On September 30, 2021, Thailand’s Revenue Department released a notification prescribing country-by-country (CBC) transfer pricing reporting requirements for multinational enterprise (MNE) groups that do business in Thailand.
The Notification of the Director-General of the Revenue Department Re: Income Tax (No. 408) applies to accounting periods beginning on or after January 1, 2021, with the CBC report submitted at the same time as the annual corporate income tax (P.N.D. 50) filing (i.e., within 150 days of the end of the accounting period). For example, if the accounting period ends on December 31, 2021, the CBC report must be filed by May 30, 2022.
The CBC report functions as part of a three-tier structure, together with a global master file and a local file, as recommended by the OECD’s Base Erosion and Profit Sharing (BEPS) Action 13 report (Transfer Pricing Documentation and Country-by-Country Reporting). The CBC reporting requirement targets large MNEs, with the aim of encouraging international tax transparency, improving tax authorities’ access to information on MNEs’ global allocation of income and taxes paid, and helping governments to assess high-level transfer pricing risks and conduct economic and statistical analysis.
The CBC reporting requirement will allow Thailand to exchange tax and financial information on an automatic basis with other signatories of the Multilateral Convention on Mutual Administrative Assistance on Tax Matters. This goes in tandem with the recently passed Act Amending the Revenue Code (No. 54) B.E. 2564 (2021), which empowers the director-general of the Revenue Department to exchange information with competent authorities in other jurisdictions.
Entities Required to Submit CBC Reports
The CBC report notification applies to MNE groups that do business in Thailand and at least one other jurisdiction and that have consolidated group revenue of at least THB 28 billion (approx. USD 847.6 million) in a 12-month accounting period (prorated for shorter periods).
Generally, ultimate parent entities (UPEs; see definitions below) incorporated in Thailand must submit a CBC report to the Revenue Department. For foreign UPEs (i.e., those not registered in Thailand), an MNE group member that operates in Thailand may have to file the report locally.
However, these Thai members of the MNE group will not have to submit the CBC report if the following conditions are met:
- The foreign UPE already files a CBC report in its own tax residence; and
- The tax residence of the foreign UPE has an effective CBC reporting competent authority agreement with Thailand, and CBC reports can be shared successfully with Thailand.
In addition, for the purposes of multijurisdictional exchange of information, a Thai member of an MNE group may be formally appointed by a foreign UPE as a Thai surrogate parent entity (SPE) to file the reports on its behalf. However, the accounting periods of the foreign UPE and the SPE must be the same, and the foreign UPE must notify the Revenue Department of the appointment of the SPE.
By formally appointing the SPE in Thailand, the MNE group may be exempt from CBC reporting requirements in other jurisdictions that have a competent authority agreement with Thailand under which CBC reports are exchanged. This is similar to the filing exemption (see below) offered by the Revenue Department.
Filing Exemptions A Thai member of an MNE group mentioned above is exempt from filing CBC reports with the Revenue Department if all of the following conditions are met:
- The foreign UPE has appointed an SPE residing outside Thailand (i.e., an SPE located in a third country) to file CBC reports with the competent authority of the third-country SPE’s country of tax residence;
- The third-country SPE’s country of tax residence requires the filing of CBC reports;
- A competent authority agreement between the third-country SPE’s country of tax residence and Thailand is in effect by the CBC report filing deadline in Thailand;
- The third-country SPE’s country of tax residence has not reported a systemic failure regarding its information exchange to Thailand;
- the third-country SPE has notified the competent authority in its country of tax residence of its appointment as a reporting entity; and
- The Thai Member of the MNE group has notified the Revenue Department of the appointment of the third-country SPE.
Defining a UPE
The definition of UPE is generally based on the requirement to prepare consolidated financial statements. Under the CBC reporting notification, an entity is considered a UPE in either of the following scenarios:
- It directly or indirectly owns enough of one or more other entities in the same MNE group that it has to prepare consolidated financial statements under accounting principles of its country of tax residence, or would have to if its equity interests were traded on a securities exchange in that country (or the Stock Exchange of Thailand if the country has no securities exchange). In addition, in order to be considered a UPE it cannot be directly or indirectly owned, in the above manner, by any other entity in the same MNE group.
- It does not have an ownership interest (in the manner described above) in any other entity, but it conducts business through a permanent establishment in another country.