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Thailand’s New Transfer Pricing Guidelines

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Posted on December 2, 2015 by ASEAN Briefing
By: Dezan Shira & Associates
Editor: Elizabeth Leclaire

Thailand’s vote this past May to implement a new transfer pricing law is expected to come into effect in the early part of the new year. Transfer pricing refers to the sale of goods or services between branches of a company or subsidiary companies to a parent enterprise, and most countries instate some form of transfer pricing regulations in order to ensure that sales between divisions of a company roughly mirror the cost of the same sale between separate enterprises.

Without transfer pricing regulations, companies will often raise or lower the selling price of a good or service depending upon the tax rate of a branch’s specific region. For example, branches located in countries with low tax rates will often raise transfer prices when selling in order to maximize an enterprise’s profit. On the other hand, prices will often drop among branches and subsidiaries located in high tax rate regions, allowing the enterprise to make money through discounted sales rates rather than direct profits.

The requirement that transfer pricing internal to a company is similar to transactions between unrelated companies is often referred to as an “arm’s length” requirement, and Thailand’s new regulations hope to establish stricter and more concrete guidelines for ensuring that an “arm’s length” basis is maintained in transfer pricing transactions. Thailand’s first transfer pricing laws came in to effect in 2002, but Thailand’s Revenue department at the time only suggested that enterprises adhere to an “arm’s length” standard, and companies were not held legally responsible for internal selling above or below market value.

 New Regulations

Once instated, the new regulations will require that related enterprises prove “arm’s length” transfer pricing. The Tax Revenue Division currently defines related enterprises as two entities with either a direct or indirect relationship in ownership, management, or control of a company. Thailand has declared that when submitting transfer pricing information, relevant documents must be “contemporaneous.” The government has yet to determine the specific parameters of “contemporaneous”, but has indicated that companies will be required to file all transfer pricing related documents at least 150 days prior to the end of the taxable year. Thailand’s cabinet has expressed plans to instate the new regulation in early 2016. The government has also warned companies that if the legislation activates before the end of 2015, enterprises whose financial years terminate before December 31st of this year will still be required to submit proper transfer pricing documents.

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