TAX NEWS - 2010

Thailand Tax: Thailand releases APA guidance

The Thai Revenue Department recently issued advance pricing agreement (APA) guidance in the form of a practical manual that outlines the steps and procedures for taxpayers that wish to apply for a bilateral APA with the Thai Revenue Department and a foreign tax authority.

The Thai Revenue Department issued its original transfer pricing guidelines in 2002. Following the release of the transfer pricing guidelines, the Thai Revenue Department has accepted bilateral APA applications under the relevant tax treaties, and a few of those have been successfully finalized.

The APA Guidance was issued with the aim of providing transparency and direction to both taxpayers and tax authorities regarding the methodologies, terms, and conditions for entering into the APA process. Notably, the APA Guidance is not issued under the Thai tax laws and therefore does not have legal effect. However, there will clearly be an expectation from the Thai Revenue Department that taxpayers will follow the Guidance's requirements.


What is an APA?

APAs may be unilateral, bilateral, or multilateral. A unilateral APA is essentially an agreement between a taxpayer and the tax authorities of a single country, whereas bilateral and multilateral APAs are agreements between two or more states regarding the pricing of cross-border transactions within multinational enterprises. The Thai Revenue Department will enter into bilateral multilateral agreements only – it does not currently provide the option of entering into unilateral agreements.

It is not clear whether the Thai Revenue Department would accept a multilateral APA application.


Who can apply?

A company or juristic partnership incorporated under Thai law that enters into related-party transactions with affiliates who are residents of Thailand's tax treaty partners may apply for an APA. Notably, however, a Thai branch (i.e., a permanent establishment) of a foreign company is not permitted to request an APA.


APA period

The APA term may cover three to five accounting periods.


Prefiling meeting requirement

A prefiling meeting is required to discuss the need and reasons for the APA application, including consideration of certain prefiling documents. Taxpayers must submit a written document of intent for a prefiling meeting to the Director-General of the Revenue Department at least six months prior to the last day of the first accounting period of the APA covered period.

The prefiling documents as specified under the Guidance (items 1-6 below) must be submitted at least 15 days before the prefiling meeting date. In case of reasonable cause, however, late submission may be taken into consideration.


APA application

An application for an APA must be made in the form prescribed by the Thai Revenue Department, together with the submission of the following documents:

- Name and address of taxpayer seeking the APA. The accounting period of the entity and the transaction(s) covered under the APA;
- Structure and relationship of the related parties. Types of business of the related parties and their shareholders;
- Details of business revenue and operating results (e.g. by transaction or by customer) and the types of transaction undertaken among related parties, including their pricing policy and detailed explanation of the reason for choosing such policy;
- Detailed analysis of functions, assets, and risks by transaction;
- Detailed analysis of the structure of industries and their market share;
- Transfer pricing method (TPM) chosen for APA and the reason for choosing that TPM
- Description of process, procedure, and benchmarking study outcome;
- Critical assumptions;
- History and status of general audits according to summons and investigation relating to transfer pricing within the past five accounting periods before requesting the APA; and
- Any other relevant documents, for example, description of accounting standard, accounting procedure if there is difference between the accounting standard of the Thai company and the related companies, or governmental regulation that may influence transfer pricing.

The APA application must be submitted before the last day of the first accounting period of the APA period in Thai and English. One "soft" file, such as a CD-ROM, is also required.

The Thai tax authorities currently do not charge an APA application fee.


APA process

The Thai Revenue Department is required to issue a letter within three months of the filing of the APA application to notify the APA applicant of the acceptance of the application.

Any documents related to the APA that the taxpayers provide to foreign tax authorities are also required to be provided to the Thai Revenue Department within seven working days from the date the documentation was delivered to the foreign tax authorities.


APA agreement

Upon finalization of the agreement between the Thai Revenue Department and the foreign tax authority, the Thai Revenue Department will provide written notice to the Thai taxpayer to comply with the APA. This notice will include the time frame for submitting an APA annual report to support that the taxpayer has complied with the conditions of the APA.