Update on the draft transfer pricing law

In our tax update for August 2018, we noted that the government submitted a draft act amending the Revenue Code in regard to transfer pricing to the National Legislative Assembly for consideration. The National Legislative Assembly approved the draft transfer-pricing law on 27 September 2018, and the final law is expected to be enacted shortly.

Keywords: Mazars, Thailand, Tax, Transfer Pricing, Revenue Code, Revenue Department, CBC

12 November 2018

We set below key aspects of the new law based on information currently available:

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 request for a tax refund 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 which have annual turnover exceeding the threshold (i.e. 200 million baht) will be required to prepare and file a transfer-pricing disclosure form together with their annual corporate income tax return. This form requires taxpayers to disclose relationships with related parties and the total value of related-party transactions during the accounting period.

5. In addition, the following three-tiered transfer-pricing documentation will also be required:

a) a country-by-country (CBC) report which provides all financial information and activities of affiliated companies by country collected by the parent company;

b) a master file which provides an overview of the business operations of taxpayers and related parties as well as the groups transfer pricing policies; and

c) a local file which provides details of taxpayers’ business in Thailand and transactions with related parties.

The Revenue Department will issue Ministerial Regulations to determine the format and details of the above  documentation.

6. The Revenue Department’s tax auditors will be granted the authority to request transfer-pricing documentation from taxpayers within 5 years after the submission of the report.

7. The local file and master file will be due 180 days after receiving a notification from the Thai Revenue Department for the first time. For subsequent notices, the files will be due within 60 days, with a possible extension to 120 days upon request. The date on which the CBC report must be filed is still not clear.

8. Taxpayers that fail to submit the transfer-pricing disclosure form or transfer-pricing documentation by the due date, or that submit the form or documentation with incorrect or incomplete information, will be subject to a maximum fine of THB 200,000.

The law 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 29 May 2020.

Taxpayers with total revenue less than the threshold of 200 million baht are exempted from the requirement to prepare and file a transfer-pricing disclosure form and transfer-pricing documentation. The Revenue Department may issue the Ministerial Regulations specifying further exemptions and revenue threshold for the CBC report and the master file.