Transfer Pricingin the case of Thailand

Mr. Chanachai PrayoonsinDirector of Tax Policy Group

Fiscal Policy Office, Ministry of FinanceThailand

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Outline

• Tax Legislation on Transfer Pricing• Guidelines on the Determination of

Market Price (Arm’s Length Price-ALP)

• Problems & Challenges

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Tax Legislation on Transfer Pricing

• Revenue Code– Section 65, 65 bis (4) and Section 70 ter : tax

payer located in Thailand– Section 65 bis (7) and Section 65 ter (13) (15) :

Tax payer located outside Thailand(Determination of Criteria for calculation of Net Profits)

• Double Taxation Arrangement between Thailand and other countries

• Standard Accounting No. 37 and 47

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Guidelines on the Determination of Market Price

• Revenue department provides the guidelines (Departmental Instruction No. Paw 113/2545 –Subject: Corporate Income Tax-The Determination of transfer Price based on the Market Price) for tax officials and companies :– Criteria for calculation of Net Profits– Assessment of Revenue and Expenses Based on

Market Price– Methodologies in Determining the Market Price– Documentation that should be prepared– Advance Pricing Arrangements

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Criteria for calculation of Net Profits

• Revenue derived from or in consequence of businesses carried on in an accounting period.

• Expenses in accordance with conditions prescribed under Section 65 and 65 ter of Revenue code.

• The calculation of revenue and expenses shall apply the accrual basis.

• CIT rate is 30% of net profit.

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Assessment of Revenue and Expenses

• If receiving no consideration less than the market price or deriving expenditures higher the market price without justifiable reason.

• The assessment official shall have the power to assess the revenue and expenses based on the market price.

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Methods to Determine the Market Price

(1) Traditional Transaction Methods- Comparable Uncontrolled Price Method- Resale Price Method- Cost Plus Method

(2) Transactional Profit Methods- Profit Split Method- Transactional Net Margin Method

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Process in Establishing the Market Price

Step 1 Step 2

Step 3

Step 4

Characterize the InternationalDealings between the associated Enterprise

Select the most appropriateTransfer pricing methodology

Or methodologies

Apply the most appropriate methodAnd determine the market price

Review process in step 1 -3 to ensure application of the appropriate method

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Good Points of Departmental Instruction No. Paw 113/2545

• Follow the OECD guideline and allow for traditional transaction methods.

• No compulsory to choose the methods to determination the market price orderly: The best method.

• Propose the ALP via the possible documentation.

• Provide the Advance pricing arrangements in the case of inability to proof ALP.

• Allow for double taxation

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Administrative Focus

• To advice and to supervise taxpayers from the supervisory team to correctly pay tax instead of using audit and investigate of previous record for the first time

• Focusing on large taxpayers (taxpayers with annual turnover more than 500 million Baht or14.3 mil. US Dollars: 1 US = 35 baht )

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Problems & Challenges

• Insufficient Data Bases• Tax officials

– Lack of knowledge and skill on the transfer pricing guidelines

– Inadequate of tax officials • Corporation• Tax Law

Thank you !Contact: chanachaifpo@hotmail.com