Thailand Selling Below Market Price Tax Planning
Tax Insight | January 2009
Before your Thailand corporate entity implements a strategy of selling at below market price, you should formulate and document a tax position for Section 65 bis (4) of the Revenue Code, which prescribes:
“In the case where without justifiable ground property is transferred, service is rendered or money is lent without any consideration, service charge or interest, or with consideration, service charge or interest at an amount lower than market price, the Revenue officer has the power to re-assess the consideration, service charge or interest at the market price on the date of the property transfer, rendering of the service or lending of the money.”
In layman terms, this provision requires a Thai company to always account for sales of goods and services at the market price on the date of the sale of goods or rendering of the service.
Only when there is “justifiable ground” for selling at a lower price will it be allowed for the purposes of computing tax liability. If your company doesn't have a “justifiable ground”, the Revenue Department tax audit officers can adjust the sales prices and re-assess corporate tax for the company.
You may think that a global economic downturn is a sufficient “justifiable ground” for selling below market prices. But merely saying that is not enough, and a Thailand company must be able to prove to the Revenue Department's audit officers that “justifiable ground” exists for a particular circumstance.
There is no definition of “justifiable ground” in the law, and the guideline for this matter can really only be obtained from examining past tax rulings and tax judgments. Some of those rulings and judgments are as follows:
The “guideline” that can be extracted from the above cases is that selling at below market price is a justifiable ground only when there are external forces on the company that dictate the selling at lower prices, such as, when a world price dictates a company's selling price or when a company has a particular contractual commitment to an independent third party.
And for both cases of the world price dictating the selling price and a particular contractual commitment dictating the selling price, external rather than internal documentary evidence was provided, which clearly indicated that selling below market price was not just a ploy by the companies.
This Tax Insight is general information only. It should not be used to determine any particular matter without consulting with an experienced Thailand tax advisor.