The draft of transfer pricing regulations was approved by the Thai cabinet in May 2015 and then passed to the National Council of State (Krisdika).  The draft  regulations have recently been approved by Krisdika and are now in the process of public consultation pursuant to the new constitution laws.  As the final step, the draft will be passed to National Legislative Assembly for enactment. 

 

The key points in the transfer pricing regulation, as it is currently drafted, are as follows: 

• Transfer pricing sections will be inserted as Section 71 bis and ter in the Revenue Code.
• The definition of a related party is consistent with Paw 113/2545, plus it has been expanded to include at least 50% direct and indirect capital shareholdings.
• An entity with related party transactions who has income exceeding the threshold will be required to submit a report outlining the nature/relationship and quantum of related party transactions within the annual tax return filing deadline and submit the transfer pricing documentation within 60 days (or the extended period of 120 days upon the receipt of notification from tax authority).
• An entity may request a tax refund within three years from the tax return submission date or within 60 days after the receipt of an adjustment notification from a tax officer.  
• An entity that fails to comply with Section 71 ter or submits incomplete or incorrect documentation without reasonable explanation will be subject to a fine of up to 200,000 Baht

 

In anticipation of the imminent enactment of the transfer pricing regulations are enforced, it is recommended that taxpayers with related party transactions: 

(i) conduct a transfer pricing health check to evaluate transfer pricing risks and opportunities and take actions to address these before the enforcement of these regulations; 

(ii) prepare the required transfer pricing documentation (including a local benchmarking study).The translation of public consultation in English is below.  

 

On 19 June 2017, the Thai Revenue Department (“TRD”) has issued an online public hearing with respect to the revised draft Transfer Pricing Act that will amend the Revenue Code. In this regards, TRD are open up to comments with respect to the revised Act up until 7 July 2017.

 

It is not uncommon for a taxpayer in Thailand to enter into a transaction with a related entity under different commercial and financial conditions from those that would apply to transactions between independent parties.  Given that related entities are able to enter into an agreement that is mutually controlled and not subject to the market mechanisms, it provides an opportunity to transfer profits between different jurisdictions in order to avoid or minimize overall tax.  The purpose of the revised draft Act is to amend the Revenue Code to prevent tax evasion from transfer pricing applied between related parties, and to provide standardized guidelines on how to determine a market price in order to be in line with international standards and achieve fairness in taxation.  The revised draft act will add new provisions (Section 35 ter, Section 71 ter, and Section 71 bis) to the Revenue Code. 

 

The key aspects of the revised draft Act are:

1. Draft Section 71 bis (1) 

If, upon examination, a tax officer determines that a taxpayer entered into a transaction with a related entity under different commercial and financial conditions from those that would apply to transactions between independent parties, tax officer has the power to amend assessable income and allowable deductions of the entity.  The tax officer will take into account a double taxation agreement that Thailand has entered into with another country in order to meet international standards.

 

2. Draft Section 71 bis (2)

The Revenue Code defines “Related Entity or Related Juristic Partnership” as follows:

I. An entity that holds at least 50% directly and indirectly of the total share capital of another entity.

II. Shareholder or partner who is shareholder or partner in another entity, either directly or indirectly, owning more than 50 percent of total capital shares, is shareholder or partner in another entity, either directly or indirectly, owning more than 50 percent of total capital shares or;

III. An entity related to another entity by way of capital, management, or having power to control, and where the entity cannot perform independently from that other entity, as regarded by the ministerial regulations.

 

3. Draft Section 71 bis (3)

The Revenue Code allow taxpayers that had their assessable income or allowable deductions adjusted by a tax officer pursuant to Section 71 bis (1) to claim a tax refund.  Taxpayers may file a request for a tax refund within three years from the tax return submission date or within 60 days after the receipt of an adjustment notification from a tax officer.  

 

4. Draft Section 71 ter (1)

The Revenue Code requires that entities with related party transactions, whose income is higher than minimum income, to be determined by Ministerial Regulation, prepare a report pertaining the relationship and amount of related party transactions for the fiscal year determined by the General Director and submit it to the authority together with submission list within the deadline as described in Section 69 which is the filing deadline for annual tax return within 150 days after from the closing date of accounting period. 

 

Draft Section 71 ter (2) 

The Revenue Code states that within five years from the submission date mentioned in (1), the TRD  may request entities with related party transactions whose income exceed the threshold, which is yet to be determined, to submit supporting documents or evidence necessary for an analysis of transfer pricing applied within 60 days from the date the notification is received.  At their discretion, the TRD may extend the deadline but not more than 120 days from the notification date.

 

5. Draft Section 35 ter

Entities that fail to comply with Section 71 ter or submit incomplete or incorrect documentation without reasonable explanation will be subject to a fine of up to 200,000 Baht. 

 

The deadline for this public hearing is 7 July 2017.