Update on the draft transfer-pricing law
In our tax article for January 2018, we noted that the Cabinet approved a draft transfer-pricing law on 3 January 2018. Recently, the government submitted the draft act amending the Revenue Code on transfer pricing (“the draft Act”) to the National Legislative Assembly for consideration. Most of the content of the draft Act remains the same as the version passed in a public hearing held by the Revenue Department last year.
Keywords: Mazars, Thailand, Tax, Transfer Pricing, Revenue Department, Draft Act
29 August 2018
The key points of the draft Act are as follows:
1. The Revenue Department’s tax auditors will be granted the authority to adjust corporate taxpayers’ revenue and expenses in relation to related-party transactions that were not at arm’s length.
2. To relieve the double tax resulting from such adjustments, taxpayers who are deemed to have overpaid taxes on related-party transactions as a result of a transfer-pricing assessment will have the right to file a tax refund claim within 3 years of the deadline for filing an annual corporate income tax return or 60 days of receiving notification of the tax assessment results, whichever is later.
3. The term “related party” is defined as: (a) a legal entity that either directly or indirectly holds 50% or more of the total shares of another legal entity; (b) a legal entity of which 50% or more of its total shares are held either directly or indirectly by a shareholder or partner that also directly or indirectly holds 50% or more of total shares of another legal entity; or (c) a legal entity that has a dependent relationship with another legal entity in terms of capital, management, or control, to the extent that one entity cannot be operated independently from the other.
4. Taxpayers who are deemed to be related parties under the definition and have annual turnover exceeding the threshold to be set in a ministerial regulation (which cannot be lower than 30 million baht) will be required to prepare and file a transfer-pricing disclosure form together with their annual corporate income tax return within 150 days of the last date of the accounting period. This form requires taxpayers to disclose relationships with related parties and the total value of related-party transactions during the accounting period. The transfer-pricing disclosure form must to be filed regardless of whether or not the related-party relationship exists throughout the entire accounting period or whether or not there are any related-party transactions during the accounting period.
5. The Revenue Department’s tax auditors will be granted the authority to request full transfer-pricing information and supporting documents from taxpayers within 5 years of the date that this transfer-pricing disclosure form is filed to use in their transfer-pricing analysis and adjustment. Taxpayers must submit such information and documents within 60 days of receiving notice to do so from the tax auditors.
6. Taxpayers who fail to submit the transfer-pricing disclosure form or transfer-pricing information and supporting documents by the due date, or that submit the form, documents, or evidence with incorrect or incomplete information without a reasonable excuse will be subject to a maximum fine of 200,000 baht.
The draft Act will be effective for the accounting periods beginning on or after 1 January 2019. Therefore, the deadline for the first transfer-pricing disclosure forms for taxpayers having an accounting period from 1 January through 31 December 2019 will be due on 30 May 2020.
After the draft Act is approved by the National Legislative Assembly, the following ancillary legislation is expected to be issued:
1. A ministerial regulation setting out the rules, procedures, and conditions for adjusting revenue and expenses incurred from related-party transactions which the Revenue Department’s tax auditors determined were not at arm’s length.
2. A ministerial regulation clarifying the definition of ‘related party’ in a case where a legal entity has a dependent relationship with another legal entity in terms of capital, management, or control, to the extent that one entity cannot be operated independently from the other.
3. A notification setting out details of the transfer-pricing disclosure form.
4. A ministerial regulation setting the threshold of annual turnover for an accounting period (which cannot be lower than 30 million baht) of a corporate taxpayer which is subject to transfer-pricing disclosure.