Before we move on to the next topic, let’s briefly revisit the concept of related companies. One common question I received from foreign companies was “Whether the definition of a Related Company under Thai law was the same as that under the OECD Guidelines?” The answer is: “Almost the same.” The OECD Guidelines define "Associated Enterprises" in its Glossary as follows: “Two enterprises are associated enterprises if one of the enterprises meets the conditions of Article 9 sub-paragraphs 1(a) and 1(b) of the OECD Model Tax Convention,” which was broad conditions:
1(a): One enterprise in one country participates directly or indirectly in the management, control, or capital of another enterprise in “another country”; or
1(b): The same persons participate directly or indirectly in the management, control, or capital of one enterprise in one country and another enterprise in “another country”.
This definition is like the one under Section 71 bis, paragraph 2(3) of the Thai Revenue Code, except that Thai law further clarifies that: “The relationship in terms of capital, services, or control must be such that one legal entity cannot operate independently from the other.” However, this expanded definition is not yet enforceable because, as of now, there is no ministerial regulation issued to implement it (as explained in a previous post). Currently, Thailand’s transfer pricing law has a narrower scope than the OECD. It applies only to companies that “Hold at least 50% shares in each other or have the same shareholders holding at least 50% in both companies.” Once the broader definition under Paragraph 2(3) takes effects, the meaning of "Related Companies" under Thai law will fully align with the OECD.
Nevertheless, the meaning of "associated enterprises" under the OECD Guidelines differs from that of "related companies" under Thai law in that, according to the OECD, associated enterprises must be residents of different jurisdictions. Therefore, it is implicitly understood that the OECD's transfer pricing assessment applies only to cross-border transactions. In contrast, under Thai law, transfer pricing assessments can be applied to both international and domestic transactions. For example, the Revenue Department still has the authority to examine transactions with related companies that receive BOI (Board of Investment) privileges or have significant accumulated losses.
[Contact Person: Mr. Phongnarin Ratarangsikul | Partner]