Currently, Transfer Pricing is nothing new in the Thai business circle. Executives, financial professionals, accountants, and others have become quite familiar with and understand Transfer Pricing. However, starting a series on Transfer Pricing by answering the simple yet important question, "What is Transfer Pricing?" could help everyone understand the concept clearly. It's like buttoning a shirt; if you get the first button right, the rest will follow correctly.
The guidelines from the Organization for Economic Co-operation and Development (OECD) define Transfer Pricing as "the prices at which an enterprise transfers goods, intangible property, or services to associated enterprises" [OECD Guidelines, Preface, paragraph 11]. Whenever related parties (through shareholding, control, or management) sell, transfer, or provide services to each other, the prices set for these transactions are known as "Transfer Prices."
From the OECD's perspective, multinational companies do not set Transfer Prices to avoid taxes. Instead, when a company has transactions with related companies (abbreviated as Related Co), the prices determined for such transactions would naturally be Transfer Prices. Companies can set accurate and appropriate Transfer Prices by comparing them with prices determined for comparable transactions between independent companies, or the so-called Arm's Length Principle by the OECD. This principle is also the same of those adopted in Section 71 bis, first paragraph of the Revenue Code.
[Contact Person: Mr. Phongnarin Ratarangsikul | Partner]