By Andrew Jackomos, Senior Partner and Bhrigu Dhingra, Transfer Pricing Manager BDO Advisory Limited
On 21 November 2018, Revenue Code Amendment Act (No. 47) B.E. 2561 (2018) was gazetted, introducing legislative provisions to codify transfer pricing regulatory regime.
Broadly and among other matters, the Amendment:
1. Codifies transfer pricing rules and relief;
2. Introduces mandatory transfer pricing documentation requirements;
3. Mandates filing of transfer pricing disclosure form by certain taxpayers;
4. Impart specific powers to Assessment Officers to impose transfer pricing adjustments;
5. Institutes specific penalty regime for non-compliance
Transfer pricing documentation rules, disclosure requirements and penalty regime
Background The Thai Revenue Code already had express provisions in Section 65 bis (4) requiring all taxpayers to follow market driven prices while undertaking any transaction. The newly enacted transfer pricing legislation codifies the arm’s length principle into the Revenue Code and impart specific powers to Assessment Officers to impose transfer pricing adjustments on either income or expense arising from
non-arm’s length transactions. The Amendment further defines relations where two companies or juristic partnerships would be considered related for transfer pricing purpose.
What is required?
All taxpayers who enter into related party transactions are required to ensure that the transactions or arrangements are entered into on an arm’s length basis. To substantiate their positions, taxpayers are required to be prepare a transfer pricing documentation establishing the arm’s length nature of their related party transactions. Such documentation would be required to be reproduced before the Assessment Officer when requested for during an audit.
In addition, the legislation mandates for certain taxpayers who breach the specified revenue threshold (to be specified later through a Ministerial Regulation but would not be less than Baht 200Mn) to prepare a transfer pricing disclosure form and submit the same with the Revenue Department along with their corporate tax return.
What is the penalty for non-compliance?
The legislation empowers an Assessment Officer to adjust the income or expenses of companies or registered partnerships to the amount of income to be received or expenditure to be paid as if they were independent parties for the calculation of net taxable profit or assessable income for tax purposes. Furthermore, non-submission of the required transfer pricing disclosure form within the prescribed period or provision of incorrect information without justifiable reasons may lead to the imposition of
a penalty not exceeding Baht 200,000.
When does the new law take effect?
The new regulations will apply for accounting periods starting on or after 1 January 2019.
With the law now in place, the Revenue Department is expected to propose secondary legislations to the Cabinet of Thailand, which is expected to cover matters such as comparability analysis, determination of arm’s length range, consideration of condition for special transactions, etc.
Additionally, Thailand as a member of Organization for Economic Cooperation and Development (“OECD”) Inclusive Framework on Base Erosion and Profit and Shifting (“BEPS”) has committed to implement the four minimum standards of the BEPS package which includes application of Action Plan 13 which mandates a three-tiered transfer pricing documentation [Country-by-Country Report (“CbCR”), Master File and Local File]. With the transfer pricing law now in place, CbCR and Master File regulations are also expected to be implemented soon.
Impact on Multinational Companies operating in Thailand
With the introduction of enhanced transfer pricing rules by the Thai government along with the rapid introduction of new transfer pricing regulations at a global level from the OECD, the possibility of a substantial impact on current and future transfer pricing structures for all sizes of business cannot be ruled out. Taxpayers are thus recommended to undertake a thorough analysis of their related party arrangements to identify any potential risk areas and consider remedial measures wherever required.