As proposed, the transfer pricing documentation-related guidance would provide as follows:

• Transfer pricing documentation and reviews would not focus solely on prices applied on related-party transactions but also on gross margin, profit margin, and/or shared profits derived from related-party transactions.
• If the price applied to a controlled transaction (i.e., a transaction between two related parties) and tested using an appropriate transfer pricing method is deemed to fall within the arm’s length range, then no transfer pricing adjustment would be required. While the draft guidance does not define the arm’s length range under which an applicable price/margin would fall, given the current practice of the Thai Revenue Department, it appears that the tax authority would accept that a price/margin is at arm’s length if a price/margin falls within interquartile arm’s length range established from independent internal or external comparables.
• The draft guidance includes five transfer pricing methods—comparable uncontrolled price, resale price, cost-plus, transactional net margin, and transactional profit split methods. Previous guidelines from the tax authority only included three of these five transfer pricing methods.
• No specific order or hierarchy would be established as to which of the five transfer pricing methods would apply. Any method could be applied based on its strengths and weaknesses, availability of reliable information, and appropriateness and degree of comparability.
• The draft regulatory guidance would introduce a comparability analysis that would be taken into consideration for setting and testing transfer prices (such analysis not having been previously established), and similar to the one established under the OECD’s transfer pricing guidelines.
• With respect to controlled service transactions, the draft guidance proposes that if the services are not actually provided, are not economically or commercially beneficial to service the recipient, and if the service recipient would not be willing to pay for these services from a third party, then the service charges would not be allowed as revenue and/or expenses for corporate income tax purposes.
• With respect to controlled transactions relating to intangible property, the draft regulation would establish that the following factors would need to be taken into account: (1) rationale of both related parties; (2) pricing of the charges; and (3) value and benefits to the business of the licensees or transferees.
• On analyzing the comparability of the price applied in a controlled intangible property transaction, the taxpayer would need to evaluate: (1) the expected benefits from the intangible property; (2) geographical limitation to the taxpayer’s use of the intangible property rights; (3) any unique or non-unique characteristics of the intangible property; and (4) the rights to co-develop the intangible property in the future.
• Under the draft regulatory guidance, there could be a secondary transfer pricing adjustment—one that is consistent with the Thai Revenue Department’s current practice as seen in recent transfer pricing audits. When a primary transfer pricing adjustment results in higher profits for one taxpayer, if the counterparty of the controlled transaction is a shareholder of the taxpayer, then the transfer pricing adjustment amount (after deducting additional corporate income tax) would be deemed to be a dividend or profit-sharing and subject to withholding tax at a rate of 10%. If the counterparty is not a shareholder of the taxpayer, the transfer pricing adjustment amount (after deducting additional corporate income tax) would be deemed to be an interest payment subject to withholding tax at the applicable rate.

Tax professionals have observed that the draft regulatory guidance is consistent with the Thai Revenue Department’s move to implement the OECD’s transfer pricing guidelines in Thailand. Multinational entities investing in Thailand and Thai corporations entering into related-party transactions and with income exceeding Baht 200 million will want to consider preparing appropriate transfer pricing analysis and documentation.

Read a July 2019 report prepared by the KPMG member firm in Thailand