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12.4.1. Main Rules

The transfer pricing rules in Thailand are governed by various provisions of the Tax Code (such as Secs. 65 bis (4) and (7), 65 ter (13), (14), (15) and (19), 70 ter, and 79 (3) and related guidelines and instructions issued thereafter. The guidelines issued in 2002 on the “determination of market prices for multinational enterprises” (Departmental Instruction No. Paw. 113/2545) serve as guidance to taxpayers and tax officials during transfer pricing audits. Additionally, guidelines on the procedures for bilateral APAs were issued in 2010.

Effective 1 January 2019, new transfer pricing provisions were introduced in the Tax Code that includes an annual transfer pricing disclosure requirement, a transfer pricing documentation preparation requirement, a statutory definition of related parties, penalties, and tax authorities’ powers.

The transfer pricing rules apply the arm’s length principle as the basis for determining transfer prices between related entities engaged in domestic or cross-border transactions. Under the new laws, the tax authorities are empowered to make adjustments in the reported income or deductions allowed if they consider that a related-party transaction is not at arm's length. From the accounting period beginning on or after 1 January 2021, in case adjustments are made in relation to the income or expenditure of a party in a controlled transaction, then the tax authorities can make a corresponding adjustment to the income or expenditure of the other party according to applicable tax treaties.

Definition of Related Parties

According to the statutory definition, persons/entities are considered as related parties where:

  • An entity directly or indirectly holds at least 50% of the total share capital of another entity;
  • A common shareholder or partner directly or indirectly holds at least 50% of the capital in two (or more) entities; and
  • Entities are otherwise related by capital or management, or where one controls the other.

Applicable Transfer Pricing Methods

The following transfer pricing methods apply to transactions between related parties:

  • Comparable uncontrolled price (CUP) method;
  • Resale price method;
  • Cost-plus method;
  • Profit split method; and
  • Transactional net margin method.

Initially,  Departmental Instruction No. Paw. 113/2545 recommended the use of the traditional transaction methods and suggested that profit-based methods (and “any other internationally accepted method”) should be resorted to only if the traditional methods cannot be applied.

From the accounting period beginning on or after 1 January 2021, however, the hierarchy of methods has been rescinded and the arm’s length price for controlled transactions can be determined by any of the above transfer pricing methods as per the notification of the Director-General of Revenue Department No. 400. Concurrently, resort to  alternate methods has been made possible only where none of the standard transfer pricing methods is appropriate and only after notifying the tax authorities and submitting the justification for the use of such alternate method. The appropriate method can be selected based on the following factors:

  • Strengths and weaknesses of the recognized method;
  • Appropriateness of the method considered in regard to the nature of the controlled transaction, determined on the basis of functions performed, assets used, and risk assumed (functional analysis) by each party under the controlled transaction;
  • Availability of reliable information to apply the selected transfer pricing method; and
  • Degree of comparability between controlled and uncontrolled transactions, including the reliability of comparability adjustments.

Use and Availability of Comparables

There is no statutory obligation to use only local comparables. However, where no local comparables are used, the tax auditors will often conduct their own search for local comparables and challenge the results provided by the taxpayer if different from their findings.

There is no statutory requirement to use a specific database. The revenue department is reported to be using Business Online, a local database.

An uncontrolled transaction will be regarded as comparable to the related-party transaction if:

  • There is no difference between the uncontrolled transaction and the related-party transaction, which has a material impact on the financial indicator used for the appropriate transfer pricing method considered; or
  • There is a difference between the uncontrolled transaction and the related-party transaction, which has a material impact on the financial indicator used, but reliable adjustments can be made to eliminate such differences.

The comparability analysis is required to be undertaken   considering relevant factors of the arrangement, which include:

  • Contractual terms of the transaction;
  • Functions performed, assets used, and risk assumed;
  • Characteristics of property transferred or services rendered;
  • Economic circumstances; and
  • Business strategies.

Thailand published Ministerial Regulation No. 369 of 6 November 2020, which sets out the rules to be followed by the tax authority while evaluating whether transactions between related parties have not been conducted at arm's length, leading to profit-shifting. This includes cases where:

  • The price and terms for the sale of goods or services is different from what would be agreed to by independent parties for similar goods or services in similar circumstances;
  • The interest on financing or other financial fees received or paid is different from what independent parties would agree to receive or pay; or
  • Other income or expenditure received or paid is different from what independent parties would agree to receive or pay.

For assessment of transactions, the tax authorities can use internal comparables of the company based on the same or similar transactions with independent parties. If no such internal comparables exist, external comparables based on similar transactions may be used, including transactions in or outside of Thailand involving Thai resident or non-resident companies.