The rating action reflects the recent increase in ThaiBev’s financial leverage in relation to its acquisition of a 53.59 percent equity interest in Saigon Beer Alcohol Beverage Joint Stock Corporation (Sabeco), the largest beer producer in Vietnam with around 41 per cent market share based on volume. The acquisition was wholly funded by new borrowing. ThaiBev aims to gradually reduce the newly elevated leverage by internally generated cash over the next few years. Based on its business strengths, we expect ThaiBev will be able to significantly reduce its leverage in 34 years.

The rating continues to reflect ThaiBev’s robust competitive position in the domestic beverage market, extensive distribution network, and ongoing efforts to diversify its sources of income.

ThaiBev is the largest beverage company in Thailand. It has dominated the alcoholic beverage industry for years, with a market share exceeding 90 per cent for spirits and nearly 40 per cent for beer, based on sales volume. It is also the market leader in the readytodrink tea segment, and is a major producer of carbonated drinks and other beverages.

Moody’s Investors Service has also down graded ThaiBev issuer rating to Baa3 from Baa2, concluding the review for downgrade initiated in December 2017 following the company’s announced acquisition of the stake in Saigon Beer Alcohol Beverage Corp. The rating outlook is negative.

This revised draft follows the public-hearing process conducted by the Thai Revenue Department (TRD) in July 2017, after the issuance of the second draft of the law. The original draft of the TP law was approved by the Cabinet back in May 2015.

Unfortunately, the revised draft of the TP law is not available to the public. We can, however, make certain assumptions based on the Cabinet minutes and the TRD’s responses to the public hearing process on the second draft of the law, which were posted on their website.

The revised draft law provides power to the TRD to reassess the taxable income and expenses of related party transactions to be consistent with the arm’slength principle. This requires that the pricing of related party transactions be based on the pricing which would have been agreed in transactions between independent parties.

As the TP law addresses the pricing of transactions between related parties to ensure that it is determined on an arm’slength basis, the definition of related parties is key to determining whether the law applies to a transaction in the first place.

The second draft of the law included a definition of related parties which focused on the shareholding relationship between the parties requiring a threshold of 50 per cent before the parties would be regarded as related.

The TRD has confirmed, however, that shareholding percentage is just one factor and there is room in the law to include others. For example, management control may be included as a factor.

The law will require two levels of documentation: (1) an annual report filed with the corporate tax return which provides information on the relationship between entities and the value of intercompany transactions; and, (2) transfer pricing documentation which would likely include the typical information – business description, functional analysis and the economic analysis – which addresses the selection and application of the appropriate transfer pricing methods for the related party transactions.

While it is expected that TP pricing analysis will be prepared at the time of entering into the related party transaction, to ensure that the pricing is arm’s length, taxpayers will have 60 days to provide the specified documentation to the TRD after request. The TRD will have five years to request the documentation after the tax filing for the year.

The rules will provide a revenue threshold in determining which companies are required to file an annual report.

This threshold will be specified in a ministeriฌal regulation, but will not be less than Bt30 million. It is not clear whether the same threshold would be applied for the TP docuฌmentation. Clearly, however, if the threshold is set at Bt30 million, not many businesses will be excluded.

Failure to file the report and/or TP documentation/evidence, or submitting incomplete/incorrect documents or evidence without justifiable reasons, will result in the taxpayer being subject to a fine not exceeding Bt200,000 per offence.

It is also possible that similar to other countries, the TRD may consider reducing or exempting penalty for the taxpayers who have prepared and submitted the required information/document within the period specified by the law.

Perhaps the biggest issue remaining, however, is what the effective date of the new law will be. The draft law presented to the Cabinet indicated that the new law would be effective for accounting periods commencing on or after January 1, 2017.

However, concerns were raised that the law would have retrospective effect given that it would be passed after the end of the 2017 year. The Ministry of Finance and the Council of State will consider this matter further.

Once the effective start date for the law is determined, the draft TP law will be submitted to the National Legislation Assembly for law enactment. With the imminent introduction of the TP law, taxpayers should ensure transfer pricing compliance.

Wellprepared, contemporaneous TP documentation not only serves as an efficient tool in preparing an annual report to be submitted with the annual tax return, but it could also put taxpayers in the better position to defend themselves with Revenue officers if and when the TP audit takes place; hence, reducing potential exposures and penalties.

Contributed by Stuart Simons and Kancharat Thaidamri, who are tax partners in the transfer pricing service line at Deloitte Thailand. They can be contacted at ssimons@deloitte.com and kthaidamri@deloitte.com

According to a report released on Thursday by the London-based market research company, the fastest-growing brand comes from China. Wuliangye, a Chinese brand of aromatic liquor, grew a striking 161 per cent year on year to US$14.6 billion (Bt459 billion), rising 184 ranks to 100th.

The Industrial and Commercial Bank of China Limited (ICBC) is the only Chinese brand on the list of top 10 most valuable brands, with a brand value of $59.1 billion, up 24 per cent from a year ago, according to the report.

Chinese technology brands also boast high brand value growth, with Alibaba (12th), Tencent (21st), WeChat (49th), Baidu (57th), JD (65th) and NetEase (121st), going up by an average of 67 per cent year on year, it said.

Since 2008, China’s share of global brand value has increased from 3 per cent to 15 per cent, growing to $911.5 billion in 2018, said the report.

“In the 19th century, Britain dominated world manufacturing and then British brands became famous. In the 20th century, American manufacturers dominated the world, American brands dominated the world. In the 21st century, China is the centre of the manufacturing universe, Chinese brands are increasingly becoming global,” said Haigh.

Chinese brands such as Huawei, Ping An, State Grid, Evergrande, ICBC, Yili, Haval, Wuliangye and many others “are now being recognised worldwide as quality brands”, said Haigh. “We expect to see this develop rapidly in more and more sectors.

“The Chinese government is definitely doing what it should do. The Chinese government is a very strong supporter of the whole idea of creating intellectual property.”

The Brand Finance report also said Amazon is the world’s most valuable brand, with its brand value increasing by 42 per cent year on year to a whopping $150.8 billion, followed by Apple, Google, Samsung and Facebook.

Similarly, the 10year German bond yield, which has recently broken above 0.7 per cent, could move up further to test the 1.0 per cent level. If these scenarios pan out, the developed markets’ bond rout would see no signs ofabating.

Interestingly, the Bank of Japan (BOJ) has signalled to the market that it will chip in to fight the global bond rout. As a result, the BOJ increased its bond purchases last week. On Friday, the central bank offered to purchase “unlimited amounts” of 510year Japanese government bonds at fixed rates.

As of February 2, the 10year Thailand government bond yield stood at 2.35 per cent, which is significantly lower than the 10year US yield of 2.79 per cent. This is not justified, as Thailand’s credit rating is BBB+, which is much lower than the US AAA rating. Hence, once investor concerns over risฌing US inflation fade, a reversal in trend for US yields would occur. We advise investors to prepare for further bond market turbulence in the near future. For the equity market, we believe any shortterm weakness should offer opportunities to accumulate key stocks with strong fundamentals.

Tisco Securities

After a 4.2percent gain in January, we expect the SET to see further consolidation this month, with a likely trading range of 1800 and 1850. A correction on global stock markets triggered by rising US bond yields and volatility in oil prices has led to a more cautious mood among investors. This has been reinforced in the Thai market by weak fourth-quarter bank results, confirmation of an election delay and disappointing macro data for December.

However, we believe that the Thai market will soon shrug off the negative news flow and extend its rally. The prospect of strong first-quarter earnings in 2018, a more robust economy (particularly with regards to private consumption and private investment) and undervaluation of some large cap sectors means there is still scope for the SET index to move higher – provided that crude oil prices remain at elevated levels throughout the year. The SET could get a shortterm boost if the NLA approves the Eastern Economic Corridor (EEC) bill later this month, a move that could lift sentiment for stocks such as AMATA, WHA and TICON.

Buying momentum could also pick up late this month ahead of the dividend season in March and firstquarter earnings announcements in May (for the latter we expect to see substantial yearonyear growth due to the low base effect). Domestic institutions are clearly more bullish on the market’s prospects than foreign investors. The former were net buyers of Bt5.4 billion of Thai equities in January while the latter were net sellers of Bt5.7 billion.

At this point, the healthcare, banking, construction materials and property sectors remain attractive as these trade at one (or lower) standard deviation above historical mean, whereas the SET currently trades at close to 1.7 times above mean. Telcos are likely to play a more supportive role after the spectrum auction tentatively scheduled for May, while we see energy stocks trending higher as crude prices now seem to have ended their correction.

Research department

Trinity Securities

We expect the SET Index to move sideways in a range of 17901850 points in February. Key factors need monitoring extend from the US bond yield, Thai bond yield, direction of US dollar and global crude price, US budget issue to announcement of Thai listed companies’ 2017 fourthquarter earnings performance. Amid high valuation of the Thai stock market, we suggest a selective strategy for stocks with high dividend yield which usually make satisfacฌtory adjustments in February of every year. Stock picks:

1) Residential Group (AP, LH, QH, SIRI); 2) Securities and high purchase (ASP, KKP, TISCO, TCAP, ASK); 3) Refineries (BCP, IRPC, TOP, SPRC).