Group taxation is not permitted in Thailand.
On 21 November 2018, Thailand introduced specific transfer pricing provisions into the income tax law, which apply to accounting periods that started on or after 1 January 2019.
The transfer pricing rules adopt the arm’s length principle. Revenue officers have the power to uplift or reduce taxpayers’ revenue and expenses to the arm’s length price. Where transfer pricing adjustments result in a tax shortfall, a secondary adjustment which arises from imposing tax on a constructive transaction, either in the form of a deemed dividend or deemed loan, would also apply.
The legislation also requires mandatory annual transfer pricing reporting for taxpayers belonging to a group of companies (‘applicable taxpayers’). Entities with an annual total revenue of THB200m or less are exempt from the transfer pricing information reporting requirements.
There are two levels of transfer pricing information reporting, as follows:
- Partial disclosure – Applicable taxpayers are required to complete a transfer pricing disclosure form to be submitted online to the Revenue Department at the time of filing the annual tax return.
- Full disclosure – Applicable taxpayers are also required to prepare full transfer pricing documentation to be maintained for five years from the date of filing the transfer pricing disclosure form. This includes the local file and the master file for larger entities, and is to be submitted to the Revenue Department within a prescribed time period (normally 60 days) from the date of the request. A penalty of up to THB200,000 for each level of transfer pricing reporting will be imposed in the case where taxpayers fail to comply with the reporting requirements (by way of inaccurate or incomplete disclosure of information).
The detailed content requirements of the transfer pricing documentation were issued on 30 September 2021 and are applicable for accounting periods that started on or after 1 January 2021. The new content requirements are largely in line with those suggested by the OECD local file requirements. However, transfer pricing documentation must be submitted in the Thai language. It also remains unclear whether Thailand’s transfer pricing documentation now only comprises the local file as there is no mention of the master file.
The content requirements apply to entities for the financial year starting on or after 1 January 2021 but the reporting requirements have been in place since 1 January 2019. What this means is that, for the financial years starting between 1 January 2019 to 31 December 2020, taxpayers may follow either Thailand’s internal guidelines on transfer pricing (Departmental Instruction Paw. 113/2545) when preparing transfer pricing documentation or the OECD local file requirements.
The Revenue Department will use the transfer pricing disclosure form to select audit targets. Once selected, they will request the full transfer pricing documentation for review. In the case where the transfer pricing practices adopted by the taxpayer do not comply with the arm’s length principle, Revenue officers will make the necessary adjustments and assess additional taxes, surcharges, and penalties.
Although smaller entities with revenue of THB200m or less are exempt from the transfer pricing information reporting requirements, they will still be obligated to ensure that their transfer pricing practices are at arm’s length.
Thailand also introduced the country-by-country reporting (CbCR) requirements to be applicable for accounting periods starting on or after 1 January 2021. Multinational enterprises with total consolidated revenues exceeding THB28bn carrying on business in Thailand are required to file the CbCR in Thailand if they do not meet the local filing exemption conditions. The Revenue Department also allows a foreign company to designate a Thai entity to be its surrogate parent entity and file a CbCR on behalf of the group, with certain conditions to be met.
The CbCR is required to be filed online within 12 months from the financial year-end in the case where the ultimate parent entity of a Thai MNE is the filing entity and within 60 days upon request in the case where the filing entity falls under the local filing conditions. Each MNE group operating in Thailand and meeting the CbCR threshold must select a representative entity to file a CbC notification online with the Revenue Department.
A fine of THB2,000 will be imposed on a taxpayer that fails to file the CbCR by the due date.
The transfer pricing rules endorse the use of five transfer pricing methods in determining the arm’s length compensation for a controlled transaction, which are comparable uncontrolled price, resale price, cost plus, transactional net margin and transactional profit split method.
Other pricing methods may only be used in cases where it can be proven that the five endorsed methods are inappropriate. When another method is adopted, taxpayers must provide written notification to the Director-General of the Revenue Department of the other method within the fiscal period in which it is to be used. Taxpayers are also required to prepare supporting documentation to justify the use of the other method, which should be ready for submission to the Revenue officers upon request.
The regulation on transfer pricing adjustments also provides brief guidelines for benchmarking whereby internal comparables (i.e. the same or similar transactions that a taxpayer has with unrelated parties) must be considered before external comparables (i.e. the same or similar transactions between independent third parties).
There remains some ambiguity around the interpretation of ‘relationship’ and ‘control’ under the definition of ‘related parties’ in the main provision. We expect to see more guidance on this interpretation in the pending subordinate regulation.
The Revenue Department will still be able to assess tax on transfer pricing irregularities for periods that started before 1 January 2019 as the statute of limitations in this case is five years. For those periods, the general income tax provisions, which require taxpayers to transact at market price, would be referred to. The transfer pricing documentation should then follow the requirements under the Departmental Instruction Paw. 113/2545 and be prepared and submitted upon request on a voluntary basis.
Thailand accepts bilateral advance pricing agreements (APAs) and limits the period covered to a maximum of five accounting periods. Only a company or partnership incorporated in Thailand that enters into intra-group transactions with affiliates who are residents of Thailand’s treaty partners may apply for an APA.
There are no thin capitalisation rules. However, for certain businesses or as part of the conditions for granting tax incentives, a certain debt-to-equity ratio may be required.
Controlled foreign companies (CFCs)
There are no tax provisions in respect of CFCs.