For the majority of international businesses, strategic thinking for transfer pricing in Thailand requires less thinking about the Paw 113 guideline and more thinking about the “exclusively incurred for the purpose of business” rule.
In 2002, The Thailand Revenue Department issued Instruction No Paw 113 and at that time, announced:
“It is the Government's policy to increase its revenue from foreign companies blatantly avoiding or reducing their tax liabilities in the Kingdom of Thailand by implementing a new transfer pricing law.”
But no new "law" was implemented, and since the 2002 announcement, the "law" continues to prescribe the same it always has done, as follows:
Income arising from sales of goods and services shall be at “market price”; and
Purchase prices of assets and expenses shall be at “market price”.
Paw 113 is actually a guideline, and more so, a guideline for Revenue officers conducting transfer pricing tax audit investigations.
For international businesses that are large in Thailand and that are under the supervision of the Revenue Department's LTO (Large Taxpayer Office), the Paw 113 guideline may be required to be considered.
But for the majority of international businesses in Thailand that are under the supervision of the Revenue Department's Area Offices (which still, after 10 years, have not yet started to do any transfer pricing tax audit investigations) the more-likely-than-not proposition is that the Revenue Area audit officers will not confront you with any requirement under Paw 113, but rather, confront you with non-allowance of expenses ... because your company is unable to prove to them that your group services charges are genuinely and exclusively necessary for the purpose of the business in Thailand.
If you would like to know more about the "exclusively incurred for the purpose of business" rule you can refer to our Transfer Pricing Group Services Tax Insight.
Our Tax Insights and Updates are general information publications focusing on the laws for meeting tax compliance obligations, and tax rights and entitlements under the laws.