THAILAND’S EXPERIENCE ON TRANSFER PRICING UN Expert Group Meeting on TP Issues for Developing Countries 14 March 2012

2 1. Transfer Pricing Development in Thailand 2. Relevant Law and Guidelines 3. Thailand’s Approach to Transfer Pricing 4. Conclusion and Future Direction Presentation covers

1. Transfer Pricing Development in Thailand 1

Released Transfer Pricing regulation 2002 Released Transfer Pricing regulation Departmental Instruction No. 113/2545 subject : Corporate Departmental Instruction No. 113/2545 subject : Corporate Income Tax - The Determination of Transfer Price based on Income Tax - The Determination of Transfer Price based on the Market Price the Market Price A 10 year journey… 2003 Established Transfer Pricing Division under Bureau of 2003 Established Transfer Pricing Division under Bureau of Large Business Tax Administration Large Business Tax Administration Established APA Committee and Working Team Established APA Committee and Working Team 2006 Commenced competent authority meeting on APA 2006 Commenced competent authority meeting on APA 2008 First 2 APA cases reached agreement 2008 First 2 APA cases reached agreement 2010 Released APA Guidelines for taxpayers 2010 Released APA Guidelines for taxpayers 2012 Due to commence competent authority meeting on 2012 Due to commence competent authority meeting on corresponding adjustment corresponding adjustment

2. Relevant Law and Guidelines 2

2.1 The Revenue Code 2.1 The Revenue Code  No provision specifically for transfer pricing  Apply provisions that deal with gratuitous transfer or transfer with unreasonably low consideration

2.2 Departmental Instruction No. 113/2545 issued on 2.2 Departmental Instruction No. 113/2545 issued on 16 May May 2002  Guideline on how to apply the arm’s length principle to related transactions between associated enterprises  Market price standard for related transaction

2.3 Thailand’s DTAs 2.3 Thailand’s DTAs Art 9 associated enterprises & corresponding adjustment Art 25 MAP (transfer pricing disputes and APA) 2.4 Standard Accounting 2.4 Standard Accounting Revenue Recognition using fair value to measure revenue.

3. Thailand’s Approach 3

3.1 Departmental Instruction – meant to be short term 3.1 Departmental Instruction – meant to be short term measure measure  Market price vs Arm’s length price  Adjustment procedures  Value added tax  Penalties  Statute of limitation  Advance Pricing Arrangement Difficulties in practice with lack of specific law on TP Difficulties in practice with lack of specific law on TP

3.2 Bilateral APA – aims to eliminate international 3.2 Bilateral APA – aims to eliminate international double taxation double taxation  However, it necessitates sharp learning curve  Negotiations against more skilled and experienced experts

3.3 Business environment in Thailand 3.3 Business environment in Thailand  Contract manufacturer model  Problems with comparability and functional analysis  Domestic profit shifting due to investment promotion schemes  Residence countries of parent companies seek to shift profits away from Thailand

3.4 Organisation structure of the Revenue Department 3.4 Organisation structure of the Revenue Department  shortage of personnel  no permanent organization to support MAP and APA

4. Conclusion and future direction 4

4.1 Amendment of law to include specific TP legislation 4.1 Amendment of law to include specific TP legislation 4.2 Creation of MAP Office within International Tax 4.2 Creation of MAP Office within International Tax Division with full time staff to handle APA cases Division with full time staff to handle APA cases 4.3 Training and manuals to enhance standard 4.3 Training and manuals to enhance standard operations operations 4.4 Decentralising TP audit 4.4 Decentralising TP audit 4.5 Enhance relationship and partnership with taxpayers 4.5 Enhance relationship and partnership with taxpayers and consultant companies as well as foreign tax and consultant companies as well as foreign tax authorities authorities

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