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Transfer pricing law in Thailand and the BEPS initiative
December, 17th 2015

Initiated by the Organisation for Economic Cooperation and Development in 2013 and endorsed by the G-20, the OECD’s “Action Plan to Address Base Erosion and Profit Shifting (BEPS)” includes 15 key areas to encourage more transparency, better reporting and more cooperation between countries in which multinational companies operate.

On October 5, the OECD issued a final package of reports in connection with the Action Plan as well as a plan for follow-up work and a timetable for implementation.

While implementation and timing will vary across borders - some European jurisdictions have already incorporated aspects of the plan - the final OECD release marks a crucial shift from the recommendation and consultation phase of BEPS to legislation and implementation.

A look at the OECD members in the Asia-Pacific reveals that they are highly engaged and likely to adopt the full slate of BEPS proposals, in accordance with the OECD guidelines.

Australia has perhaps been the most involved, given its role as president of the G-20 in 2014. Japan and South Korea are another two OECD members in the region also highly invested in the Action Plan's outcome. China, the 2016 holder of the rotating G-20 presidency, has taken a particularly active and constructive role in the various working-party meetings where Action Plan items have been considered. Other G20 countries, such as India and Indonesia, are also engaging in the OECD discussion and will likely implement some aspects of the BEPS proposals that suit their domestic purposes.

Other countries, such as Singapore, will likely adjust certain aspects of their tax systems in response to any new international norms. Certain Asean countries, namely Thailand, Malaysia and the Philippines, may adopt some measures while others, such as Cambodia, Laos and Myanmar, seem to have no engagement on BEPS.

Recent Thai domestic political issues, coupled with a sluggish world economy, have had a significant impact on the Thai economy. The commerce and economic team in the government has to work hard to revive the economy and keep Thailand competitive in the world market.

Although Thailand does not actively participate in the OECD's BEPS initiatives, adopting some parts of the Action Plan may be a good way to demonstrate the promotion of a transparent environment and encouraging cooperation between countries.

Within the Action Plan, strengthening transfer-price regulation is one of the key focus areas. Transfer pricing is a primary focus of the OECD's BEPS initiative and has been publicly described as a device that may be used by multinational companies and their advisers to avoid paying taxes.

Approved by the Cabinet in May this year and soon to be enacted, the Thai transfer-pricing law should be a prime showcase. OECD's Action 13, which recommends re-examination of transfer-pricing documentation, recognises that enhancing transparency for tax administrators by providing them with adequate information to conduct transfer-pricing risk assessments and examinations is an essential part of tackling BEPS.

Under Action 13, the OECD recommends a three-tiered approach to documentation that includes preparing a master file, local file and country-by-country report. The master file contains standardised information relevant for the multinational enterprise (MNE) group, while the local file provides additional details about the operations and transactions relevant to that jurisdiction and the economic analyses of the inter-company transactions. Finally, the country-by-country report contains summarised data by jurisdiction, including revenue, income, taxes, and indicators of economic activity.

The OECD has recommended that the country-by-country report be required for MNEs with an annual consolidated group revenue of more than 750 million euro (Bt29.6 billion) and should be filed by the ultimate parent company of the MNE in its jurisdiction, or by a surrogate parent entity. The upcoming Thai transfer-pricing law will focus on the mandatory requirement of local documentation, which is comparable to the local file mentioned in the Action Plan.

It would be prudent of the Thai tax authority to additionally use the information in the country-by-country report which the headquarters or parent companies in foreign countries are required to prepare, together with a company's master files, in evaluating the transfer-price exposures of the subsidiaries in Thailand.

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