How should related-party transactions with head office be priced so they are not adjusted by the Revenue Department?
1. The three transactions most often adjusted
| Transaction | What the Revenue Department looks at | What to prepare |
|---|
| Management and service fees paid to head office | Whether the Thai company actually received and benefited from services, and whether they are mixed with head office shareholder activities | Service agreement, list of services, work products (reports, emails, training records), cost allocation basis |
| Royalties and technology fees | Whether the rate is reasonable and the technology is actually used | Licence agreement, technical documents, comparable rate evidence |
| Related-party loans | Whether the interest rate is close to market; for interest-free or low-interest loans to related parties, the Revenue Department can impute interest at market rates | Loan agreement, rate basis, repayment records |
Also note: service fees, royalties and interest paid to an overseas head office usually require Thai withholding tax, and whether China–Thailand treaty rates apply must be checked item by item (see When paying service fees or royalties to head office, which Thai taxes must be filed?).
2. How to show the price is reasonable
Choose the right method: comparable uncontrolled price, resale price, cost plus, transactional net margin or profit split, depending on the transaction.
Do a comparability analysis: use databases to find comparable companies or transactions and set an arm's length range.
Document it: record the functional and risk analysis, method selection and calculations in transfer pricing documentation.
3. Disclosure and documentation duties
4. Common mistakes
Charging management fees as "a percentage of revenue" out of head office habit, with no evidence of services received in Thailand;
Intra-group funding with no agreements and no interest;
Pricing policies not updated for years while the business model has changed.
5. Basis and scope of service
Basis: Thai Revenue Code Section 71 bis (arm's length principle and adjustment power), Section 71 ter (related-party disclosure) and Section 65 bis on imputed interest on related-party loans; Revenue Department transfer pricing notifications; the China–Thailand tax treaty. Actual treatment follows current Revenue Department practice.
Related services: Transfer Pricing Services | Tax Health Check
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