PenaltiesIn Thailand, the concept of transfer pricing has been in place for some time. In 2002, the Thai Revenue Department (TRD) released Guideline No. Paw. 113/2545 (2002) (PAW 113), which parallels the OECD's Arm's Length Principle and provides the TRD with guidelines to determine market price between related entities.

In line with increased international scrutiny over transfer pricing, in November 2018, the TRD released the Revenue Code Amendment Act No. 47 (TP Law). The TP Law adds three sections regarding transfer pricing into the Revenue Code and is effective for the accounting period starting 1 January 2019 onwards. In November 2019, to assess transfer pricing exposure at the level of each taxpayer, the TRD issued regulations under Section 71 ter of the TP Law, requiring the disclosure of related-party transactions in a form. Further regulations detailing transfer pricing principles and methods are pending and expected to be issued later in 2020.

Briefly, the TP Law allows the TRD to adjust the incomes and expenses of a taxpayer if (i) both parties in the transaction are related parties; (ii) the commercial or financial terms between them are different from independent transactions; and (iii) there is a reason to believe that the transaction is for profit-shifting. The definition of related parties include not less than 50% shareholding as well as management and control.

TP Law - requirements in summary


If a related-party transaction is not deemed to be conducted at arm's length, the TRD has the power to make an adjustment to the income and/or expense of the taxpayer concerned. Should this result in a tax shortfall, besides paying the additional income tax, there may be a penalty of up to 200% on the amount underpaid, plus a surcharge of 1.5 percent per month on the amount of the shortfall (starting from the filing due date). Furthermore, the TP Law allows for a fine up to Baht 200,000 if the taxpayer has not complied with the related-party disclosure form and transfer pricing documentation requirements. It is also worth noting that the transfer pricing adjustment may result in withholding tax and VAT exposures.

How are multinationals responding?

For Thai companies with a December 2019 year-end, the filing due date for the transfer pricing disclosure form is fast approaching. Companies are conscious that their transfer pricing approach can be inferred from the disclosure form and many have been proactively reviewing and tidying up their transfer pricing.

Responding to the TRD's increasing focus on transfer pricing, Thai companies have also commissioned reviews to assess the soundness of their existing transfer pricing methodology. Some of these reviews have turned up inadequacies which need to be addressed through rethinking the transfer pricing approach. Just as important, many companies have started to prepare transfer pricing documentation to support their transfer prices and to be prepared for the day when such documentation should be requested.