Thailand’s Transfer Pricing Law

Prior to June 2017, Thailand did not have a transfer pricing law. The Revenue Department employed their power to adjust pricing to the market based on the provision of Section 65 bis (4) of the Revenue Code. The Revenue Department was 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.

The Revenue Department has issued in 2002 its Order No Por 113/2545 (Por 113/2545 or the Guideline) which sets out the arm's length principles. 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. In other words, it is merely voluntary for taxpayers to comply with the Guideline and not many could follow it anyway, due to the sensitivity of the information to be provided and a lack of databases to be used.

In June 2017, Thailand became a member of the OECD's Inclusive Framework on BEPS, which means that Thailand had a commitment to implement minimum standards of the BEPS Package, including:

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

Broadly speaking, under Section 71 bis of the Revenue Code, 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 when dealing with commercial terms and financial arrangement, regardless of whether an agreement is made in writing.

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

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 that any companies or juristic partnerships subject to the Revenue Code with an annual turnover of at least THB200 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 in cases where such companies or juristic persons are not considered a related party transaction in the same year. Failure to submit a disclosure form will result in a fine of up to THB200,000.

Following the submission of the disclosure form, the Revenue Department will have five years from its submission date to exercise their power to audit any business transactions or to request information for further analysis. In the same five-year period, the transfer pricing documents must be kept for tax purposes.

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 multinational enterprises with a consolidated annual revenue of at least THB28,000 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.

According to the Notification of the Director-General of the Revenue Department on Income Tax (No 400), dated 12 January 2021, both traditional and new transfer pricing methods have been accepted by the Revenue Department, which include:

Interestingly, the Thai Revenue Department also is empowered to accept any other methods that the taxpayer can prove are more appropriate for determining the market price.

Nowadays, there are so many controversial issues as to whether the transfer pricing methods accepted by the Thai tax authority are 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 the 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.

As part of the BEPS action plans, the Revenue Department will have to contribute to a system for the automatic exchange of information. Each country will have to report key information to the common reporting system, which will allow the countries to get a global picture of the flow of money and profits.

In Thailand, the Revenue Department will continue in its efforts to expand the taxpayer base, as the number of taxpayers compared to the total number of income earners is currently relatively low in Thailand.
Additionally, the prospect of a global minimum tax rate of 15% percent, which has been discussed by the OECD, may also have significant implications on the tax environment in Thailand and beyond.