On September 30, 2021, the Department of Revenue of Thailand issued a notification prescribing country-by-country transfer pricing (CBC) reporting requirements for multinational enterprise groups (MNEs) doing business in Thailand.
The notification of the Director General of the Revenue Department regarding income tax (No.408) applies to fiscal years beginning on or after January 1, 2021, the CBC report being submitted at the same time as the annual corporation tax. (PND 50) deposit (i.e. within 150 days of the end of the accounting period). For example, if the accounting period ends on December 31, 2021, the CBC report must be filed by May 30, 2022.
The CBC report operates under a three-tier structure, with a global master file and a local file, as recommended in the OECD Action 13 report on Base Erosion and Tax Participation. Benefits (BEPS) (Transfer Pricing Documentation and Country by Country Reports). The CBC reporting requirement targets large MNEs, with the aim of encouraging international tax transparency, improving access by tax authorities to information on the overall distribution of income and taxes paid by MNEs, and help governments assess high-level transfer pricing risks and conduct economic action and statistical analysis.
The CBC reporting requirement will allow Thailand to automatically exchange tax and financial information with other signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. This goes hand in hand with the recent law amending the Tax Code (No.54) BE 2564 (2021), which empowers the Director General of the Tax Department to exchange information with the competent authorities of other jurisdictions.
Entities required to submit CBC reports
The CBC report notification applies to multinational groups that do business in Thailand and at least one other jurisdiction and have consolidated sales of at least THB 28 billion (approximately $ 847.6 million) over an accounting period of 12 months (pro rata for shorter periods).
Typically, Ultimate Parent Entities (UPEs; see definitions below) incorporated in Thailand must submit a CBC report to the Revenue Department. For foreign UPRs (i.e. those not registered in Thailand), an EMN group member that operates in Thailand may be required to file the report locally.
However, these Thai members of the MNE group will not have to submit the CBC report if the following conditions are met:
- The foreign UPE already files a CBC declaration in its own tax residence; and
- Foreign UPR tax residence has CBC reporting competent authority agreement with Thailand, and CBC returns can be successfully shared with Thailand.
In addition, for the purpose of exchanging information between multiple jurisdictions, a Thai member of an MNE group may be officially appointed by a foreign UPR as a Thai Surrogate Parent Entity (SPE) to file reports. in his name. However, the accounting periods of the foreign UPE and the SPE must be the same, and the foreign UPE must notify the Revenue Department of the appointment of the SPE.
By officially designating the SPE in Thailand, the multinational group can be exempted from CBC reporting obligations in other jurisdictions that have a competent authority agreement with Thailand under which CBC reports are exchanged. This is similar to the deposit exemption (see below) offered by the Ministry of Finance.
Filing of exemptions
A Thai member of a multinational group mentioned above is exempt from filing CBC reports with the Ministry of Finance if all of the following conditions are met:
- The foreign PSU has appointed an SPE residing outside of Thailand (i.e. an SPE located in a third country) to file CBC declarations with the competent authority of the country of tax residence of the SPE of third country ;
- The third country SPE’s country of tax residence requires the filing of CBC returns;
- A competent authority agreement between the country of tax residence of the third country SPE and Thailand is in effect on the deadline for filing the CBC report in Thailand;
- The third country SPE’s country of tax residence has not reported any systemic failure regarding its information exchange with Thailand;
- the SPE of the third country has notified the competent authority of its country of tax residence of its appointment as reporting entity; and
- The Thai member of the MNE group notified the tax service of the appointment of the third country SPE.
Define an UPR
The definition of PSU is generally based on the requirement to prepare consolidated financial statements. Under CBC’s declaration notification, an entity is considered to be an UPR in either of the following scenarios:
- It owns, directly or indirectly, enough of one or more other entities of the same multinational group that it must prepare consolidated financial statements in accordance with the accounting principles of its country of tax residence, or would have to do so if its holdings were traded on a stock exchange in that country (or the Thailand Stock Exchange if the country does not have a stock exchange). In addition, to be considered an UPR, it cannot be owned directly or indirectly, as above, by another entity of the same multinational group.
- It does not have any interest (as described above) in any other entity, but operates through a permanent establishment in another country.