Key Takeaways
- Relationship Declaration: Importers must check the 'Related Party' box in the customs entry declaration form.
- Arm's Length Principle: Prices must reflect fair market value, simulating transactions between unrelated businesses.
- Tax Authorities Conflict: The Revenue Department targets transfer pricing to prevent corporate profit shifting (aims for lower expenses/higher income), while Customs targets undervaluation (aims for higher import bases).
- Transfer Pricing Documentation: Importers must maintain transfer pricing study reports to justify pricing methods during customs audits.
Section 9 and Sales Between Related Parties
Under the GATT Customs Valuation Agreement incorporated into Section 9 of the Customs Act B.E. 2560, a transaction between related parties (e.g. parent-subsidiary or firms under shared control) does not automatically disqualify the transaction value. However, the importer must demonstrate that the relationship did not influence the price and that the pricing structure is consistent with normal commercial practices of the industry.
The Divergence Between Revenue Transfer Pricing and Customs Valuation
Businesses frequently struggle with the conflicting targets of the Revenue Department and the Customs Department regarding related party pricing: - The Revenue Department: Targets overvaluation of imports to prevent corporate profit shifting and tax base erosion (preventing artificially high expenses). - The Customs Department: Targets undervaluation of imports to prevent the evasion of import duty and import VAT (seeking higher taxable bases). Consequently, having a transfer pricing report prepared for corporate income tax audits does not automatically secure the importer from customs duty assessments.
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Contact Our Experts NowMethodologies to Justify Related Party Transaction Values
Importers can justify related party values using two primary customs approaches: 1. Circumstances of the Sale: Proving that the pricing method mirrors normal industry pricing or simulates negotiations with unrelated entities. 2. Test Values Comparison: Demonstrating that the declared value closely approximates the customs value of identical or similar goods sold to unrelated buyers, or deductive/computed values previously accepted by customs.
Official Reference Agencies and Regulations
- Thai Customs Department: Statutory sections on importer liabilities and criminal penalties under the Customs Act B.E. 2560.
- Ministry of Finance & Appeals Committee: Ministerial decrees on customs valuation and formal tax appeal tribunal procedures.
Under Section 9 of the Customs Act B.E. 2560, imports between related parties (e.g. parent-subsidiary) are scrutinized to determine whether the relationship influenced the price. The importer must prove that the Transfer Pricing aligns with the arm's length principle (comparable to transactions with unrelated buyers).
Frequently Asked Questions
Q: Do we need to notify customs if we make year-end transfer pricing adjustments?
A: Yes. If the adjustment results in an increase in the price of imported goods, the importer must file a voluntary disclosure to pay additional duties, otherwise it is considered an under-declaration of customs value.
Q: What are the best documents to justify transfer pricing to customs?
A: An intercompany agreement, the corporate transfer pricing policy document, and detailed product cost breakdown sheets.
