The Thai Revenue Department (“TRD”) has released its comments addressing the main issues and questions raised by the public stakeholders on the revised draft of the Transfer Pricing law under the process of public consultation held this year. (“Are you ready for upcoming transfer pricing regulations?”)

The process of public consultation on the revised draft of the Transfer Pricing law was conducted from 20 June to 7 July 2017 with a total of 49 stakeholders involved. Approximately 90 percent of the stakeholders agreed the Transfer Pricing law should create transparency, reduce base erosion and profit shifting among multinational enterprises and prevent double non-taxation.

The key highlights from the comments and additional clarifications provided by the TRD are summarized below:

• For the purpose of the draft Transfer Pricing law, the shareholding percentage is one of the criteria to determine whether two entities are “related entities or related juristic partnerships”. However, in order to determine whether certain entities are related entities or not, the TRD may also look if there is actual and substantial power of control between those entities as well as to eventual indirect ownerships. Additional guidance will be issued by the TRD on this point.

• The TRD clarified that the draft Transfer Pricing law also regulates transfer pricing secondary adjustments.
• Transfer pricing adjustments to the taxpayers’ assessable income and allowable deductions by the tax officers under the draft Section 71 bis will not impact the Value Added Tax (“VAT”) position of the taxpayer.
• Upon the amendment of the assessable income and allowable deductions of an entity in respect of the draft Section 71 bis automatic transfer pricing adjustments by the related counterparties are not allowed as this should be under the exclusive responsibility of the respective tax officers.

• The draft Transfer Pricing law provides additional tax refund claiming rights to the taxpayers. 
• Generally, the taxpayers should submit a request for tax refund within three years from the tax return submission date. Under the draft Transfer Pricing law, in case the original submission deadline has already expired but the taxpayer has been notified of a transfer pricing adjustment by a tax officer, the taxpayer may still be able to submit a request for tax refund within 60 days after the notification date.

• The Transfer Pricing Disclosure Form should include general information regarding related party transactions that the TRD expects taxpayers to have readily available. Thus, completion of the Transfer Pricing Disclosure Form should not give rise to significant compliance burdens for the taxpayers. The information provided in the Transfer Pricing Disclosure Form should allow the TRD to assess the risk of tax evasion through intercompany transactions and the use of transfer pricing methods.
• Certain thresholds (to be determined in relation to an entity’s total income) will be provided under Ministerial Regulations in order to exempt multinationals from the disclosure requirements. An accounting period for preparation and submission will also be determined by Ministerial Regulation.

• Transfer Pricing Documentation should generally be prepared prior to or at the time of entering into related party transactions in order to demonstrate that the transfer pricing policy is applied on an uncontrolled transactions basis.   
• Thus, as the documents and evidence should be readily available, the TRD views that the Transfer Pricing documentation submission period of 60 days from the date that the taxpayer receives the notification is appropriate to compile the documents and evidence in the form of the regulated Transfer Pricing documentation.
• Additional guidance regarding the preparation of the Transfer Pricing Documentation and related evidences will be provided under Notification of General Director of the TRD.

• Failure to report transactions or provide complete and accurate transfer pricing information and documentation will give rise to a fine of up to 200,000 Baht, the amount depending on the nature of the offences and circumstances and to be assessed on a case by case basis. Such fines should have a statute of limitations of one year.
• The TRD may reduce or exempt the taxpayers from such penalty under a transfer pricing adjustment procedure, provided the taxpayer prepares and submits the required information/ documentation as requested and in due time.
  

For the next steps, the TRD should now submit the result of the process of public consultation on the draft Transfer Pricing law to the Cabinet of Thailand for consideration. KPMG is of the opinion that, as the majority of the involved stakeholders agreed with the proposed draft of the law and considering that the TRD has provided sufficient clarifications on the raised issues, the probability of the Cabinet of Thailand approving the draft Transfer Pricing law at this stage should be considered high leading to the enactment of the law in the near future.

More than ever, multinationals investing in Thailand and Thai corporations investing outbound should be more prudent about their transfer pricing arrangements and prepare for the reform that will aim to focus on where the economic activities are undertaken and values created. The companies should identify any eventual non-arm’s length transfer pricing methods or prices of related party transactions and aim for the introduction of compliance requirements for transfer pricing disclosure and documentation as part of its transfer pricing policy in line with the draft Transfer Pricing law.

Meeting the future mandatory requirements will help you manage risk within the current environment of detailed transfer pricing regulations, strict documentation requirements, sophisticated audit practices, and significant penalties for non-compliance. Pro-active preparation of robust transfer pricing analysis and documentation will be essential to negotiate with the tax authorities on future proposed adjustments and reduced penalties.

KPMG professionals in the Transfer Pricing group advise multinational corporations investing inbound and Thai corporations investing outbound on transfer pricing solutions to their value chain issues. Our Transfer Pricing team is prepared to provide risk assessment reports in line with your global transfer pricing strategy to enable you to navigate through the complex and fast-changing transfer pricing environment resulting from the new regulatory changes in Thailand as well as to support you preparing transfer pricing documentation under the new requirements.