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Previous to June 2017, Thailand didn’t have switch pricing regulation. The Income Division employed their energy to regulate pricing to be at market value based mostly on the availability of Part 65 bis (4) of the Income Code. Which means the Income Division is empowered to regulate the promoting value or service charge or rate of interest within the case of switch of property, provision of service or lending of cash with out remuneration, charge or curiosity, or with remuneration, charge or curiosity that’s decrease than the market value, made with out affordable floor in accordance with the market value on the date of asset switch, provision of service or lending of cash. Moreover, the Income Division has issued its Order No. Por 113/2545 (“Por 113/2545” or the “Guideline”) which units out the arm’s size ideas in 2002. Sure conventional switch pricing strategies had been additionally prompt within the Guideline to assist companies decide probably the most applicable value. Nonetheless, Por 113/2545 isn’t a regulation. As such, it isn’t used to implement in opposition to corporations to get switch pricing documentation ready and reporting types filed.
Since June 2017, Thailand has turn into the member of the OECD’s Inclusive Framework on BEPS which implies that Thailand had a dedication to implement minimal requirements of BEPS Bundle that are:
– Motion 5: Dangerous tax practices;
– Motion 6: Prevention of tax treaty abuse;
– Motion 13: Nation-by-Nation Reporting; and
– Motion 14: Mutual Settlement Process.
Adoption of switch pricing rule is a part of the dedication. Later in November 2018, the Thai authorities has authorised particular switch pricing regulation ranging from the accounting interval on or after 1 January 2019.
The Time period “Associated Occasion”
Broadly talking, underneath Part 71 bis of the Income Code which has been enacted, the evaluation officer has the facility to regulate revenue and bills for company revenue tax functions the place it’s believed {that a} associated celebration transaction is structured to shift income to a different entity or different jurisdictions. That is to broaden the facility of the tax authority to take care of business phrases and monetary association no matter whether or not an settlement is made in writing. The time period “associated celebration”, underneath paragraph 2 of Part 71 bis, is outlined as firm or partnership that are fashioned as one of many following:
a) a authorized entity that both straight or not directly holds 50% or extra of the totals shares in one other authorized entity;
b) a authorized entity of which 50% or extra of its complete shares are held both straight or not directly by a shareholder or a companion that additionally straight or not directly holds 50% or extra of shares in one other authorized entity; or
c) a authorized entity that has a dependent relationship with one other authorized entity when it comes to capital, administration, or management, to the extent that one entity can’t be operated independently from the opposite.
Taxpayers’ Obligations: Submission of Disclosure Type
Normally, the switch pricing regulation applies to all juristic individuals in Thailand whatever the measurement of enterprise. Nonetheless, the Income Division has set out the mechanism that any corporations or juristic partnerships topic to the Income Code with the annual turnover of at the very least THB 200 million in a specific monetary 12 months are required to submit a disclosure kind to the Income Division together with the submitting of the annual company revenue tax return. This additionally applies to the case the place such corporations or juristic individuals aren’t thought-about as associated celebration transaction within the 12 months. The failure of submission of the disclosure kind will end in a positive as much as THB 200,000. Following the submission of the disclosure kind, the TRD could have 5 years from the submission date to train their energy to audit any enterprise transactions or to request data for additional evaluation for tax functions. Anyhow, inside 5 years from the submission date, the switch pricing paperwork should be ready and stored for tax functions.
Taxpayers’ Obligations: Nation-by-Nation Reporting
Based on the Inclusive Framework on BEPS, Thailand has dedicated to launch its rules on Nation-by-Nation Reporting (“CbCR”).
Just lately, the Income Division has issued the Notification of the Director-Common of the Income Division on Revenue Tax (No. 419) dated 12 January 2022 and the Notification of the Director-Common of the Income Division on Revenue Tax (No. 408) dated 30 September 2021 whereby MNEs with consolidated annual income of at the very least THB 28,000 million within the monetary 12 months can be required to file a CbCR to the Income Division ranging from the monetary 12 months commencing on or after 1 January 2021.
Switch Pricing Methodology
Based on the Notification of the Director-Common of the Income Division on Revenue Tax (No. 400) dated 12 January 2021, it’s famous that not solely conventional switch pricing strategies, however the Income Division additionally accepts new switch pricing strategies, which embrace:
- the comparable uncontrolled value technique (CUP);
- the resale value technique; the cost-plus technique;
- the transaction internet margin technique (TNMM); and
- the transactional revenue break up technique (TPSM).
Curiously, the Thai Income Division is also empowered to just accept every other strategies that the taxpayer might show that it’s extra applicable to find out the market value.
These days, there are such a lot of controversial points as as to whether any of the switch pricing strategies acceptable by Thai tax authority is most applicable and whether or not the Thai tax authority has the flexibility to find out the arm’s size value which depends a lot on business preparations and market situations. Having stated this, the regulation permits the Thai tax authority to have discretion to contemplate every transaction on a case-by-case foundation. Nonetheless, it’s hoped that the usual of pricing willpower can be extra internationally acceptable.
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