Transfer pricing obligations for foreign-owned companies in Thailand.

Foreign-owned companies in Thailand routinely transact with their overseas parent or group entities, whether through management fees, intercompany loans or shared services. Thailand’s transfer pricing rules require these transactions to be priced as they would be between unrelated parties, and larger companies face a specific disclosure obligation on top of this, with documentation requirements that need to be in place well before the Revenue Department requests them.

This guide explains which companies are subject to these obligations, the information required for the disclosure form and Local File, and the deadlines that apply to each. It also outlines the penalties for non-compliance, including the circumstances in which directors may incur personal liability.

Transfer pricing disclosure eligibility

To determine whether the disclosure obligation applies, two threshold requirements must be considered. Both must be met in the same accounting period.

The two threshold conditions

The disclosure obligation applies where a company meets both a revenue condition and a related-party condition for the accounting period:

• Revenue threshold: the company’s total revenue, as shown in its financial statements for the accounting period, reaches THB 200 million or more. This is total revenue rather than revenue from sales or services alone, so other income streams count towards the threshold.
• Related-party transactions: the company has transactions with a related party during that same accounting period.

A company that clears the revenue threshold but has no related-party dealings falls outside the disclosure requirement, and a company with related-party transactions but revenue below THB 200 million is exempt, though arm’s length pricing discipline still applies regardless.

Defining a related party

Section 71 bis of the Revenue Code sets out three ways two entities can be considered related parties:

• One entity holds, directly or indirectly, 50% or more of the total shares or capital of the other.
• The same shareholder or group of shareholders holds, directly or indirectly, 50% or more of the total capital in each of two entities.
• The entities have a relationship in capital, management or control such that one cannot operate independently of the other, as further defined by ministerial regulation.

The “directly or indirectly” wording extends the analysis through the full ownership chain. For a foreign-owned Thai subsidiary, this typically means the parent company and any other subsidiaries under common ownership are related parties, even where the immediate Thai shareholding sits below 50% but the ultimate group ownership does not.

Common transaction types for foreign-owned SMEs

For foreign-owned companies in Thailand, related-party transactions most often show up as:

• Management or service fees paid to a regional or global head office.
• Royalty or licence fee payments for trademarks, software or other intangibles.
• Intercompany loans and the interest charged on them.
• Recharges for shared services, such as IT, HR or finance functions provided from another group entity.
• Intercompany sale or purchase of goods, including raw materials, finished products or equipment.

Each of these needs pricing on an arm’s length basis and accurate reflection in both the accounting records and the disclosure form.

The transfer pricing disclosure form

The disclosure form is a report on a company’s related parties and the value of transactions conducted with them during the accounting period. It is filed alongside Form PND 50, within 150 days of the accounting period’s year-end, and filing is completed online. The Revenue Department uses the information reported to identify companies for further transfer pricing review, which can extend into a broader tax audit.

Where a company omits the disclosure form, or files one that is inaccurate or incomplete without a justifiable reason, a fine of up to THB 200,000 applies. This sits separately from, and in addition to, any penalty relating to the underlying corporate income tax return.

The Local File requirement

Filing the disclosure form does not close out a company’s transfer pricing obligations for the year. The Revenue Department can request the underlying documentation, known as the Local File, at any point within five years of the disclosure form being filed.

Local File contents

Director-General Notification No. 407 sets out the required content, which broadly includes:

• Information about the reporting entity’s business, local organisational structure, headcount and value chain.
• The relationship and shareholding structure between the reporting entity and its related parties.
• A description of the controlled transactions, including the relevant contracts and the transfer pricing policy applied.
• A functional analysis covering the functions performed, assets used and risks assumed.
• Financial information supporting the transactions reported.
• The transfer pricing methodology applied and a benchmarking or comparability analysis, where required.

The Local File needs to be prepared in Thai. Companies that maintain an English-language version for group reporting purposes still need a Thai translation ready for submission.

The 180-day production window

Once the Revenue Department issues a request, the response deadline depends on whether it is the company’s first request. A first-time request carries a 180-day window to submit the Local File. Subsequent requests carry a shorter deadline of 60 days, which can be extended to 120 days on application.

Building this file within either window from a standing start is difficult, because the Local File draws on records, such as intercompany agreements, functional analyses and benchmarking data, that reflect the year as it was, not as it can be reconstructed afterwards. A functional analysis in particular depends on documenting how functions, assets and risks were actually allocated, which becomes harder to establish once staff have moved on or business circumstances have changed.

Deadline examples by year-end

The table below illustrates how the disclosure form deadline and a potential Local File deadline could line up for two common Thai year-ends. The first-request date in each example is hypothetical, since the Revenue Department can issue a request at any point within five years of the disclosure form being filed rather than on a fixed schedule.

In both cases, the 180-day window narrows considerably once it needs to cover a functional analysis and benchmarking study for a period that has already closed.

Penalties for missing or incomplete documentation

The disclosure form and Local File requirements carry separate penalties for non-compliance, covering the missing documentation itself, any resulting mispricing and, where relevant, the directors responsible.

Administrative penalties

A fine of up to THB 200,000 applies where the disclosure form is missing, inaccurate or incomplete. The same fine applies separately to the Local File if it is not submitted, incomplete or submitted after the deadline.

This fine applies whether or not the underlying related-party pricing is at arm’s length, since it penalises the failure to report or document, not the pricing outcome itself.

Mispricing adjustments

Where the Revenue Department finds that a related-party transaction was not priced at arm’s length, it can adjust the company’s reported income and expenses accordingly. The resulting additional tax carries a surcharge of 1.5% per month, capped at the amount of tax payable, in line with other corporate income tax underpayments.

Director personal liability

Under Thai law, criminal tax liability is not limited to the company. Where a tax offence results from a director’s order, action or omission, that director can be held personally liable alongside the company. This applies to foreign directors in the same way as Thai directors, and it is easy to overlook when tax administration is delegated entirely to an external accountant, one of the common accounting and payroll mistakes foreign-owned companies make in Thailand.

Conclusion

Transfer pricing compliance in Thailand rests on knowing early whether a company meets both the revenue and related-party conditions, since that determines whether a disclosure form is required. From there, the practical work is keeping the Local File’s supporting records current throughout the year, so that a request from the Revenue Department does not arrive at the same time as a scramble to reconstruct them.

How Acclime can help with transfer pricing compliance in Thailand

Acclime provides complete support for transfer pricing compliance in Thailand, from assessing whether the disclosure and Local File thresholds apply to preparing documentation in line with Notification No. 407 as part of our tax advisory services. Contact us to discuss your related-party structure and move forward with a clear compliance plan.