Prior to June 2017, Thailand did not have transfer pricing law. The Revenue Department employed their power to adjust pricing to be at market price based on the provision of Section 65 bis (4) of the Revenue Code. That means the Revenue Department is empowered to adjust the selling price or service fee or interest rate in the case of transfer of assets, provision of service or lending of money without remuneration, fee or interest, or with remuneration, fee or interest that is lower than the market price, made without reasonable ground in accordance with the market price on the date of asset transfer, provision of service or lending of money. Besides, the Revenue Department has issued its Order No. Por 113/2545 (“Por 113/2545” or the “Guideline”) which sets out the arm’s length principles in 2002. Certain traditional transfer pricing methods were also suggested in the Guideline to help businesses determine the most appropriate price. However, Por 113/2545 is not a law. As such, it is not used to enforce against companies to get transfer pricing documentation prepared and reporting forms filed.

Since June 2017, Thailand has become the member of the OECD’s Inclusive Framework on BEPS which means that Thailand had a commitment to implement minimum standards of BEPS Package which are:

• Action 5: Harmful tax practices;
• Action 6: Prevention of tax treaty abuse;
• Action 13: Country-by-Country Reporting; and
• Action 14: Mutual Agreement Procedure.

Adoption of transfer pricing rule is part of the commitment. Later in November 2018, the Thai government has approved specific transfer pricing law starting from the accounting period on or after 1 January 2019.

The Term “Related Party”

Broadly speaking, under Section 71 bis of the Revenue Code which has been enacted, the assessment officer has the power to adjust income and expenses for corporate income tax purposes where it is believed that a related party transaction is structured to shift profits to another entity or other jurisdictions. This is to broaden the power of the tax authority to deal with commercial terms and financial arrangement regardless of whether an agreement is made in writing.

The term “related party”, under paragraph 2 of Section 71 bis, is defined as company or partnership which are formed as one of the following:

1. a legal entity that either directly or indirectly holds 50% or more of the totals shares in another legal entity;
2. a legal entity of which 50% or more of its total shares are held either directly or indirectly by a shareholder or a partner that also directly or indirectly holds 50% or more of shares in another legal entity; or
3. a legal entity that has a dependent relationship with another legal entity in terms of capital, management, or control, to the extent that one entity cannot be operated independently from the other.

Taxpayers’ Obligations: Submission of Disclosure Form

In general, the transfer pricing law applies to all juristic persons in Thailand regardless of the size of business. However, the Revenue Department has set out the mechanism that any companies or juristic partnerships subject to the Revenue Code with the annual turnover of at least THB 200 million in a particular financial year are required to submit a disclosure form to the Revenue Department along with the filing of the annual corporate income tax return. This also applies to the case where such companies or juristic persons are not considered as related party transaction in the year. The failure of submission of the disclosure form will result in a fine up to THB 200,000.

Following the submission of the disclosure form, the TRD will have 5 years from the submission date to exercise their power to audit any business transactions or to request information for further analysis for tax purposes. Anyhow, within 5 years from the submission date, the transfer pricing documents must be prepared and kept for tax purposes.

Taxpayers’ Obligations: Country-by-Country Reporting

According to the Inclusive Framework on BEPS, Thailand has committed to launch its regulations on Country-by-Country Reporting (“CbCR”).

Recently, the Revenue Department has issued the Notification of the Director-General of the Revenue Department on Income Tax (No. 419) dated 12 January 2022 and the Notification of the Director-General of the Revenue Department on Income Tax (No. 408) dated 30 September 2021 whereby MNEs with consolidated annual revenue of at least THB 28,000 million in the financial year will be required to file a CbCR to the Revenue Department starting from the financial year commencing on or after 1 January 2021.

Transfer Pricing Methodology

According to the Notification of the Director-General of the Revenue Department on Income Tax (No. 400) dated 12 January 2021, it is noted that not only traditional transfer pricing methods, but the Revenue Department also accepts new transfer pricing methods, which include:

• the comparable uncontrolled price method (CUP);
• the resale price method;
• the cost-plus method;
• the transaction net margin method (TNMM); and
• the transactional profit split method (TPSM).

Interestingly, the Thai Revenue Department also is empowered to accept any other methods that the taxpayer could prove that it is more appropriate to determine the market price.

Nowadays, there are so many controversial issues as to whether any of the transfer pricing methods acceptable by Thai tax authority is most appropriate and whether the Thai tax authority has the ability to determine the arm's length price which relies much on commercial arrangements and market conditions. Having said this, the law allows the Thai tax authority to have discretion to consider each transaction on a case-by-case basis. Nonetheless, it is hoped that the standard of pricing determination will be more internationally acceptable.