Thailand Market Price Corporate Tax Rule
Before your Thailand corporate entity implements a strategy of selling below market price, you should formulate and document a position for Section 65 bis (4) of the Revenue Code. This is because Section 65 bis (4) 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.”
That is, only when there is “justifiable ground” for selling at a lower price will it be allowed for the purpose of computing corporate tax. If your Thailand company doesn't have a justifiable ground, the tax audit officers can adjust the sales prices and re-assess corporate tax.
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 guideline for justifiable ground in the law, and the guideline for this matter can really only be ascertained by examining past tax rulings and judgments. Some of those are as follows:
Held to be not justifiable:
Held to be justifiable:
The guideline that can be ascertained from these cases is that selling at below market price is a justifiable ground only when there is an external force that dictates the selling at a lower price, such as, when the world price dictates the selling price, or when there is a particular contractual commitment to an independent third party.
And for both the case of the world price and the particular contractual commitment dictating the selling price, external (not internal) documentary evidence was provided that proved the 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.