By joining the Inclusive Framework on Base Erosion and Profit Shifting on 2 June 2017, Thailand committed itself to the implementation of the BEPS minimum standards.
As a consequence, the Act Amending the Revenue Code on Transfer Pricing (“Transfer Pricing Act”) was announced on 18 November 2018 and came into effect on 1 January 2019, requiring any company with annual revenue of over THB 200 million (approx. EUR 5 million) to submit a Transfer Pricing disclosure form together with its annual tax return.
Furthermore, Thailand signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters on 3 June 2020, becoming its 137th signatory state. Although the local laws regarding the automatic exchange of information requirements known as the Common Reporting Standard (“CRS”) and CbCR are yet to be implemented, they will enable the automatic exchange and reporting of certain taxpayer information with other country revenue departments.
Although the power of tax officials to adjust intercompany prices to arm’s length existed before the introduction of the Transfer Pricing Act, recent tax audits show that the Thai Revenue Department increasingly focusses on Transfer Pricing, and it has a growing number of TP experts in its specialized audit teams. This may partially be attributed to the increased international focus on BEPS but also to Thailand’s economic situation and the burden on the government to boost tax revenue to finance its annual budget, which is particularly under pressure due to the substantial COVID-19 relief measures.
Therefore, the tax audits also target fiscal years prior to the implementation of the Transfer Pricing Act in 2020 and may even target companies that had previously undergone tax audits that did not focus on TP matters.
Apart from the scrutiny of the Thai Revenue Department itself, taxpayers should also be aware of increasing cooperation between domestic agencies.
In particular, it should be noted that the Thai Revenue Department shares information provided in the Transfer Pricing disclosure form, amongst other things, with the Customs Department. The Customs Department can then use the provided information on intercompany payments (such as royalties, license fees, technical service fees, commissions etc.) to determine whether such intercompany payments meet the conditions prescribed under the customs regulation for inclusion into the customs value of imports. Together with other available information, the Customs Department gains extensive insight into a company’s operations. Thai customs officers are highly incentivized to audit or investigate companies for customs offences because they are rewarded with substantial rewards for uncovering certain offences.
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