The Transfer Pricing Act
The Transfer Pricing Act, which came into force on 1 January 2019 and changes the revenue code, essentially stipulates the following:
- “Affiliated companies” are those in which a company or its shareholders directly or in-directly hold(s) at least 50% of the shares in the other company, or which are otherwise connected to one another in terms of capital, management or control in such a way that they cannot be managed independently of one another (Sec. 71 to paragraph 2 Revenue Code).
- Companies that have generated revenue of more than THB 200 million (approx. EUR 6 million) in the tax year in question must present comprehensive transfer pricing documentation on transactions with affiliated companies (Sec. 71 Ter Revenue Code).
- If the documentation requirements are not met, a penalty of up to THB 200,000 (approx. EUR 6,000) can be imposed.
According to this, taxpayers are particularly encouraged to prepare transfer price documen-tation on an annual basis and to submit it to the Tax Authorities.
The New Announcement by the Revenue Department
With the announcement of the revenue department on 18 November 2019, there are now, for the first time, specific instructions for the companies concerned, such as the documentation requirements under Sec. 71 Ter Revenue Code that must be complied with.
The form published as part of the announcement asks in particular for the following information:
- Information regarding all affiliated companies (including the registration number if it is a Thai company or the country of domicile if it is a foreign company) and whether transactions have been made with these affiliated companies.
- If transactions have been carried out with affiliated companies, the respective transaction amount must be stated and categorised as operating income; other income; acquisition of goods and raw materials; acquisition of land, buildings and machinery; loan; other expenses (to be broken down into royalties, management services fees, technical services fees, commission, interest or other).
- Indication of whether a consolidated tax return must be submitted; if yes: amount of consolidated income.
- Indication of whether restructuring measures took place between affiliated companies during the tax year; if yes: whether the restructuring resulted in an increase or decrease in income, operating costs or gross margin.
- Whether intangible property has been transferred to affiliates.
- Confirmation from the managing director that all the information is true and complete and can be substantiated by accounting documents.
The form must be submitted together with the tax return for all tax years that began on or after 1 January 2019. Unless a different tax year has been specified, affected companies must submit their tax return for the tax year 2019 including transfer pricing documentation by 31 May 2020.
Companies whose revenue is below the threshold of THB 200 million do not have to prepare such a declaration.
The specification of the documentation requirements finally creates clarity about what information is expected from the companies concerned. Since this obligation only affects large companies (annual turnover > THB 200 million), it is often possible to fall back on a group-wide transfer pricing documentation that is already available.