribed information and supporting documents.
It is evident that Thailand’s transfer pricing rules are not limited to cross-border transactions, i.e., domestic transactions with related parties also fall within the scope of the rules, as they provide an opportunity for shifting revenue or expense if a group member is benefiting from tax incentives (e.g., Board of Investment-promoted enterprises) or has incurred tax losses (carried forward or current). Priority must be given to Thai comparable companies for benchmarking. The THB 500 million revenue threshold merely grants relief from preparing the annual benchmarking study requirement, not the transfer pricing policy report, where the threshold remains at THB 200 million.
Country-by-country reporting notification
The regulation applies to multinational enterprise groups that have consolidated annual group revenue of THB 28 billion (about USD 840 million) or above. The CbCR must be prepared using the CbCR XML schema in the English language and must be submitted with the annual corporate income tax return of the reporting entity. The following companies must comply with the CbCR requirement:
- The ultimate parent company (UPE) established under Thai rules; and
- A Thai company whose UPE is established in a country (i) that does not require the filing of a CbCR; (ii) does not have an agreement with Thailand for the exchange of information; or (iii) the system for the exchange of information does not function.
However, companies that meet the following requirements are exempt from the CbCR filing obligation:
- The UPE of the overseas group of companies appoints a surrogate to file the CbCR in the country where the surrogate is tax resident.
- The country where the UPE’s surrogate is tax resident (i) has laws that require the filing of a CbCR to the competent authority in that country; (ii) has an exchange of information agreement with Thailand that is in force by the last day of the period for filing file the CbCR; or (iii) the competent authorities of that country have not notified the Thai tax authorities of any failure of the exchange of information agreement.
- The UPE’s representative has notified the competent authority in the country where it is a tax resident of its surrogate status.
- The company registered in Thailand has notified the Thai tax authorities of the appointment of a surrogate of the UPE.
The notification also sets out the conditions for a foreign company to appoint its Thai company as a surrogate to submit the CbCR with the Thai tax authorities.