Planning Transfer Pricing Policies – Topic Cluster

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Why wait until the Thai Revenue Department is knocking on your door to call for help? The more exposed your company is, the greater the risk of being hit by a tax bill and possibly even fines for noncompliance, so what can you do in advance to prevent this?

The answer, simply put, is planning, preparation and policy implementation. 

Before you enter into a controlled transaction or any transaction within your company’s parent group, assess the situation and plan your steps carefully. It’s worth taking some time to analyse what challenges you’re likely to face, how you’ll be able to overcome them and as a result be able to determine when it’s time to call the experts.

Read more: The impact of COVID-19 on your Transfer Pricing arrangements

Let’s face it, plenty of global companies face a range of issues when it comes to getting comprehensive and consistent policies in place – transfer pricing demands a level of transparency that requires copious amounts of data from a range of sources. Typically, in large multinationals, these sources are somewhat disparate and disconnected; all too often companies operating in multiple jurisdictions fail to synchronise their Electronic Resource Planning (ERP) systems, which in turn fragments data throughout the group of companies and often making it difficult to synthesise. 

Now, remember, the clock is ticking from the moment the Thai Revenue Department’s request for your transfer pricing documentation arrives and gathering, validating and harmonising all the data necessary is a lengthy process – one that can prove both time and resource-intensive, particularly if there are any surprises to be found, there is less time to mount a strategic defence. 

You may not be able to tweak systemic issues your company faces, there is no quick fix for issues like decentralised ERP systems, but at least being aware of such obstacles, you can begin compiling the necessary information from all the relevant parties before entering into an intra-company transaction. This is just one aspect where planning can save you time, money and needless stress in an already complex process.

Another means through which you can be proactive to strengthen your case – or at least your ability to respond to a transfer pricing request from the authorities – is tracking. Take into account just how smooth and streamlined your information flows are throughout the company group; budgets, forecasts and targets are difficult to track if this data is not managed effectively and proactively.

This could result in significant adjustments needed at the end of each tax year, which has the potential to convolute your transfer pricing procedures – another good reason to ensure that you have access to all of the information you need before entering into any transaction that may fall under Thailand’s transfer pricing legislation. 

To ensure your monitoring, reporting, forecasting and planning are up to date, be sure to enact company-wide policies that include monthly, quarterly and annual management of all data relevant to intra-company transactions. For this to work, it requires an adequate level of uniformity throughout the group – various software packages can bolster capacity in this area.

Any multinational dealing with big data for tax purposes both including and beyond transfer pricing will recognise the value of flexible reporting that keeps pace with the dynamism of a group that operates across multiple jurisdictions. 

Read more: Everything you’ve ever wanted to know about Transfer Pricing in Thailand (with examples)

There are technological means through which the entire group can collate their transaction data, apply cost allocation rules and adjust data throughout the year – while plenty of options exist, look for packages that guarantee transparent, traceable data that is completely visible. This may feel like an investment, but given the potential of fines for noncompliance with Thailand’s transfer pricing rules, few costs will exceed the amount needed to satiate the Thai Revenue Department. 

Always keep the golden rule in mind; assess before you initiate. Even if all systemic issues have been addressed and your group enjoys a free flow of validated information that is updated regularly, there’s no need to subject yourself to needless exposure by entering into a controlled transaction without doing a dry-run. 

This is where a planning report comes in. While this may feel somewhat like paying for the same thing twice, there are inherent benefits to compiling a planning report and few people will do it better than the professionals. View it as an investment that will pale in comparison to the additional taxes and penalties you could be hit with if the Thai Revenue Department even suspects you might be attempting to shift your profits to low tax jurisdiction.  

A planning report is effectively just a case of putting together the transfer pricing documentation you would need to, but doing it before the transaction takes place. This may take time and slow your transaction down, but – and this cannot be stressed enough – the cost of non-compliance is far worse than paying people who can all but guarantee your company’s dealings are above board.

Much in the way that practice makes perfect, a planning report gives you a chance to see where you might encounter difficulties and allows you to identify these issues without the time constraints and pressure of the Thai Revenue Department, so again – it all comes down to preparation.

Preparing for the worst is a good way to avoid it, but dedicating in-house resources to this process before even entering into a transaction may – for companies of a certain size – be counter-intuitive and that’s why HLB is here to absorb those time-consuming activities and do the legwork for you. 

With a range of tailored plans that are made to fit the specific needs of your business, as well as a host of expertise across a range of industries, HLB offers your company the best chance at making it through transfer pricing unscathed.

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