Thailand: Increasing tax collection through TP audits: Be prepared
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Thailand: Increasing tax collection through TP audits: Be prepared

Benjamas Kullakattimas and Abhisit Pinmaneekul of KPMG in Thailand explain why taxpayers should take an active approach to managing their transfer pricing risks in Thailand.

In preparation for the establishment of the ASEAN Economic Community (AEC) in December 2015 and to increase its competitiveness among other ASEAN countries, Thailand reduced its corporate income tax rate from 30% to 20%. Recently, the Thai government also amended the personal income tax rate, one of the key changes being the reduction of the highest tax rate from 37% to 35% for taxable income of more than Bt4 million ($124,000).

The reduction of the corporate and personal income tax rates, as well as the increase of government expenditure on several large infrastructure projects have caused the Thai Revenue Department (TRD) to start strengthening its tax collection. The Department has realised that government revenue would definitely decline if the TRD were to still use the old-fashioned way to collect tax. In 2013 the TRD disclosed that it plans to adopt the risk management principle, known as the Compliance Risk Management (CRM) as a tool to manage its tax collection. This different audit approach or assessment will be adopted for those in between high and low risk groups, as assessed by the TRD.

In recent years the TRD has also been cooperating with other countries' revenue departments to exchange knowledge in the areas of tax administration and collection. Thailand entered into memoranda of understanding (MoUs) with Korea and Malaysia, respectively, to allow for the exchange of tax officers for training as well as the sharing of issues specifically arising from cross-border transactions. In the realm of taxation of cross-border transactions, transfer pricing is one of the most pressing issues in Thailand at the moment. The Thai tax authorities are conducting transfer pricing audits more aggressively as a way to increase tax collection.

Transfer pricing development in Thailand

Thailand's transfer pricing guidelines were introduced in 2002 when the TRD issued Departmental Instruction No Paw 113/2545 (DI Paw 113/2545) providing guidelines on the transfer pricing methods and the required documentation. Unlike some other ASEAN countries, transfer pricing documentation is still not mandatory in Thailand. Since the introduction of DI Paw 113/2545, no additional guidelines or regulations (other than advance pricing agreements (APAs)) have been formally issued. Rather, the TRD has formulated several internal guidelines through their audits.

However, the Department has recently expressed on several occasions that it intends to introduce tax reforms in these areas:

  • Transfer pricing;

  • Thin capitalisation;

  • Controlled foreign companies; and

  • A general anti-avoidance rule.

Senior tax officers have unofficially informed KPMG Thailand, during informal discussions, that the TRD has drafted specific transfer pricing regulations and under which, like other countries, documentation is likely to be required by law. It is expected that these requirements will be most likely consistent with point 13 (Re-examine transfer pricing documentation) of the OECD's action plan to counter base erosion and profit shifting (BEPS).

The issuance of new transfer pricing regulations and/or guidelines by other ASEAN countries, such as Indonesia, Malaysia, the Philippines and Vietnam, has been putting increasing pressure on the TRD to develop and enhance its transfer pricing practices. Some practitioners expect that the specific transfer pricing regulations in Thailand should be enacted around 2014 or 2015.

The thin capitalisation, controlled foreign company and general anti-avoidance rules should be in line with the OECD's action plan to counter BEPS as well. However, no details have been disclosed yet.

Though Thailand is not an OECD member country, the TRD normally refers to the Organisation's guidelines for international standards and practice. For example, the TRD mostly accepts the transfer pricing methods and the comparability analysis approach specified under the OECD transfer pricing guidelines. However, the TRD does not apply the attribution of profits to permanent establishment (PE) in the guidelines. Based on the Thai Revenue Code, if there is a PE in Thailand, the income/gain derived by the PE is subject to corporate income tax in Thailand. The attribution of profits to PE based on the OECD transfer pricing guidelines would only be applied if the taxpayer has applied to the competent authorities for an APA or mutual agreement procedure (MAP).

Transfer pricing audit trends

Based on our experience in assisting multinational companies in dealing with the TRD on transfer pricing audits, we have noticed developments in its transfer pricing tax team and audit approach. The TRD has developed a specific transfer pricing audit team, which is part of the Large Taxation Office (LTO), which is responsible for large taxpayers and has been based at the Department's head office for more than 10 years. In the past, only the transfer pricing audit team would be responsible for transfer pricing issues, but now local tax officers across the country have been equipped with the basic transfer pricing knowledge and have been trained by the transfer pricing audit team. At present, it is common for local tax officers to raise transfer pricing issues during a general tax audit, which indicates that the TRD wants to focus more on transfer pricing audits. Any taxpayer without sufficient preparation or analysis of transfer pricing would be at risk. The key trends and enhancements of transfer pricing audits in Thailand are:

  • Audit approach: The common practice in the past was that the TRD would issue an invitation letter to the taxpayer who was a target for a transfer pricing audit to meet at the tax office and to submit the information and documentation related to the transfer pricing as prescribed in DI Paw 113/2545. Starting in late 2011, the TRD began issuing a transfer pricing questionnaire or form to targeted taxpayers to gather information about:

  • The types of related-party transactions,

  • The transaction values,

  • The related suppliers' and customers' names,

  • Products purchased/sold,

  • Services provided/received and

  • Currencies used.

The submission of a completed questionnaire may or may not be followed by the issuance of the invitation letter. However in most cases, the invitation letter would be issued after taxpayers sent in the completed questionnaires.

  • New target for audit: In the past companies under a tax exemption or tax holiday period would not be a target for a transfer pricing audit. However, the ball game has been changed. Even if the company is under a tax exemption period, the Thai tax officers will start conducting a transfer pricing audit on it if it is loss making. In Thailand the loss from a tax exempted business can be carried forward for five years after the expiry date of the tax exemption period. As a result, tax officers will investigate and challenge if the loss is appropriate and is eligible to offset the taxable profits after the expiry of the tax exemption period. The key resolution strategy to support this is to prepare transfer pricing documentation with justifiable business reasons for the loss. If the documentation can demonstrate clearly that the loss is incurred by factors other than transfer pricing, it should help to support the case.

  • Focused transactions: One of the interesting trends is the increase in investigations of inter-company service transactions. The TRD believes that intercompany service fees is one of the common ways used by multinational companies to transfer profits out of Thailand. This is also one of the focus areas of the general tax audit team. The key challenge would be whether those services are beneficial to taxpayers' businesses in Thailand. If the taxpayer cannot prove the benefits received, the entire service fees will be treated as non-deductible expenses, resulting in additional tax payable or reduction of losses carried forward. In this regard, it is critical that the taxpayer is able to substantiate that the services are in fact beneficial to the business in Thailand. Taxpayers are also required to prove that any service fee is determined in accordance with the arm's-length principle.

  • Co-operation within the TRD: It should also be noted that there is cooperation within the TRD. During its general audit, the general tax audit team may identify a target for a transfer pricing audit and/or may transfer the case to the transfer pricing audit team if the case is more complex and needs to be audited by a specialist. In this regard, any companies with inter-company transactions can be at risk because a general audit is normally conducted every one to three years.

  • Transfer pricing adjustments will result in additional tax payable together with a surcharge of 1.5% a month of additional tax payable up to the amount of tax due and possible penalties of up to 100% of additional tax payable.

Trends triggering transfer pricing risks in Thailand

Transfer pricing adjustment

Many multinational enterprises try to manage the bottom line of their Thai subsidiaries. In doing this, they target the profit margin and if the Thai subsidiaries' profit margin is higher than the targeted margin, they will issue a credit note or issue an invoice for a fee to get the money back and hence reduce profits in Thailand.

A reduction in profit margin will draw attention from Thai tax officers. The targeted margin should be based on a Thai comparable search rather than a regional one. The adjustment may trigger other tax implications, such as withholding tax, value added tax and customs, depending on the underlying transactions that the adjustment is made for.

Fluctuation of foreign exchange rate

Since 2012, the Thai baht foreign exchange rate has fluctuated dramatically. This may affect a company's profitability, even causing the company to bear a loss. Though companies may realise some gain from foreign exchange, the transfer pricing audit team may not allow taxpayers to include such gains in the calculation of operating profits to increase their profitability. This is because the TRD believes that the gain/loss from foreign exchange is not an operating item. The key resolution strategies to tackle this would be to prepare the business reasons, actions to be taken to manage the loss, transfer pricing and functional and risk analysis, and supporting documents in advance.

Resolution strategies in thailand

Documentation is the top action that Thai taxpayers should prepare in advance because it is the first document the TRD will request from a taxpayer for its review and investigation during a transfer pricing audit. And, based on our transfer pricing audit and APA experience with it, the TRD reviews and considers only Thai comparable searches. If a taxpayer uses a regional comparable search for documentation, it is likely that tax officers will try to use their own Thai comparable set to challenge the taxpayer. As a result, a local comparable search is a must in transfer pricing analysis in Thailand.

Eight years after the issuance of DI Paw 113/2545, the TRD issued the Guidance on Advance Pricing Agreement (APA guidance) document in 2010. This APA guidance states that the TRD accepts only bilateral APAs. Since this guidance was issued, more and more taxpayers have applied for bilateral APAs. To speed up the APA process and consideration, the TRD requires that the APA submission should be in both Thai and English.

In Thailand the transfer pricing audit team at the TRD's head office is the APA working team. Representatives from each tax division of the Department (that is, the transfer pricing audit team, tax policy and planning team, legal team and others), with the director of the TRD as the president, make up the APA committee.

After the TRD issued the APA guidance, several taxpayers made requests for corresponding adjustments through MAP. If a taxpayer in Thailand would like to get a tax refund from the Department through a MAP, care must be taken. Under Thai tax laws, taxpayers can request a corporate income tax refund within three years from the filing date. If they fail to request the tax refund within this time limit, it is likely that the TRD will decline the application for MAP.

There are between 20 and 30 APA and MAP applications with the TRD from taxpayers in Japan, the US, Germany, Singapore and Korea.

Taxpayers in Thailand should take an active approach to managing the risks in advance by evaluating their own transfer pricing risks as well as preparing transfer pricing documentation. The earlier we prepare ourselves, the better we can manage risks and reduce exposures.



Benjamas Kullakattimas

KPMG in Thailand

48th floor

195 Empire Tower South Sathorn Road

Bangkok 10120


Tel: +66 2 6772426

Fax: + 66 2 6772441


Benjamas is a partner in charge of KPMG Thailand's Tax function and leads KPMG Thailand's transfer pricing service. With over 25 years of experience, she has a wide range of knowledge in Thailand taxation and transfer pricing. Her transfer pricing experience includes the review of transfer pricing and tax issues, assistance in localising global/ regional transfer pricing documents and providing comment on Thai tax and transfer pricing implications for the transactions including transfers of tangible and intangible property, inter-company services and cost-sharing arrangements . She has also assisted clients in advanced pricing agreements and audit examinations. She is a frequent speaker on Thai taxation for the firm and public seminars and the lecturer for universities in Thailand.



Abhisit Pinmaneekul

KPMG in Thailand

48th floor

195 Empire Tower South Sathorn Road

Bangkok 10120


Tel: +66 2 6772470

Fax: + 66 2 6772441


Abhisit is a transfer pricing parter of KPMG Thailand. Abhisit has had more than 10 years of working experience. Before joining KPMG Thailand, Abhisit worked in KPMG Singapore for three years. He has assisted the multinational clients in providing domestic tax, international tax, transfer pricing and customs advice. He has led and conducted a number of local/regional/global transfer pricing documentation, transfer pricing investigation and bilateral advance pricing agreement engagements. Abhisit has experience in reviewing various transfer pricing systems, cost structuring, and cost allocation arrangements but also restructuring global business models and supply chains for both local and regional clients. He also was a trainer and speaker for OECD transfer pricing courses and transfer pricing seminars in Thailand and a lecturer of a tax planning course at top universities in Thailand.

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