What Does Thailand’s New Examination Regulation Mean for Taxpayers?
A new regulation from Thailand’s Ministry of Finance provides new examination guidelines for the country’s tax officers while also arming taxpayers with steps they can take to minimize the risk of audits. The regulation describes how tax officers should go about determining if related-party transfer pricing transactions meet the arm’s-length principle. Taxpayers, meanwhile, can follow the guidance when preparing their own transfer pricing documentation.
Issued in early November, the new regulation directs tax officers to first determine arm’s-length pricing based on internal comparables—i.e. comparing a transaction to similar ones that the taxpayer has entered into with third parties. If the taxpayer hasn’t entered into similar arrangements with third parties, Thai tax officers should benchmark against similar transactions between independent parties–external comparables.
According to the regulation, it doesn’t matter if the third-party comparables are local, regional, or foreign, if they align with the tested party’s transaction. Though the regulation coincides with the OECD’s transfer pricing guidelines, it’s particularly interesting move for Thailand, which is known to prefer Thai comparables.
Thai officers will focus on transactions that are suspicious of base erosion and profit shifting (BEPS)—as in other jurisdictions, financial and service transactions will be under the microscope. The new regulation comes with flexibility: Thailand’s director general of revenue has the authority to change how it’s used, and we’ll probably hear more specifics on the regulation as it’s applied.
No doubt, transfer pricing scrutiny will increase worldwide in 2021, and this new regulation proves that Thailand is already taking steps to highlight high-risk transactions and make transfer pricing examinations more systematic and efficient. Taxpayers should take the hint and identify and diligently document high-risk transactions, and in terms of proving related-party pricing meets the arm’s-length standard, look to internal comparisons and then, external ones. Granted, there are no guarantees in transfer pricing compliance, but following the tax authority’s example is a step in the right direction.