This tax news will be of interest to: Thai companies that are part of multinational enterprise (MNE) groups and engage in intercompany transactions. In our tax news, you will find a guide on how a company can deal with a transfer pricing (TP) audit.
How to manage TP risks during the audit
If the company faces one or more red flags according to our TP series Part 1: Potential Red Flags, the company needs to prepare for how to deal with the TP audit by the tax authority. To reduce the risk of TP adjustments during the TP audit, the following important steps should be taken:
- Preparation for key areas
The first step is to understand the key areas that the tax authority is likely to scrutinise during the TP audit. This will help you ensure that the supporting documents and TP documentation are in order. Key areas include:
- Intra-group services, e.g. management fees, commission fees and technical fees
- Royalties
- Purchase or sale of goods from/to related parties
- Other notable areas, e.g. business restructuring, lower profit than the industry average or loss incurred
- Ensuring compliance with TP regulations and maintaining the relevant supporting documents
The company must ensure that its TP policy complies with the arm’s length principle. In the event of an audit, the tax authority will request documentation to demonstrate compliance with the TP regulations. These documents include:
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- Benchmarking study to prove the arm’s length price or margin
- Assumptions about the adopted TP policy and financial information
- Intercompany agreements
- Invoices
- Documents showing that unusual or abnormal events have occurred during the year and the impact quantified
- Minutes of meetings or reports showing the benefits received
- Other business documents that demonstrate compliance with the arm’s length principle
It is important to keep all relevant documents relating to intercompany transactions and to submit them to the tax authorities upon request.
3. Preparation for proper TP documentation
The TP documentation is the most important document for defence in a TP audit. It should contain contents that comply with the Director-General Notification of the Revenue Department No. 407. The TP documentation must be prepared in Thai language.
In addition, the TP master file must be submitted to the Revenue Department upon request.
Please remember that the TP documentation and relevant supporting documents must be kept for five years after the due date of the annual TP disclosure form.
The above steps and areas, if not properly justified, would result in adjustments to revenue or expenses. The company could face additional taxes and possible surcharges/penalties.
Look to the future: TP issues for intra-group services
In June 2025, we will publish Transfer Pricing Series Part 3 which will focus on the TP issues for intra-group services—an area frequently scrutinised in TP audits. Stay tuned to learn more about common issues and best practises for TP management in these specific areas.
For further questions, please contact:
- Narumol Limprasert – Tax and Transfer Pricing Partner,
Narumol.Limprasert@th.gt.com, +66 2 205 8222
- Phatsawut Fueangwutthiron – Transfer Pricing Manager, Phatsawut.fueangwutthiron@th.gt.com , +66 2 205 8273
