Tax News No. 262 October 2018

Tax News No. 262 October 2018

On 14 September 2018, Extraordinary Committee of National Legislative Assembly (“Committee”) considered the draft of Amendment Act on Revenue Code (No …) B.E. … and approved for the amendment of Revenue Code. The purpose was to prescribe rules in corporate-income-tax imposition for related companies or related juristic partnership having mutual relationships setting pricing determination of transfer of property, provision of service, or provision of loan “transfer pricing”. And such transfer pricing is different from the price of which independent companies or juristic partnerships would set. The Committee concurred that Section 35 Ter, Section 71 Bis and Section 71 Ter of Revenue Code shall be added. Afterwards, Prime Minister shall wait for duly 5 days to offer the draft and shall present the draft before the His Majesty the King within 20 days as of overdue date. When His Majesty the King affixes the royal signature, this draft of Act shall be promulgated by Government Gazette and shall be entered into force as law.
    According to a draft of Amendment Act on Revenue Code (No…) B.E. … issued by our Tax News No. 258 on June 2018, the Committee amended as follows:

1.    The draft of Paragraph one of Section 71 Bis was added the purpose of making transactions (sales, purchase, service provision, loan) that companies or juristic partnership having mutual relationships and carrying on business independently have made transactions on the way which is believable that they have intention to transfer profits each other.
2.     The draft of Paragraph three of Section 71 Ter had been changed of income figures which the related companies or juristic partnership shall prepare for a transfer pricing (TP) disclosure form with regard to information of the related company or related juristic partnership from “as of the income not less than 30 million Baht” to “as of the income not less than 200 million Baht”. Moreover, any related company or related juristic partnership earns income 200 million Baht or less than 200 million Baht, whether or not they may prepare for other documents, but not the disclosure form, Revenue Department shall detail such information later.
3.    The draft of Paragraph two of Section 71 Ter had been added provisions on filing a transfer pricing (TP) disclosure form with regard to information of the companies or juristic partnerships having mutual relationship. Only in case where the companies or juristic partnerships having mutual relationship receive a written notice at the first time, they shall abide by the notice within 180 days as of the date when they received the written notice if Director-General approves additional 120 days with original 60 days. However, if the related companies or related juristic partnership receive the written notice at the second time or more, they shall submit the TP disclosure form to the officer within 60 days as of the date when they receive the written notice.
4.    Preparation for transfer pricing documentation (TP documentation) of a domestic companies or juristic partnership having mutual relationship (Local file), and TP documentation of group related companies or juristic partnership (Master file) is an essential matter. This preparation shall be beneficial to administration and management of the related companies or related juristic partnership.
5.    Both transfer pricing disclosure form with regard to information of the related company or related juristic partnership, and the values of mutual transactions in each accounting period shall be summitted together with required lists, all of which shall be clear and shall not be interpreted in different ways. If the companies or juristic partnerships having mutual relationship fail to execute, they shall be punished by Section 35 Ter.
6.    This draft of Act shall apply to benefits on corporate-income-tax imposition specifically. The draft of Section 71 Bis and Section 71 Ter shall not apply to value added tax.
7.    This draft of Act shall enter into force the income of the related companies and related juristic partnership since 1 January 2019 onwards.

The draft of Act which is going to be applicable as law contains the following details:

Draft
Amendment Act
On Revenue Code (No…)
B.E. …

——————————————————————————————————————————————–
Whereas it is deemed proper to amend Revenue Code
——————————————————————————————————————————————–

Section 1 This Act is called the “Amendment Act on Revenue Code (No…) B.E. …”.

Section 2 This Act shall come into force on the following date of its publication in the Government Gazette.

Section 3 There shall be added the following provision as Section 35 Ter of Revenue Code.
“Section 35 Ter    Whoever fails to comply with Section 71 Ter or submits the transfer pricing disclosure form, documents or evidence under Section 71 Ter of which its information is incorrect, incomplete, without any justifiable reason. The person shall be fined not exceeding 200,000 Baht.”

Section 4 There shall be added the following provisions as Section 71 Bis and Section 71 Ter of Revenue Code.
“Section 71 Bis    In case companies or juristic partnerships having mutual relationship have  commercial or financial conditions different from the conditions which should have been made by an independent companies or independent juristic partnerships as well as such related companies or juristic partnerships make transactions on the way which is believable that there is to transfer profits each other, an assessment officer has authority to adjust revenue and expenses of such companies or juristic partnerships so that the assessment officer shall adjust them to revenue supposed to be earned and expenses supposed to be paid by an independent company or juristic partnership by deeming that such companies or juristic partnerships earned and paid for the adjusted amount in order to compute amount of net profits under Section 65 or assessable income under Section 70 or Section 70 Bis in accordance with rules, procedures, and conditions as prescribed by Ministerial Regulation.
The company or juristic partnership having mutual relationship under Paragraph one means two or more related companies or related juristic partnership having relationships as following characteristic:
(1)    An entity holds shares or is a partner of the other entity, either directly or indirectly, not less than 50 percent of the other entity’s total capital;
(2)    A shareholder or a partner holding shares or being a partner of an entity, either directly or indirectly, not less than 50 percent of the entity’s total capital holds shares or is a partner of the other entity, either directly or indirectly, not less than 50 percent of the other entity’s total capital;
(3)    Related entities have mutual capital, management, or control relationships in a way that an entity cannot separate its independent of business operation from the other entity as prescribed by Ministerial Regulation.

In case the revenue and expense adjustments of the companies or juristic partnerships having mutual relationship made by the assessment officer in pursuance of Paragraph one result in the fact that the companies or juristic partnerships paid tax or was deducted withholding tax in an excessive amount which should have been paid or without liability to pay for, the companies or juristic partnerships having mutual relationship are entitled to file application for request of tax refund within 3 years as of the last date of corporate-tax-return filing as prescribed by law, or within 60 days as of the date when the assessment officer informed a written notice on the adjustments as announced by Notification of Director-General.

Section 71 Ter The company or juristic partnership having mutual relationships with other company or juristic partnership where they are fallen into any characteristic in pursuance of Paragraph two of Section 71 Bis, whether or not there are relationships throughout an accounting period or mutual transactions in the accounting period, shall submit the document with regard to information of the companies or juristic partnerships having mutual relationship and the values of mutual transactions in each accounting period according to the form as specified by the Director-General to an assessment officer, together with the tax return, within the period under Section 69.
Within 5 years as of the submission date of the document on information of the companies or juristic partnerships having mutual relationship in pursuance of Paragraph one, an assessment officer, with approval by the Director-General,  may send a notice to and request the companies or juristic partnerships having mutual relationship in pursuance of Paragraph one to submit documents or evidence on necessary information so that the assessment officer can analyze condition of mutual transaction regarding the companies or juristic partnerships having mutual relationship as announced by Notification of Director-General. The recipient of the notice shall execute within 60 days as of the date when receiving the notice. If the recipient has a necessary cause and is unable to execute within the scheduled period, the Director-General can permit to extend the scheduled period which shall not be exceeding 120 days as of the date when receiving the notice. Especially in case the recipient receives the notice at the first time, the recipient shall execute within 180 days as of the date when receiving the notice.
The provision under this Section shall not apply to the companies or juristic partnerships earning an income, which is derived from business or as a result of business, in an accounting period not over than the amount or having any other characteristic as prescribed by Ministerial Regulation. The amount of income under Ministerial Regulation shall not be less than 200 million Baht.”

Section 5    The provisions of Section 3 and Section 4 shall apply to the income of the related company or related juristic partnership in the accounting period starting in or after 1 January 2019 onwards.