On 14 Jan 2021, Thailand's Director-General of Revenue issued Notification (No. 400) prescribing the Revenue Department rules, procedures and conditions for Transfer Pricing Adjustments by Thailand tax audit officers.

As enacted into the TP laws on 21 Nov 2018, and applying from 01 Jan 2019:

• In the case a related company that has commercial or financial dealings, which are different to those of companies operating independently and believed to be for the purpose of transferring profits, audit officers have power to adjust the income or the expenses of the company to amounts comparable to companies operating independently for the payments of income tax and withholding tax.

For the purposes of the tax audit officers exercising their power under this law:

• Ministerial Regulation No. 369 prescribes the regulations for the tax audit officers- see Transfer Pricing Adjustment Regulations; and
• The Director-General's Notification (No. 400) prescribes the Revenue Dept rules, procedures and conditions- see below.

The Rules, Procedures and Conditions

Comparable uncontrolled transactions

Uncontrolled transactions may be considered as being comparable to controlled transactions between related parties when:

1. There are no differences materially affecting financial indicators resulting from the selected pricing method, or
2. There are differences materially affecting the financial indicators resulting from the selected pricing method, but there is an ability to eliminate the differences.

Comparability factors

Comparability shall be determined on the basis of the 5 comparability factors:

1. The contractual terms of agreements;
2. The functions performed, assets employed and the risks assumed by the parties (functional analysis);
3. The characteristics of the property or the services that are transferred;
4. The economic circumstances at the time of the transaction(s); and
5. The business strategies (or reasons) for conducting the transaction(s).

Price setting methods

A price setting method shall be the most appropriate of the following five OECD- recognized price setting methods:

1. Comparable Uncontrolled Price (CUP) Method;
2. Resale Price (RP) Method;
3. Cost Plus (CP) Method;
4. Transactional Net Margin Method (TNMM); and
5. Transactional Profit Split Method.

A price setting method other than the above five may be used only if it can be proven none of the five price setting methods can be used and the used price setting method other than the above is more appropriate, and in this case the corporate entity shall prepare a written explanation and keep documentation evidence for inspection and analysis by the tax audit officers.

Selection of the most appropriate method

The most appropriate price setting method shall be selected on the basis of:

1. The respective strengths and weaknesses of the methods;
2. The appropriateness of the methods for the actual functions performed, assets employed and risks assumed (functional analysis);
3. The availability of information (particularly for uncontrolled comparables) that is reliable for the methods; and
4. The degree to which the controlled and the uncontrolled transactions are comparable and the reliability of adjustments for eliminating differences.

Closely linked controlled transactions

For closely linked controlled transactions (two or more controlled transactions of the same or similar nature), when the transactions are not able to be separately analyzed, they may be combined together for the purposes of the above rules.

Out of range controlled transactions

For the case when resulting financial indicators for controlled transactions fall out- side the range for comparable uncontrolled transactions, the transfer prices for controlled transactions may be adjusted to a point in the range for comparable uncontrolled transactions.

Controlled services transactions

For controlled services transactions, the transfer price can be considered to be comparable to that of entities operating independently only if:

1. The services are actually performed;
2. The services are performed for economic or commercial benefits;
3. The services are performed by independent entities under comparable circumstances; and
4. The transfer price is not different to the comparable transfer price of the entities operating independently.

Controlled intangible property transactions

For controlled intangible property transactions, the following shall be taken into account for consideration of the transfer price:

1. For exploitation of intangible property: The functions assets and risks for development, enhancement, maintenance, protection and exploitation of the intangible property;
2. For the granting of rights, selling or transferring intangible property: The expected benefits, restrictions, and participation rights in the intangible property.

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