Thailand Amends Law on Transfer Pricing
Approved by the National Legislative Assembly on 27th September 2018, Revenue Code amendments introducing transfer pricing provisions into income tax law came into effect for fiscal year 2019. The amendments introduce penalties for failing to comply with transfer pricing disclosure requirements and regulations.
Transfer pricing refers to the accounting practice of setting the price of goods and services that are exchanged between affiliate within a single corporate structure, including intangible assets and intellectual property, in order to realize tax savings. Adjusting the price of goods and services can have significant effects on a company’s tax liability.
To address issues related to the possible transfer of profits between affiliate firms within a holding company – and their effect on the Thai government’s ability to collect tax receivables – the new legislation introduces several provisions imposing requirements for the disclosure of transfer pricing. Failure to comply with the provisions of the law, which include disclosure of the occurrence of transfer pricing, will result in a fine not to exceed THB 200,000.[1]
The provisions highlighted in the Act are summarized below:
- For the first year of the enforcement of the Act, firms have a deadline of 180 days to submit documents detailing instances of transfer pricing as well as other information requested by the Revenue Department. In subsequent years, the deadline to submit the required documents is shortened to 60 days; however, this can be extended to 120 days if the 60-day deadline cannot be met for justifiable reasons.[2]
- Affiliated companies must prepare reports outlining intra-group transactions that have been made between them for each accounting period using the format provided by the Revenue Department. This is to be given to assessment officers alongside their tax return submissions.[3]
- If during the process of assessing a company’s transfer pricing it turns out that the company is entitled to a tax refund, it can claim the refund within 60 days of receiving a tax assessment letter or 3 years from the final day of the time limit given by law for submitting tax returns.[4]
- If a company has been found or suspected of committing misconduct with regard to transfer pricing, officers at the Revenue Department are entitled to reduce the company’s revenue and expenses to arm’s-length price. If by engaging in this misconduct the company finds itself in a tax shortfall, it will be subject to a secondary adjustment.[5]
- Failure to disclose instances of transfer pricing or submitting erroneous information will result in penalties not exceeding THB 200,000.[6]
It is worth noting that subordinate regulations are expected to be issued by the Ministry of Finance to specify transfer pricing more clearly, including a specific list of required documents for transfer pricing documentation as well as the criteria for exemptions from disclosure requirements.
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[1] Section 71, Act Amending the Thai Revenue Code (No. 47) B.E. 2561 (A.D. 2018) (available at https://library2.parliament.go.th/giventake/content_nla2557/law135-211161-46.pdf).
[2] Id.
[3] Id.
[4] Section 70, Act Amending the Thai Revenue Code (No. 47) B.E. 2561 (A.D. 2018) (available at https://library2.parliament.go.th/giventake/content_nla2557/law135-211161-46.pdf).
[5] Id.
[6] Section 35, Act Amending the Thai Revenue Code (No. 47) B.E. 2561 (A.D. 2018) (available at https://library2.parliament.go.th/giventake/content_nla2557/law135-211161-46.pdf).
