On 16th May 2002, the Revenue Department issued guidelines on the determination of Market Price (Departmental Instruction No. Paw 113/2545) for the Revenue Department's officers in order to provide officials with a guideline of market price principles and how to obtain a market price.

Departmental Instruction No. Paw 113/2545 empowers Revenue officers to adjust company's revenue and expenses when calculating Corporate Income Tax if a company receives no compensation or receives at the amount less than market price without justifiable reasons or pays expenses at the amount more than market price without justifiable reasons.

The instruction provides a definition of market price which is consistent with Arm's Length principle under OECD's transfer pricing guidelines. Market price under this instruction means the price that would be charged between independent parties at the date of transaction for the sale of assets, provision of services or lending of funds under the same circumstances.

Pricing methods that the Revenue Department accepts are as follows :

• Comparable Uncontrolled Price Method
• Resale Price Method
• Cost Plus Method
• Other methods if any of the above methods cannot be applied, including profit based methods adopted by OECD such as profit-split method, transactional net margin method and any other methods that are internationally accepted.

The instruction also gives list of documentation that taxpayers should prepare when the transactions are made and submit to the official upon request during the transfer pricing examination. These documentation will help avoiding disputes between taxpayers and officials. Documentation includes :

1. documentation establishing the structure and relationship of a business within the same group, including the business nature of each company;
2. budgets, business plans and financial projections;
3. documentation establishing the business strategies and the reasons of their adoption;
4. documentation establishing the sales, operating results and the nature of its dealing with associated enterprises;
5. documentation establishing the reasons for entering into international dealings with associated enterprises;
6. pricing policies, documents relating to product profitability, relevant market information and profit contributions of each party;
7. documentation establishing the reasons for selection of pricing methodology or methodologies;
8. in the case where several pricing methodologies can be adopted, there must be documentation establishing details of other methodologies, and reasons for the rejection of using such methodologies;
9. documentation evidencing the negotiating positions taken with associated enterprises; and
10. other documentation that is relevant to the pricing methodologies, if any.

The rule of "Advance Pricing Arrangement" or APA is also available for taxpayers. APA is an agreement between taxpayers and the Revenue Department of the pricing methodology that would be used in future transactions between related parties.

For more information, please contact : transfer_pricing.wg@pasi.rd.go.th