Transfer Pricing in Thailand:
Arm's Length Principle and 5 TP Methods

1. Introduction — Transfer Pricing in the Thai Business Context Overview — Why Transfer Pricing Compliance Matters in Thailand

Transfer Pricing refers to the prices that companies within the same corporate group (Related Parties) set for transactions between themselves, whether those transactions involve the sale of goods, the provision of services, intercompany loans, transfers of intellectual property, or cost allocations. Because companies within the same group do not compete with each other in the open market, they may have an incentive to set transfer prices in a manner that shifts profits to entities in jurisdictions with lower tax rates, thereby reducing the tax base in higher-tax jurisdictions.

Thailand is home to a significant number of multinational enterprises (MNEs), particularly in the automotive, electronics, food and beverage, and financial services sectors. The Revenue Department has steadily intensified its scrutiny of transfer pricing arrangements, especially following the enactment of the Act Amending the Revenue Code (No. 47) B.E. 2561 (2018), which introduced comprehensive, standalone Transfer Pricing provisions into Thai law for the first time in the country's tax history.

For companies operating in Thailand that engage in transactions with affiliated entities overseas or within Thailand, understanding the Transfer Pricing legal framework and maintaining complete, accurate documentation is a matter of urgent compliance. The consequences of non-compliance — both in terms of additional tax assessments and financial penalties — can be substantial.

2. Legal Framework Revenue Code & Transfer Pricing Act B.E. 2562 (2019)

2.1 Revenue Code — The Historical Foundation

Prior to 2019, the Revenue Department relied primarily on Revenue Code Section 65 bis (4) as its principal instrument for auditing and adjusting transfer prices. That provision authorized the assessment officer to recalculate income and expenses — and therefore reassess Corporate Income Tax — where the prices used in transactions between related companies deviated from market prices. However, the provision lacked detailed implementing rules and left considerable ambiguity in practice.

2.2 Act Amending the Revenue Code (No. 47) B.E. 2561 (2018)

This Act — effective for accounting periods beginning on or after January 1, 2019 — constitutes the most significant Transfer Pricing reform in Thai tax history. It introduced Revenue Code Section 71 bis, which explicitly codifies the Arm's Length Principle for transactions between Related Parties, establishes mandatory documentation and reporting obligations, and provides the Revenue Department with clear statutory authority to make TP adjustments on the basis of a documented Arm's Length analysis. The Act aligns Thailand's TP framework with international standards developed by the OECD under the BEPS project.

2.3 Related Parties — Definition Under Thai Law

Under Thailand's Transfer Pricing legislation, a company is treated as a Related Party if it satisfies any of the following criteria:

• Direct or Indirect Shareholding: One company holds, directly or indirectly, not less than 50% of the total shares or voting rights of another company.
• Common Shareholder: The same person or juristic person holds, directly or indirectly, not less than 50% of the total shares or voting rights of both companies.
• Business Control: One company is capable of controlling the operations of another, whether through contractual arrangements or any other mechanism.

3. Arm's Length Principle The Foundation of Transfer Pricing — Arm's Length Standard

The Arm's Length Principle is the cornerstone of Transfer Pricing law globally, including in Thailand. Under Revenue Code Section 71 bis, it requires that transactions between Related Parties be priced and structured on the same terms and conditions that independent parties dealing in a competitive market would agree to. In other words, the price and terms must reflect genuine market conditions — not prices set to achieve a particular tax outcome.

3.1 Comparability Analysis — Finding the Right Benchmark

The central challenge of demonstrating Arm's Length compliance is identifying suitable "comparables" — independent transactions or companies against which the controlled transaction can be benchmarked. Thai TP rules, consistent with OECD Guidelines, require analysis of the following comparability factors:

• Characteristics of the Property or Service: Physical features, quality, reliability, availability, volume, technical specifications, warranty conditions.
• Functional Analysis (FAR Analysis): The functions performed, assets employed, and risks assumed by each party to the transaction — the FAR profile is typically the most critical comparability factor.
• Contractual Terms: Duration, payment terms, warranties, exclusivity provisions, and other terms that affect price in arm's length transactions.
• Economic Circumstances: Market conditions, level of the supply chain at which the transaction occurs, geographic location, regulatory environment, business cycles.
• Business Strategies: Market entry or penetration strategies, product launch phases, innovation or technology development cycles that may justify temporary deviations from standard margins.

3.2 Tested Party — Selection Principles

When applying the Transactional Net Margin Method (TNMM) — the most frequently used TP method in Thai practice — it is necessary to select a "Tested Party" for benchmarking purposes. Consistent with OECD Guidelines, the Tested Party is generally the entity performing the less complex functions and bearing fewer risks (the "less complex party"), as reliable comparables are more readily available for such entities. Common examples include contract manufacturers, limited-risk distributors, or service providers operating on a cost-plus basis, as opposed to the principal company that owns intellectual property and assumes the primary business risks.

4. TP Methods — The Five Approved Methods Transfer Pricing Methods Recognized Under Thai Law

Thailand's Transfer Pricing legislation recognizes five approved methods for establishing that a transfer price meets the Arm's Length standard. These methods are consistent with the OECD Transfer Pricing Guidelines 2022 and are listed in the Director-General's Notification Regarding Income Tax (No. 400):

Selecting the Most Appropriate Method

Thai law does not impose a rigid priority ordering among the five methods. Instead, taxpayers must select and apply the "Most Appropriate Method" — the method that produces the most reliable measure of an arm's length result for the particular transaction, given the available data, the nature of the functions performed by each party, the comparability of available benchmarks, and the overall economic substance of the transaction. This approach is consistent with the OECD Transfer Pricing Guidelines 2022. In practice, TNMM is by far the most commonly applied method for routine manufacturing, distribution, and service transactions, while CUP is preferred where direct price comparables exist.

5. Documentation Requirements Three-Tiered Transfer Pricing Documentation

Thailand's Transfer Pricing law establishes a three-tiered documentation framework consistent with the OECD's BEPS Action 13 recommendations. Companies that meet the applicable thresholds are required to prepare and maintain documentation at each tier:

5.1 Local File — Entity-Level Documentation

The Local File is prepared at the level of the individual Thai entity and documents the intercompany transactions of that specific company. It must contain the following elements:

1. Organizational Information and Structure: Organizational chart, corporate group structure, and descriptions of the roles and responsibilities of each entity within the group's value chain.
2. Functional Analysis (FAR): Detailed analysis of the functions performed, assets employed, and risks assumed by each party to the controlled transactions — the foundation of any TP analysis.
3. Transaction Details: Type and nature of each controlled transaction, transaction values, contractual terms, payment conditions, and the identity and jurisdiction of each Related Party counterparty.
4. Comparability Analysis: Description of the search process used to identify comparables, the comparables selected (or rejected), the adjustments applied, and the rationale for selecting the TP method used.
5. Arm's Length Demonstration: Documentation showing that the transfer prices used fall within the arm's length range derived from the comparability analysis, and the year-end adjustments made if necessary.

5.2 Master File — Group-Level Documentation

The Master File provides a high-level overview of the multinational group's business, covering: global organizational structure, description of the group's business and strategic drivers, group-wide value chain analysis, descriptions of significant intercompany service arrangements and financing, information on the group's intangibles (including ownership, development, and exploitation policies), and the group's overall Transfer Pricing policy. The Master File is required for companies that are part of a corporate group with consolidated annual group revenue of THB 28 billion or more.

5.3 Country-by-Country Report (CbCR)

The Country-by-Country Report is mandatory for multinational corporate groups with consolidated annual group revenue of THB 28 billion or more. The CbCR discloses, for each jurisdiction in which the group operates, the amounts of revenue, pre-tax profit, income tax paid, accumulated earnings, number of employees, and stated capital. Thai ultimate parent companies must file the CbCR directly with the Revenue Department. Thai subsidiaries of foreign parent companies must file a CbCR Notification (surrogate filing arrangement) in lieu of the full CbCR.

6. TP Disclosure Form TP Disclosure Form — Filing Obligations and Thresholds

Companies that meet the applicable threshold must file the TP Disclosure Form (Form TP) together with the Corporate Income Tax return (Form PND 50) within 150 days of the last day of the accounting period. The filing obligation and corresponding thresholds are set out below:

Information Required in the TP Disclosure Form

The TP Disclosure Form requires the company to disclose the following information for each type of transaction with each Related Party:

• Name and jurisdiction of each Related Party counterparty
• Nature of the relationship (shareholding percentage or other basis of control)
• Type and aggregate value of each category of transaction during the accounting period
• Transfer Pricing method applied for each transaction category
• Result of the Arm's Length test (whether the transaction falls within the determined arm's length range)

7. Penalties — Non-Compliance Risks and Consequences Penalty Exposure for Transfer Pricing Non-Compliance in Thailand

Non-compliance with Thailand's Transfer Pricing legislation exposes companies to a multi-layered structure of financial and legal sanctions. The following sets out the principal categories of risk:

7.1 Transfer Pricing Adjustment (Primary Exposure)

Where the Revenue Department determines that the transfer prices used in controlled transactions do not meet the Arm's Length standard, it has statutory authority under Revenue Code Sections 65 bis (4) and 71 bis to reassess the company's income using the Revenue Department's determination of the Arm's Length price. The consequence is an additional Corporate Income Tax liability based on the reassessed income, together with the surcharges and late payment interest described below. In high-value transaction cases, the additional tax exposure can be very substantial.

7.2 Surcharges and Late Payment Interest

• Surcharge (เบี้ยปรับ): Where tax is assessed due to non-filing, incomplete filing, or understatement of income — a surcharge of 100% or 200% of the additional tax due, depending on the circumstances, under Revenue Code Sections 22 and 26.
• Late Payment Interest (เงินเพิ่ม): Interest on unpaid tax at the rate of 1.5% per month or fraction of a month of the unpaid tax amount, under Revenue Code Section 27. This accrues from the original due date until full payment.
• Penalty for Failure to Produce Documentation: A fine of up to THB 200,000 for failure to produce the Local File or Master File within the period specified in a Revenue Department request, under the Act Amending the Revenue Code (No. 47) B.E. 2561 (2018).

7.3 Criminal Sanctions (Willful Evasion)

Where it can be proven that the adoption of non-arm's length transfer prices was motivated by a deliberate intention to evade taxes, the perpetrators may be liable under Revenue Code Section 37, which provides for imprisonment not exceeding seven years and/or a fine not exceeding THB 200,000. While criminal prosecution for TP-related conduct remains uncommon in practice, the risk is real and the legal exposure is significant for senior management and directors of companies found to have engaged in deliberate profit manipulation.

8. Frequently Asked Questions FAQ — Transfer Pricing in Thailand