THAILAND’S new Transfer Pricing law, which enters into force for accounting periods starting on or after January 1 2019, may require entities with income not less than Bt200 million to prepare and submit information related to the related party transactions.
Section 71 Ter of the Revenue Code refers to two documents: 1 the report on relationship between companies and the value of related party transactions (referred to as ‘transfer pricing disclosure form’) to be submitted together with the annual corporate income tax return filing deadline, and 2 the documents or evidence showing information necessary for analysis of requirements of the related party transactions (referred to as ‘transfer pricing document’) to be submitted within 60 days after receiving the notice of request from the Thai Revenue Department (TRD).
The TRD is currently developing the transfer pricing disclosure form which is expected to be a short form to be completed and filed online. It is likely that the Bt200 million threshold should be assessed based on the amount of total revenue presented in the company’s statutory financial statements and also an entity may not be required to submit the transfer pricing disclosure form in a year when its total revenue is lower than Bt200 million. As you can expect, the purpose of the requirement for preparation and submission of the transfer pricing disclosure form is to provide the TRD with a summary of the entity’s related party transactions for an initial review and assessment of any risks that may arise from the transactions being concluded between the taxpayer and its related parties. With regard to the transfer pricing document, Section 71 Ter of the Revenue Code does not clearly mention the level of required information. Under BEPS Action 13, the OECD recommends a three-tiered approach to documentation that includes preparing a master file, a local file and country-by-country reports.
The master file contains standardised information relevant for the multinational enterprise group, while the local file provides additional details about the operations and transactions relevant to that jurisdiction and the economic analyses of the inter-company transactions.
Finally, the country-by-country reports (CbCR) contain summarised data by jurisdiction, including revenues, income, taxes, and indicators of economic activity. Based on the informal discussion with the tax officers, the transfer pricing document referred to under Section 71 Ter of the Revenue Code should cover the local file and the master files.
The master file should be prepared by the ultimate parent company whereby the local file is prepared by each entity which revenue falls within the threshold requirement. The CbCR which is also prepared by the ultimate parent company may be required under a separate law.
Apart from the purpose to prevent the shifting of profits through intercompany arrangements, the Transfer Pricing law aims to encourage taxpayers which have registered transactions with related parties to revisit their transfer price policies and the pricing being applied to such transactions so as to ensure that all related party transactions are conducted on an arm’s length basis.
Contributed by ABHISIT PINMANEEKUL, Partner, Transfer pricing service, KPMG Thailand