Transfer Pricing Regulations in Thailand

Introduction

In today’s globalized business landscape, multinational enterprises (MNEs) operating in Thailand must ensure they have a solid understanding of the current tax regulations, particularly in relation to Thai transfer pricing regulations. Thailand’s Revenue Department continues to refine and enforce transfer pricing laws, meaning that companies who make intercompany transactions must ensure compliance. 

This blog post will explore transfer pricing regulations in Thailand, and discuss the recent developments, compliance requirements, and best practices for businesses of all sizes.

What is Transfer Pricing?

The concept of transfer pricing focuses on the pricing of goods, services, and intangible assets exchanged between related entities within a corporate group. While these transactions are a normal part of business operations, they can potentially be used to shift profits and minimize tax liabilities. 

To combat such practices and ensure fair taxation, the Thai government has implemented transfer pricing regulations aligned with international standards set by the Organisation for Economic Co-operation and Development (OECD).

What are the Current Transfer Pricing Regulations in Thailand?

Thailand’s transfer pricing regulations have evolved significantly since their introduction in the early 2000s. The first transfer pricing regulations focused on arm’s length pricing, however, they lacked solid enforcement mechanisms. Since then, Thailand has aligned its transfer pricing rules with OECD standards. 

Thailand has also announced plans to introduce improved disclosure forms and the adoption of the OECD BEPS Action Plan measures, such as country-by-country reporting.

What are the Key Concepts in Thai Transfer Pricing Regulations?

Thailand’s transfer pricing rules consist of the following.

The Arm’s Length Principle

The main consideration of Thailand’s transfer pricing regulations is the arm’s length principle. The arm’s length principle is where transactions between related entities should be priced as if they were conducted between independent parties under similar circumstances. 

Related Party Definitions

Understanding who qualifies as a related party is important for identifying when a transaction is subject to transfer pricing requirements. Related parties in Thailand include:

• Entities with direct or indirect shareholding relationships
• Companies under common control i.e. transactions between entities that are ultimately controlled by the same parent, either directly or indirectly, before and after the transaction.
• Entities with management influence over one another
• Other relationships as defined by ministerial regulations

Covered Transactions

Transfer pricing regulations in Thailand apply to a wide range of intercompany transactions, including :

• Sales and purchases of goods
• Prestations de services
• Licensing of intellectual property
• Financial transactions (e.g., loans, guarantees)
• Cost-sharing arrangements

Materiality Thresholds

While all related party transactions are subject to transfer pricing rules, Thailand has introduced materiality thresholds to make sure that any large scale transactions are compliant with Thai law. 

This means that businesses with annual revenue exceeding a certain threshold (THB 200 million) may be required to comply with these rules. Smaller companies may be exempt from mandatory transfer pricing reporting.

Transfer Pricing Methods

Thailand uses several transfer pricing methods that are aligned with OECD guidelines for determining arm’s length prices. The method used ultimately depends on the nature of the transaction and the availability of comparable data. Commonly used transfer pricing methods include:

• Profit Split Method (PSM)

• Comparable Uncontrolled Price (CUP) method

• Resale Price Method (RPM)

• Cost Plus Method (CPM)

• Transactional Net Margin Method (TNMM)

What are the Documentation Requirements and Disclosure Obligations?

Compliance with Thailand’s transfer pricing regulations relies upon the correct preparation of transfer pricing documentation and submitting it accordingly.

Transfer Pricing Documentation

Thai law requires the preparation of transfer pricing documentation to support compliance with the arm’s length principle for intercompany transactions. Required transfer pricing documentation includes:

1. A functional analysis describing the roles, assets, and risks of each entity involved in the transaction
2. An economic analysis justifying the selected transfer pricing method and demonstrating its application
3. Financial information and comparability analysis supporting the arm’s length nature of the transaction

Please note that not all companies are required to submit this documentation, however, they must still prepare everything accordingly and it must be available upon request by the Thai Revenue Department.

Transfer Pricing Disclosure Form

Companies with annual revenue exceeding 200 million baht are required to file a Transfer-Pricing Disclosure Form along with their annual corporate income tax return. This form provides details of any related party transactions and acts as a risk assessment tool for the tax authorities.

Key information to be disclosed includes:

• The nature and value of intercompany transactions
• The transfer-pricing methods applied
• Whether transfer-pricing documentation has been prepared

Country-by-Country Reporting

Following OECD recommendations, Thailand has introduced country-by-country reporting requirements for large multinational groups. While the specific threshold and implementation details are still being finalized, these reports will provide tax authorities with a global picture of an MNE’s operations and profit allocation.

What are the Deadlines and Submission Requirements?

In order to ensure any transactions that may be subject to the transfer pricing requirements are compliant with Thailand’s requirements, the above mentioned documents must be submitted by the following deadlines:

• The Transfer Pricing Disclosure Form must be filed within 150 days of the end of the accounting period
• Transfer pricing documentation, if requested, must be provided within 60-180 days, depending on the circumstances

Companies must retain transfer pricing documentation and supporting materials for at least five years from the date of submission or the date the document was prepared, whichever is later.

Read Also : Corporate Income Tax Returns, Filing Deadline for 2025

What are the Methods for Calculating Transfer Pricing?

Selecting and applying an appropriate transfer pricing methodology is an important step in demonstrating compliance with the arm’s length principle. Thai regulations closely follow the OECD guidelines which recognize several methods for determining arm’s length prices. 

Which method used to calculate transfer pricing depends on the specific facts and circumstances of the transaction.

Comparable Uncontrolled Price (CUP) Method

Le CUP method compares the price charged in a controlled transaction to the price charged in a comparable uncontrolled transaction under similar circumstances. This method is often preferred when reliable comparable transactions can be identified, particularly for commodity transactions or standardized products.

For example, a Thai subsidiary sells electronic components to its parent company. If the same components are sold to unrelated distributors at similar volumes, these transactions could serve as comparables under the CUP method.

Resale Price Method (RPM)

RPM is a commonly used method for distribution activities. RPM starts with the price at which a product purchased from a related party is resold to an independent entity. This price is then reduced by an appropriate gross margin (the “resale price margin”) to determine an arm’s length price for the original controlled transaction.

For example, if a Thai distributor purchases goods from its foreign parent and resells them to unrelated customers. The RPM would compare the distributor’s gross margin on related party purchases to the margins earned by independent distributors performing similar functions.

Cost Plus Method (CPM)

Le Cost Plus Method is applied to manufacturing operations or service providers. CPM takes the costs incurred by the supplier in a controlled transaction and adds an appropriate cost plus mark-up to arrive at an arm’s length price.

For example, if a Thai manufacturing subsidiary produces goods for its parent company. The CPM would compare the mark-up applied to the Thai entity’s costs to the mark-ups earned by independent manufacturers with similar functions and risks.

Transactional Net Margin Method (TNMM)

TNMM examines the net profit margin relative to an appropriate base (e.g., costs, sales, assets) that a taxpayer realizes from a controlled transaction. This method is normally used when more direct methods are not reliable due to differences in products or functions.

For example, if a Thai company provides IT services to related parties. TNMM could compare the company’s net profit margin on these services to the margins earned by independent IT service providers.

Profit Split Method (PSM)

The Profit Split Method is used where transactions are highly integrated or when both parties make unique and valuable contributions. PSM allocates the combined profit or loss from the controlled transactions based on the relative value of each party’s contribution.

For example, if a Thai entity collaborates with its foreign parent on developing and marketing a new pharmaceutical product. PSM could be used to allocate the resulting profits based on each entity’s contributions to development, manufacturing, and marketing.

How to Choose the Most Appropriate Method

When choosing a transfer pricing method, companies should consider:

1. The nature of the controlled transaction
2. The availability of reliable comparable data
3. The degree of comparability between controlled and uncontrolled transactions
4. The existence of unique and valuable contributions by each party

It’s important to note that while the Thai Revenue Department does not prescribe a strict preference in relation to which method is used, taxpayers should be prepared to justify their choice of method and demonstrate why alternative methods were not selected.

Benchmarking Studies and Comparability Analysis

An important aspect of transfer pricing compliance in Thailand is the preparation of benchmarking studies and comparability analyses. These studies are used to support the arm’s length nature of intercompany transactions by comparing them to similar transactions or financial results of independent companies.

Benchmarking Studies

Benchmarking studies provide support for the pricing of controlled transactions. They help demonstrate to tax authorities that the company’s transfer prices are consistent with market practices and do not artificially shift profits between jurisdictions.

Steps in Conducting a Benchmarking Study

1. Define the Transaction: Clearly identify the controlled transaction(s) being analyzed, including the functions performed, assets used, and risks assumed by each party.
2. Select the Tested Party: Typically, this is the less complex entity in the transaction, for which reliable data can be obtained and analyzed.
3. Choose the Transfer Pricing Method: Based on the nature of the transaction and available data, select the most appropriate method.
4. Identify Potential Comparables: Search for independent companies or transactions that are sufficiently similar to the tested party or controlled transaction.
5. Perform Comparability Adjustments: Make necessary adjustments to account for material differences between the controlled transaction and the comparables.
6. Determine the Arm’s Length Range: Calculate the range of results from the comparable companies or transactions, often using statistical measures like the interquartile range.
7. Apply the Results: Compare the results of the controlled transaction to the arm’s length range and make any necessary adjustments.

Comparability Factors

When assessing potential comparables, the following should be considered:

• Functions performed, assets used, and risks assumed
• Contractual terms of the transaction
• Economic circumstances (e.g., market size, level of competition)
• Business strategies
• Product or service characteristics

Documentation of Benchmarking Analysis

The benchmarking process requires the following information to be included:

• Statistical analysis of the final set of comparables

• Search criteria and screening process for comparables

• Reasons for rejecting potential comparables

• Detailed explanation of any comparability adjustments

Transfer Pricing Audits and Dispute Resolution

As the Thai Revenue Department continues to develop its policies relating to transfer pricing, the requirements for companies to undertake audits and potential disputes has increased. 

The Transfer Pricing Audit Process

Transfer pricing audits in Thailand will include the following:

1. Risk Assessment: The Revenue Department uses various factors, including the Transfer Pricing Disclosure Form, to identify high-risk taxpayers for audit.
2. Information Request: Selected taxpayers receive a formal request for transfer pricing documentation and additional information.
3. Document Review: Tax officials analyze the provided documentation and may request clarifications or additional data.
4. On-Site Examination: In some cases, auditors may conduct on-site visits to gather further information and interview key personnel.
5. Proposed Adjustments: If discrepancies are found, the Revenue Department proposes transfer pricing adjustments.
6. Negotiation: The taxpayer has the opportunity to discuss and negotiate the proposed adjustments with the tax authorities.
7. Final Assessment: The Revenue Department issues a final assessment, including any agreed-upon adjustments and penalties.

Common Reasons for an Audit

Reasons that may increase the likelihood of a transfer pricing audit include:

• Consistent losses or low profitability compared to industry norms
• Significant fluctuations in profitability from year to year
• Large volumes of related party transactions
• Transactions with low-tax jurisdictions
• Restructurings or changes in business models

Dispute Resolution Mechanisms

If a company disagrees with the outcome of a transfer pricing audit, several dispute resolution options are available:

1. Administrative Appeals: Taxpayers can file an appeal with the Tax Appeal Committee within 30 days of receiving the assessment notice.
2. Litigation: If the administrative appeal is unsuccessful, the case can be taken to the Tax Court and potentially to higher courts.
3. Mutual Agreement Procedure (MAP): For cross-border disputes involving treaty partners, taxpayers can request competent authorities to resolve the issue through MAP.
4. Advance Pricing Agreements (APAs): Advance Pricing Agreements can proactively prevent disputes by agreeing on transfer pricing methodologies with tax authorities in advance.

Penalties and Interest

Non-compliance with transfer pricing regulations can result in significant penalties:

• Failure to submit the Transfer Pricing Disclosure Form or providing incorrect information: Up to 200,000 baht
• Failure to provide transfer pricing documentation upon request: Up to 200,000 baht
• Transfer pricing adjustments: Additional tax, plus penalties of up to 100% of the additional tax and interest at 1.5% per month

Statute of Limitations

The statute of limitations for transfer pricing assessments is five years from the due date of the tax return. However, this can be extended to seven years in cases of tax evasion or fraud.

Read Also : How to Choose Your Accounting Firm in Thailand

Nos réflexions

Transfer pricing becomes increasingly important as your company grows, especially if it operates as a branch or subsidiary within a larger corporate group. In relevant cases, your Thai accounting may need to be consolidated at the holding level, requiring close collaboration with foreign accountants who may review and challenge the work.

In order to ensure the accounting needs flow smoothly between your Thai entity and the holding company, your accountant must understand the consolidation processes and transfer pricing regulations.