Thailand: New requirements for transfer pricing and Local file documentation

The Director-General of the Thai Revenue Department issued guidance—Notification No. 407 (30 September 2021)—regarding transfer pricing documentation.

Specifically, the guidance addresses the transfer pricing requirements for:

• The information and documentation for the Local file
• An exemption from the benchmarking study requirement

These new measures are effective for all accounting periods beginning on or after 1 January 2021.  

The guidance provides the information and documents required when preparing a Local file are as follows: 

• Business model, management structure; local organization chart with headcount numbers; value chain, key suppliers, customers and competitors; business strategy and economic circumstances
• Relationship structure including shareholding information
• An explanation of business restructuring between related parties and its effects
• An explanation of intangible assets received from or transferred to related parties and their effects
• The nature and amounts of controlled transactions with counterparties and countries
• An explanation of and transfer pricing policy for each controlled transaction with assumptions used in setting prices (unless such controlled transactions are insignificant)
• Agreements relevant to those controlled transactions with a summary of key information, conditions, and prices stated in agreements
• Functions, assets, and risks analysis
• Financial information used in determining prices
• The transfer pricing method applied for each transaction with reasons for selecting (or not selecting) a method and an indication of counterparties to such controlled transactions for transfer pricing testing purposes
• An explanation of uncontrolled comparable transactions or independent comparable companies with financial indicators, independent compensation ranges, search methodologies, and sources of information (“benchmarking study”)
• Any other necessary documents or evidence not listed above but requested by assessment officers with approval from the Director-General

The Local file, along with the associated information and documents listed above, must be prepared in the Thai language. The submission of a Local file is considered complete only if a taxpayer receives a document receipt number or any other evidence of receipt from the tax agency.

The exemption from the benchmarking study may be available if the taxpayer:

• Has income from business or a related business in the accounting period not exceeding THB 500 million
• Has no controlled transactions with related parties paying a different corporate income tax rate from the taxpayer
• Has no controlled transactions with overseas related parties
• Has no loss carryforward used in the accounting period, and related parties in controlled transactions have no similar loss

The benchmarking study exemption may be available if the taxpayer has requested an advance pricing agreement or any obligations under an income tax treaty with concluded agreements from government bodies during the agreed periods.

Taxpayers need to consider beginning the process to prepare their transfer pricing analyses and documentation.

The list of information or documents required under the guidance for preparing a Local file generally aligns with the requirements under Action 13 of the OECD’s base erosion and profit shifting (BEPS) project (that is, the rules regarding transfer pricing documentation and country-by-country reporting). Note that analyses of transfer pricing policies and benchmarking studies are required for the overall business, as well as for each controlled transaction. In addition, if taxpayers want to qualify for the benchmarking study exemption, the burden of proof rests with them, and the taxpayers would need to disclose their related counterparties’ information in order to demonstrate that they meet the criteria for the exemption.

If taxpayers have prepared a Local file on the overall business, they may need to consider conducting deeper analyses of each type of controlled transaction. This new guidance may provide an opportunity for taxpayers to revisit their transfer pricing policies, as well as to re-evaluate in detail the arm’s length pricing for important controlled transactions.

Read an October 2021 report prepared by the KPMG member firm in Thailand