Adjustment of revenue and expenses in relation to related-party transactions

On 16 November 2020, Ministerial Regulation No. 369 issued by the Revenue Department was published in the Government Gazette. This regulation sets out the rules, procedures, and conditions for Revenue Department officials to adjust corporate taxpayers’ revenue and expenses in relation to related-party transactions that are not at arm’s length under Section 71 bis of the Revenue Code.

Keywords: Mazars, Thailand, Revenue Code, Income tax, Withholding tax, Corporate income tax, Adjustment of revenue and expenses

17 December 2020

A related-party company or legal partnership mentioned in this Ministerial Regulation is defined under paragraph 2 of Section 71 bis of the Revenue Code, and includes:

  • a legal entity that either directly or indirectly holds 50% or more of the total shares of another legal entity;
  • 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
  • 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.

The related-party company or legal partnership can have its revenue and expenses adjusted if it falls under the following conditions:

  • The related parties have commercial or financial transactions with each other;
  • Such transactions are different from what they would be if the related-party company or legal partnership operated independently; and
  • Such transactions result in the transfer of profits between them through one of the following mechanisms:
    • The price for the sale of goods or services, including terms or methods of payment for goods or services, are different when compared with those used by an independent company or legal partnership for the sale of goods or services of the same type or category and under the same circumstances.
    • Interest, financial services, or any other financial fees received or paid between them are different when compared with those received or paid by an independent company or legal partnership.
    • Other income or expenses that are received or paid between them are different when compared with those received or paid by an independent company or legal partnership.

This Ministerial Regulation defines “commercial or financial transactions” as any transaction, agreement, or contract in connection with the sale of goods or services, or for marketing, advertising, or any other commercial purposes, or in connection with borrowing, providing financial assistance, or other financial activities, whether in writing or not.

The revenue and expense of the related-party company and legal partnership shall be adjusted according to the following rules and procedures:

  • In the event that a related company or legal partnership makes transactions in the same manner as other companies or legal partnerships that operate independently on a regular basis, information about income or expenses from such transactions shall be used for determining the amount of income to be received and expenses to be paid.
  • Where a related-party company or legal partnership does not conduct transactions as set out in point 1, the same information on transactions between other companies or legal partnerships shall be used, regardless of whether the transaction is made in or outside Thailand, or is made by a company or legal partnership established under Thai or foreign law, for determining the amount of income to be received and expenditures to be paid.

Income to be received and expenses to be paid as adjusted by the Revenue Department shall be used in the computation of taxable income for corporate income tax under Section 65, for withholding tax under Section 70 and for profit remittance tax under Section 70 bis of the Revenue Code.