On 16th May 2002, the Revenue Department issued guidelines on the determination of Market Price (Departmental Instruction No. Paw 113/2545) for the Revenue Department's officers in order to provide officials with a guideline of market price principles and how to obtain a market price.
Departmental Instruction No. Paw 113/2545 empowers Revenue officers to adjust company's revenue and expenses when calculating Corporate Income Tax if a company receives no compensation or receives at the amount less than market price without justifiable reasons or pays expenses at the amount more than market price without justifiable reasons.
The instruction provides a definition of market price which is consistent with Arm's Length principle under OECD's transfer pricing guidelines. Market price under this instruction means the price that would be charged between independent parties at the date of transaction for the sale of assets, provision of services or lending of funds under the same circumstances.
Pricing methods that the Revenue Department accepts are as follows :
The instruction also gives list of documentation that taxpayers should prepare when the transactions are made and submit to the official upon request during the transfer pricing examination. These documentation will help avoiding disputes between taxpayers and officials. Documentation includes :
The rule of "Advance Pricing Arrangement" or APA is also available for taxpayers. APA is an agreement between taxpayers and the Revenue Department of the pricing methodology that would be used in future transactions between related parties.
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