Thailand: Determining related parties when same group of shareholders involved
New template and explanation of rules regarding the transfer pricing disclosure form for accounting year 2021
New template and explanation of the transfer pricing disclosure form
The Thai Revenue Department in March 2022 issued a new template and explanation of rules regarding the transfer pricing disclosure form for accounting year 2021.
One of the new explanations regarding the transfer pricing disclosure form is intended to clarify the definition of “related party.” The determination of related party is still based on the definition from Clause 2 (1) and (2) of Section 71 bis of the Thai Revenue Code. The definition from Clause 2 (3) of Section 71 bis has yet not been enforced.
Regarding the definition of related party under Clause 2 (1) and (2) of Section 71 bis, the Thai Revenue Department provided examples of corporate structure in the explanation document. One of the examples is illustrated by the following diagram.
Question: Are C Company Ltd. and D Company Ltd. related-party companies?
Answer: C Company Ltd. and D Company Ltd. are related-party companies according to Section 71 bis Clause 2 (2) because C Company Ltd. has the same shareholders as D Company Ltd. In other words, A Company and B Company are shareholders of both companies and directly hold 55% of C Company Ltd. shares combined, and A Company and B Company directly hold 90% of D Company Ltd. shares combined.
(Source: Unofficial translation of example 12 of the explanatory note).
Tax professionals have observed it is important to note that the same concept ought to apply for individual shareholders. If the same group of shareholders, combined, holds at least 50% of total shares of C Company Ltd. and D Company Ltd., both parties are related parties according to this example. In this situation, C Company Ltd. would be required to prepare the transfer pricing disclosure form and report D Company Ltd. as its related party.
Accordingly, companies need to consider carefully reviewing their lists of related parties—especially if the company is a family-owned business. Management also needs to consider holding discussions with shareholders to obtain a full picture of all entities whose shares are held by them and then evaluate whether the criteria of related parties as per Section 71 bis Clause 2 (2) are met.
Read a March 2022 report prepared by the KPMG member firm in Thailand
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