1.A profit-seeking enterprise directly or indirectly holds 20% or more of the total issued voting shares or total capital of another profit-seeking enterprise;
2.Twenty percent or more of the total outstanding voting shares or capital stock in a profit-seeking enterprise and another profit-seeking enterprise are directly or indirectly owned or controlled by the same person;
3.A profit-seeking enterprise holds the highest percentage of the total outstanding voting shares or capital stock in another profit-seeking enterprise and such percentage reaches 10% or more;
4.One half or more of the executive shareholders or directors of a profit-seeking enterprise and those of another enterprise are the same;
5.A profit-seeking enterprise directly or indirectly holds more than 50% of the total issued shares or total capital of another profit-seeking enterprise, and the majority of a third profit-seeking enterprise's board of directors is appointed by the first two of these enterprises;
6.The chairman, general manager or its equivalent or other superior of one profit-seeking enterprise is that of another enterprise, or has the relation of a spouse or blood relation within the second degree with that of another profit-seeking enterprise;
7.In the case where the head office of a profit-seeking enterprise is located outside the territory of the ROC, its branch office within the territory of the ROC, and its head office or branch offices outside the territory of the ROC are related parties. In the case where the head office of a profit-seeking enterprise is within the territory of the ROC, the head office or branch office within the territory of the ROC and its branch offices outside the territory of the ROC are related parties;
8.A profit-seeking enterprise directly or indirectly controls the personnel, finance, or business operation of another profit-seeking enterprise, including situations where:
(1)The enterprise appoints the general manager or its equivalent or other superior of another profit-seeking enterprise;
(2)The enterprise that is not a financial institution lends money or guarantees the loans to another profit-seeking enterprise to an amount representing 1/3 or more of its total assets;
(3)The profit-seeking enterprise cannot commence its production and business activities without the other enterprise's provision of patent, trademark, copyright, secret formula, proprietary technology, or any franchises, in which the sales of such production and business activities account for 50% or more of the total sales of the former profit-seeking enterprise in the same year;
(4)The price and terms of the profit-seeking enterprise's purchase of raw materials, components and goods are controlled by another profit-seeking enterprise; and the underlined purchase of such raw materials and goods accounts for 50% or more of the total purchase of raw materials and goods of the former profit-seeking enterprise in the same year; and
(5)The sales of products of the profit-seeking enterprise are controlled by another profit-seeking enterprise, and the underlined sales of such products account for 50% or more of the total sales of the former profit-seeking enterprise.
9.A profit-seeking enterprise and another one have entered into a joint venture agreement, or an agreement to conduct business jointly; and
10.Other circumstances which prove a profit-seeking enterprise has control or major influence over the personnel, finance, business operation, or management decisions of another profit-seeking enterprise.
1."Affiliated Enterprise(s)" shall mean those enterprises having a subordinate or control relationship with respect to each other as set forth in the preceding Article.
2."Related Parties" shall mean the Affiliated Enterprises referred to in the preceding subparagraph or the following parties:
(1)Profit-seeking enterprise and a foundation which receives a donation from the profit-seeking enterprise in the amount representing 1/3 or more of the total funds in its balance sheet of such foundation;
(2)A profit-seeking enterprise and a foundation whose one half or more of the total number of directors consist of the directors, supervisors, general manager or its equivalent or other superior of the profit-seeking enterprise, as well as the spouse of any such person;
(3)A profit-seeking enterprise and its directors, supervisors, general manager or its equivalent or other superior, vice general managers, assistant general managers, and department heads under the direct supervision of the general manager;
(4)A profit-seeking enterprise and the spouses of its directors, supervisors, general manager or its equivalent or other superior;
(5)A profit-seeking enterprise and the relatives of its chairman of the board, or general manager or its equivalent and other superior within the second degree; and
(6)A profit-seeking enterprise and the persons who evidentially have the power to control over the enterprise or have material influence ability over the personnel, financial, business operation, or management policy of the enterprise.
3."Unrelated Parties" shall mean any person other than those specified in the preceding subparagraph.
4."Controlled Transactions" shall mean transactions conducted by and between/among Related Parties that fall within the scope set forth in Paragraph 1 or 3 of Article 2.
5."Uncontrolled Transactions" shall mean transactions conducted by and between/among Unrelated Parties.
6."Transaction Result" shall mean transaction price or profit.
7."Non-arm's-length" shall mean the situation when the conditions are made or imposed between (Related) Parties in their commercial or financial relations that differ from those made by Unrelated Parties, resulting in the failure to accrue any profits that would have been accrued to one of the parties by reason of those conditions.
8."Tangible Assets" shall mean merchandise, raw materials, supplies, work-in-progress, finished goods, by-products, short-term investment, securities, accounts receivable, notes receivable, creditor’s rights and other receivables, fixed assets, deferred assets, long-term investment, and other Tangible Assets.
9."Intangible Assets" shall mean any asset other than those specified in the preceding subparagraph, which is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances, such as business rights, copyright, patent, trademark, enterprise name, brand name, design or model, plan, secret formula, trade secrets, or information concerning industrial, commercial, or scientific experience or proprietary knowledge, all franchises online marketing, client data, and other rights that have property value.
10."Transfer Pricing" shall mean the price or profit in Controlled Transactions conducted by profit-seeking enterprises.
11."Arm’s-length Method" shall mean a method for assessing whether the price or profit in Controlled Transactions is at the arm’s length or for determining the arm’s length result of Controlled Transactions.
12."Business Restructurings" shall mean the redeployment of functions, assets, and/or risks among Affiliated Enterprises. It may also involve the termination or substantial renegotiation of existing contractual terms or arrangements, and reorganize or adjust the structure of the organizations. They have typically consisted of:
(1)Conversion of full-fledged distributors into limited-risk distributors and vice versa; similarly, conversion of full-fledged distributors into commissionaires and vice versa.
(2)Conversion of full-fledged manufacturers into contract-manufacturers and vice versa; similarly, conversion of full-fledged manufacturers into toll-manufacturers and vice versa.
(3)Transfers of intangible property rights to an intra-group-appointed enterprise to centralize control by management or to decentralize control to other enterprises of the intra-group.
(4)Streamlining an organization or closing one’s business or part of one’s business.
(5)Other arrangements announced by the MOF.
13."Multinational Enterprise (MNE) Group" shall mean a collection of profit-seeking enterprises related through affiliated relationship or control such that it is either required to prepare consolidated financial statements for financial reporting purposes under applicable accounting principles or would be so required if equity interests in any of the enterprises were traded on a public securities exchange; the group shall include two or more enterprises the tax residence for which is in different jurisdictions, or include an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction.
14."Ultimate Parent Entity" shall mean a constituent entity of an MNE Group that meets the following criteria:
(1)it owns directly or indirectly a sufficient interest in one or more other constituent entities of the MNE Group such that it is required to prepare consolidated financial statements under accounting principles generally applied in its jurisdiction of tax residence, or would be so required if its equity interests were traded on a public securities exchange in its jurisdiction of tax residence; and
(2)there is no other constituent entity of such MNE Group that owns directly or indirectly an interest described in (1) above in the first mentioned constituent entity.
1.Transfer of Tangible Assets, including sale, exchange, gift or other arrangements;
2.Use of Tangible Assets, including lease, provided as collateral, held, used or occupied by the other party, or other arrangements;
3.Transfer of Intangible Assets, including sale, exchange, gift or other arrangements;
4.Use of Intangible Assets, including license, sub-license, provided for others’ use or other arrangements;
5.Rendering of services, including marketing, management, administration, technology, personnel, R&D, information processing, legal, accounting or other services;
6.Use of Funds, including loans, prepayments, temporary payments, guarantees, payment extension or other arrangements; and
7.Other types of transactions prescribed by the MOF.
1.Comparable principle: The results of comparable Uncontrolled Transactions conducted by Unrelated Parties in comparable circumstances are deemed as the arm’s-length transaction results and shall be compared with the results of Controlled Transactions to evaluate whether or not the latter results are at arm’s-length.
2.The adoption of the most appropriate Arm’s-length Method: The most appropriate Arm’s-length Method shall be applied based on the different transaction types and in accordance with the Regulations when determining the Arm's-length result.
3.The Evaluation on a specific transaction basis: The different arm’s-length methods shall, unless such a method otherwise requires, apply to each transaction on a transaction-by-transaction basis. However, if separate transactions are linked or continuous, such transactions should be evaluated together using the most appropriate Arm’s-length Method to determine the Arm's-length transaction result.
4.The using of the current year data:
(1)The Arm's-length result shall be determined based on the data of current year, i.e. the year when the profit-seeking enterprises conduct Controlled Transactions and that of the same year in which Unrelated Parties undertake comparable Uncontrolled Transactions. However, in any of the following situations, the multiple year data covering the current year and previous years can be used:
i.The industry to which the business enterprise belongs has been affected by the business cycles.
ii.Tangible Assets, Intangible Assets and services have been affected by their respective life cycles.
iii.The profit-seeking enterprise adopts the market penetration strategy.
iv.The profit-based method is adopted to determine the arm’s length result.
v.Other circumstances prescribed by the MOF.
(2)If the data of current year mentioned under the preceding Item are the financial statements for the Comparable Uncontrolled Transaction under Article 20 and such data is not available to the profit-seeking enterprise when it files the current year profit-seeking enterprise income tax return, the profit-seeking enterprise may replace such information with the average of three consecutive prior years of comparable Uncontrolled Transactions. In any exceptional situations in the preceding subparagraph, the profit-seeking enterprise may use the consecutive prior year’s data of the comparable Uncontrolled Transactions without current year data.
(3)When the profit-seeking enterprise follows the preceding subparagraph, the collection authorities-in-charge shall adopt the same principle as those used by the taxpayer when investigating and assessing the Non-arm’s-length Transfer Pricing.
5.Use of arm's-length range:
(1)The term "Arm's-length range" refers to a range of Arm's-length results of two or more comparable Uncontrolled Transactions when applying the same Arm's-length Method. If the data of the comparable Uncontrolled Transaction are incomplete for determining the differences between it and the Controlled Transaction, or for making adjustments to eliminate the impacts on the transaction result caused by such differences, the range of between the 25th percentile to the 75th percentile of the Arm's-length result shall be used as the "Arm's-length range".
(2)When using multiple year data in accordance with item 1 of the preceding subparagraph, the Arm’s-length range in item 1 of this subparagraph shall be determined based on the respective average of the multiple year results of the comparable Uncontrolled Transactions.
(3)If the result of a Controlled Transaction falls within the Arm's-length range, the transaction shall be deemed as made on an Arm's-length basis and no adjustment is required. If the result falls outside the Arm's-length range, the transaction result shall be adjusted in accordance with the median of the results of all comparable Uncontrolled Transactions under item 1 or the median of the range constituted by the average of the multiple year results under item 2 of this subparagraph.
(4)If the comparable Uncontrolled Transactions meets one of the following circumstances, leading to a result highly comparable to the Controlled Transactions so as to determine a single reliable Arm’s-length result of the Controlled Transaction, such a result may be used, regardless of the provision of the preceding item (1) to item (3):
i.None of the differences (if any) between a Controlled Transaction and the comparable Uncontrolled Transactions or between the enterprises undertaking those transactions could materially affect the price in the open market.
ii.If there is a material difference of the above Sub-item i, reasonable adjustments could be made to eliminate the material effects of such differences.
(5)If the adjustment, made in accordance with the preceding two items, would decrease tax liability within the territory of the ROC, no adjustment shall be made.
6.Analysis of Reasons for losses: If a profit-seeking enterprise declares loss but its group has a positive result globally, the reason of the loss and the Arm’s-length nature of the transactions between/among it and Associated Enterprises shall be analyzed.
7.Separate evaluation of revenues and expenditures: The receivables of one party of two parties making Controlled Transaction to the other party, and those of the other party to such party, shall be evaluated based on the price when calculating the accrued revenues and expenses of either party separately.
8.Other Arm's-length principles prescribed by the MOF.
1.Characteristics of the assets or services:
(1)Where Tangible Assets are the objects of the transaction, the physical features of the assets, their quality, their volume of supply, and whether any Intangible Assets are included.
(2)Where Intangible Assets are the objects of the transaction, the form of transaction (such as licensing or sale); the type of assets; the terms of transfer, the stage of development; rights to receive updates, revisions, or modifications; the uniqueness and the period for which it remains unique; remaining economic life; and the anticipated benefits from the use of the assets.
(3)Where services are the objects of the transaction, the nature of the services and whether any Intangible Assets are included.
2.Functions performed, including:
(1)research and development;
(3)procurement and raw material/supply management;
(4)manufacturing, processing and assembling;
(5)marketing, distribution, inventory management, warranty, advertising, and product services;
(6)transportation and warehousing; and
(7)operative management, accounting, finance, legal, credit, collection, training and personnel management services.
3.Contractual terms, including:
(1)the form of consideration charged or paid;
(3)scope and terms of after-sale warranties provided;
(4)rights to renew or amend the contract;
(5)the duration of relevant license or contract, and the rights of termination or re-negotiation of the contract;
(6)agreement on provision of auxiliary or supplementary services between the transaction parties;
(7)terms of delivery, such as FOB or CIF; and
(8)terms of credit and payment.
4.Risks assumed, including:
(1)market risks, such as risks of fluctuation in costs, demand, pricing, and inventory level;
(2)risks associated with the success or failure of research and development activities;
(3)financial risks, such as fluctuation in foreign currency rates of exchange and interest rates;
(4)credit risks, such as risks in credit extension and collection; and
(5)product liability risks.
5.Economic and market conditions, including:
(1)the similarity of geographic markets;
(2)the relevant size of each market and its potential of development;
(3)the level of the markets, such as wholesale or retail;
(4)the market share;
(5)the extent of competition in each market, consumer purchasing power, the alternatives available to the buyers and sellers;
(6)government regulations of the market;
(7)status of the industry, such as whether it is an emerging industry or declining industry; and
6.Business strategies, including:
(1)strategies on innovation and new product development;
(2)risk aversion; and
(3)market penetration strategies.
7.Other factors affecting the degree of comparability.
1.Identify economically significant risks with specificity.
2.Confirm the allocation of economically significant risks arranged by contract.
3.Through a functional analysis, confirm the actual economic behavior of the participants of the Controlled Transaction, and whether they perform functions of risk assumption and risk management.
4.Based on the evaluation results of the preceding three subparagraphs, analyze whether the participants of the Controlled Transaction abide by the terms of the contract, and whether the advocate of risk assumption actually controls risk and has the financial ability to assume the risk, so as to confirm whether the contractual risk assumption is consistent with the behavior of the transaction parties.
5.If it is confirmed that the advocate of risk assumption does not exercise control over the risk or does not have the financial capacity to assume the risk, then the risk should be allocated to the party exercising control and having the financial capacity to assume the risk. If multiple parties are identified that all exercise control and have the financial capacity to assume the risk, then the risk should be allocated to the party exercising the most control. The other parties performing control activities should be remunerated appropriately, taking into account the degree of the control activities performed.
6.Repricing of the transaction, taking into account the consequences of risk allocation according to the results confirmed in the preceding five subparagraphs. The party assuming a risk should be compensated with an appropriate anticipated return, and the party mitigating risk should be appropriately remunerated.
1.The following factors shall be considered when judging whether the participants perform functions of risk assumption:
(1)Take on the upside and downside consequences of the risk.
(2)Have the financial capacity to assume risk, which can be defined as access to funding to take on the risk or to lay off the risk, to pay for mitigating the risk and to bear the consequences of the risk if the risk materializes.
2.The following factors shall be considered when judging whether the participants perform functions of risk management:
(1)The capability to actually control risk:
i.the capability to make decisions to take on, lay off, or decline risks, together with the actual performance of that decision-making function, and
ii.the capability to make decisions on whether and how to respond to the risks, together with the actual performance of that decision-making function.
(2)The capability to mitigate risk, that is the capability to take measures that are expected to affect risk outcomes, including measures that reduce the uncertainty or measures that reduce the consequences in the event that the downside impact of risk occurs, together with the actual performance of such risk mitigation.
1.Where the participants of the Controlled Transaction provide funding but do not actually control the financial risk associated with the provision of funding or any other specific risk, only a risk-free return could be generally expected.
2.Where the participants of the Controlled Transaction provide funding and actually control the financial risk associated with the provision of funding, but without the assumption of, including the control over, any other specific risk, only a risk-adjusted return on its funding (i.e. the reasonable return of controlling financial risk) could be generally expected.
1.Degree of comparability: The determination shall be made based on the degree of comparability between the profit-seeking enterprise and its Controlled Transactions and the comparables. The factors set forth in the Paragraph 1 of Article 8 shall be taken into consideration; in particular, special attention shall be drawn to the similarities of those specific factors set forth in Paragraph 2 of Article 14, Paragraphs 2 to 4 of Article 15, Paragraph 4 of Article 16, Paragraph 3 of Article 17, Paragraph 7 of Article 18 and Paragraph 2 of Article 19, and the specific assumptions set forth in Paragraph 2 of Article 19-1. The greater the degree of comparability, the higher will be the applicability of the methods.
2.Quality of the data and assumptions: The determination shall be made based on the factors, including: the completeness, accuracy and adequacy of the data collected to identify the differences as set forth in the preceding paragraph, the possibility and appropriateness of making adjustment in accordance with the Paragraph 2 of Article 8 to eliminate such differences, and the reasonableness of the assumptions made. The better quality of the data and assumptions, the higher applicability of the methods will be.
1.Special considerations for risks:
(1)Whether the contractual reallocation of risks between associated enterprises is consistent with the economic substance of the transaction.
(2)Whether the allocation of functions, assets, and risks, and the attribution of profits before and after the restructuring are at arm’s length.
(3)Whether the entity assuming the risk has the capability to exercise control over the risk and financial capacity to assume the risk.
2.Arm’s length compensation for the restructuring itself:
(1)The business reasons for and the expected benefits from the restructuring.
(2)The rights and obligations of the parties before and after the restructuring.
(3)Whether the transfer of profit potential is consistent with the reallocation of the risks.
(4)Whether the compensation for the transfer of tangible assets, intangible assets, and activities involved by business restructuring is at arm’s length.
(5)Whether the compensation for the business restructuring parties about the damage from contract termination or renegotiation is at arm’s length.
3.Arm’s length remuneration for post-restructuring Controlled Transactions:
(1)The comparability analysis done for the controlled transactions after business restructuring to determine the Arm’s-length Method for the aforementioned transactions.
(2)Comparing the relationship between compensation for the restructuring and post-restructuring remuneration.
1.risks related to development of intangibles;
2.risks of product obsolescence;
4.product liability risks; and
1.Comparable Uncontrolled Price Method.
2.Resale Price Method.
3.Cost Plus Method.
4.Comparable Profit Method.
5.Profit Split Method.
6.Other Arm’s-length Methods approved by the MOF.
1.Comparable Uncontrolled Transaction Method.
2.Comparable Profit Method
3.Profit Split Method.
5.Other Arm’s-length Methods approved by the MOF.
1.Comparable Uncontrolled Price Method.
2.Cost Plus Method.
3.Comparable Profit Method.
4.Profit Split Method.
5.Other Arm's-length Methods approved by the MOF.
1.Comparable Uncontrolled Price Method.
2.Cost Plus Method.
3.Other Arm's-length Methods approved by the MOF.
1.The terms of the transfer, including the exploitation rights granted in the Intangible Assets, the exclusive or nonexclusive character of any rights granted, any restriction on use, or any limitation on the geographical area in which the rights may be exploited;
2.The stage of development of the Intangible Assets, including where appropriate, necessary governmental approvals, authorizations, or licenses- in the market in which the Intangible Assets are to be used;
3.Rights to receive updates, revisions, or modifications of the Intangible Assets.
4.The uniqueness of the assets and the period for which it remains unique, including the degree and duration of protection afforded to the assets under the laws of the relevant countries;
5.The duration of the license, contract, or other agreement, and any termination or renegotiation rights;
6.Any economic and product liability risks to be assumed by the transferee; and
7.The functions to be performed by the transferor and transferee, including any ancillary or supportive services.
1.Functions performed, such as sales, marketing, advertising program, and services.
2.Risks assumed, such as inventory levels and turnover rates, and corresponding risks.
3.Contractual terms, such as scope and terms of warranties provided, sales or purchase volume, credit terms and delivery terms.
4.Market conditions, such as the level of the markets, such as wholesale or retail market.
5.Whether or not Intangible Assets are involved in the transaction.
6.Cost structures, such as the age of machinery and equipments.
7.Business experience, such as whether or not the business is in a start-up or mature phase.
9.Consistency in accounting practices, such as the evaluation method of costs and inventory.
1.Function performed, such as manufacturing and process engineering skills or complexity of installation, and testing function.
2.Risks assumed, such as market risk and foreign currency risks.
3.Contractual terms, such as scope and terms of warranties provided, sales or purchase volume, credit terms and delivery terms.
4.Whether or not Intangible Assets are involved in the transaction.
5.Cost structures, such as the age of machinery and equipments.
6.Business experience, such as whether the business is in a start-up or mature phase.
8.Consistency in accounting practices, such as the evaluation method of costs and inventory.
1.Select the tested parties and tested activities in accordance with Paragraph 3 of this Article.
2.Select the comparable Uncontrolled Transactions similar to the selected tested party and tested activities in accordance with subparagraph 1 of Article 7 and Article 8 hereof.
3.Select the profit level indicator in accordance with Paragraphs 4 to 6 of this Article.
4.Determine the average profit margin of the comparable Uncontrolled Transaction. The average profit margin is equivalent to the sum of the numerator under any subparagraph of Paragraph 4 of this Article within a specific time period divided by the sum of the denominator under the same Paragraph 4 of this Article within the same time period. The aforesaid specific time period is prescribed in Subparagraph 4 of Paragraph 6 of this Article.
5.Calculate the comparable operating profit by using the average profit margin prescribed in the preceding Paragraph and the annual average of the operating assets, net sales revenue, operating expenses, or other items of the related business activities of tested parties within a specific time period, and determine the Arm's-length range in accordance with Items 1 and 2, Subparagraph 5 of Article 7 hereof.
6.The operating profit is deemed to be at Arm’s-length if the average operating profit earned from engaging in the tested business activity by the tested party within a specific period falls within the Arm's-length range prescribed in the preceding Paragraph. If the operating profit falls outside the Arm's-length range, the operating profit of the tested party in the current year shall be adjusted to the median of the operating profits of all the comparable Uncontrolled Transactions in the current year. In the event that the current year data is not available as described under Subparagraph 4 of Paragraph 6 of this Article, the adjustment shall be made based on the median of the operating profit of all the comparable Uncontrolled Transactions as prescribed in the preceding subparagraph.
7.Determine the Arm's-length Result of the participant(s) of the same Controlled Transaction who, other than the tested party, which is/are liable to the ROC income tax pursuant to the ITA, based on the Arm's-length operating profit of the tested party.
1.Return on operating assets (“ROA”): the ratio calculated by using the net operating profit as the numerator, and the operating assets as the denominator.
2.Return on Sales (“ROS”): the ratio calculated by using the net operating profit as the numerator, and the net sales revenue as the denominator.
3.Berry Ratio: the ratio calculated by using the gross profit as the numerator, and the operating expenses as the denominator.
4.Return on cost and expense: the ratio calculated by using the net operating profit as the numerator, and the cost of goods sold or operating cost and expense as the denominator.
5.Other profit level indicators approved by the MOF.
1.The nature of the tested party’s activity.
2.The degree of comparability of the available information regarding the Uncontrolled Transaction, the quality of the data used and the assumptions made.
3.The reliability of the profit level indicator measuring the Arm's-length operating profit of the tested party.
4.The time period covered by the information prescribed in Item 2 of this Paragraph should be able to reflect the reasonable profit of the Uncontrolled Transaction. The time period should include at least three consecutive years including the year of the subject transaction and two years preceding such transaction. In case the current year data is not available to the profit-seeking enterprise when filing the current year profit-seeking enterprise income tax return, the profit-seeking enterprise may use at least three of the consecutive prior years’ data of the comparable Uncontrolled Transactions without current year data.
1.The factors affecting the comparability, including the functions performed, risks assumed, the operating assets employed, the market level of the relevant trading products or services, the operation scale, the stage of a business or product cycle, etc.
2.The rationality and compatibility of the allocation of costs and expenses, income and assets between the relevant activities and other activities of the tested parties.
3.Consistency in accounting practices.
1.Allocate regular income based on regular contributions:
(1)Using the combined operating profit as a basis to allocate operating income to each party of the Controlled Transactions to provide a fair market return for its regular contributions of the relevant business activity.
(2)Regular contributions are contributions of the same or similar kind to those made by unrelated parties involved in similar business activities in which it is possible to identify the fair market returns.
(3)When calculating the regular profit, a functional analysis is required to identify the fair market returns on relevant business activities to be allocated in accordance with the functions performed, risks assumed, and resources employed by each participant. The fair market return can be determined pursuant to the 5 preceding Articles hereof.
2.Allocate residual profit in accordance with the contribution of intangible property:
1.The factors to be considered when determining the fair market return of the regular contribution, including the functions performed, risks assumed, and the assets employed.
2.The rationality and compatibility of the allocation of costs and expenses, income and assets between the relevant operating activities and other activities of the related parties.
3.Consistency in accounting practices.
4.The degree of reliability of the data used and the assumptions made in measuring the relative value of the intangible property contributed by each participant.
1.accuracy and reliability of financial projections;
4.remaining economic life;
5.assumptions regarding taxes; and
6.other assumptions affecting the evaluation of Intangible Assets.
2.General description of MNE’s businesses:
(1)Important drivers of business profit.
(2)A description of the supply chain and the main geographic markets for the group’s five largest products and/or service offerings by turnover plus any other products and/or services amounting to more than 5% of group turnover.
(3)A list and brief description of important service arrangements between members of the MNE Group, other than research and development (R&D) services, including a description of the capabilities of the principal locations providing important services and transfer pricing policies for allocating services costs and determining prices to be paid for intra-group services.
(4)An analysis describing the principal contributions to value creation by individual entities within the group, i.e., key functions performed, important risks assumed, and important assets used.
(5)A description of important business restructuring transactions, acquisitions, and divestitures occurring during the fiscal year.
3.MNE Group’s Intangible Assets:
(1)A general description of the MNE’s overall strategy for the development, ownership, and exploitation of Intangible Assets, including location of principal R&D facilities and location of R&D management.
(2)A list of Intangible Assets of the MNE Group that are important for transfer pricing purposes and which entities legally own them.
(3)A list of important agreements among constituent entities related to Intangible Assets, including cost contribution arrangements, principal research service agreements, and license agreements.
(4)A general description of the group’s transfer pricing policies related to R&D and Intangible Assets.
(5)A general description of any important transfers of interests in Intangible Assets among constituent entities during the fiscal year concerned, including the entities, countries or jurisdictions, and compensation involved.
4.MNE’s intercompany financial activities:
(1)A general description of how the group is financed, including important financing arrangements with non-members of the MNE Group.
(2)The identification of any members of the MNE Group that provide a central financing function for the group, including the country or jurisdiction under whose laws the entity is organised and the place of effective management of such entities.
(3)A general description of the MNE’s general transfer pricing policies related to financing arrangements between constituent entities.
5.MNE Group’s financial and tax positions:
(1)The MNE Group’s annual consolidated financial statement for the fiscal year concerned if otherwise prepared for financial reporting, regulatory, internal management, tax, or other purposes.
(2)A list and brief description of the MNE Group’s existing unilateral advance pricing agreements and other tax rulings relating to the allocation of income among countries.
1.A comprehensive business overview, including history, a detailed description of business activities and business strategies pursued by the enterprise, analysis of industry and economic conditions, major competitors, and analysis of economic and legal factors that affect transfer pricing, as well as an indication whether the enterprise has been involved in or affected by business restructuring or intangible transfers in the present or immediately past year and an explanation of those aspects of such transactions affecting the enterprise.
2.A description of group organization and management structure, including the management structure and organizational chart, a description of the individuals to whom local management reports and the countries in which such individuals maintain their principal offices, register of directors, supervisors, and managers and data of change one year before and after the current year.
3.Summaries of Controlled Transactions, including:
(1)A description of the types of major transactions and their backgrounds, including procedures, dates, transaction subjects, quantities, terms of sale, contract clauses and purposes of the assets or services of the transactions. The description shall explain the sale or use and benefits concerned.
(2)The parties involved in each type of Controlled Transactions and the relationship amongst them.
(3)The amount of payments and receipts for each type of Controlled Transaction involving the enterprise broken down by country or jurisdiction of the payor or recipient.
(4)Copies or their abridged versions of all material intergroup agreements concluded by the enterprise.
4.Controlled Transaction analysis:
(1)An analysis on the function and risk of each party involved in the Controlled Transaction, including any changes compared to prior years.
(2)A description of an instance complied by the principle of Article 7.
(3)Comparability analysis, a description of comparables and comparable uncontrolled transactions selected by the principle of Article 8, and related information thereof.
(4)Risk analysis by the principle of Article 8-1.
(5)An analysis on the most appropriate Arm's-length Method determined in accordance with Article 9.
(6)An estimation of whether the allocation of profits in the Controlled Transaction is at arm’s length while the Business Restructuring is involved, in accordance with Article 9-1.
(7)An estimation of whether the allocation of profits in the Controlled Transaction is at arm’s length where the transaction of Intangible Assets is involved, in accordance with Article 9-2.
(8)A description of the tested party and the most appropriate Arm’s-length Method selected, the reasons for this selection, and an explanation of why alternative methods were not selected.
(9)Transfer Pricing method of related parties for conducting controlled transactions and relevant data.
(10)The conclusion of measurement of the method selected by the most appropriate method including the information of selected comparables and comparable Uncontrolled Transactions (including profit level indicators), and the source of such information, the adjustments made to eliminate the difference of factors and assumptions prescribed in Subparagraph 1 of Article 9, assumptions used, arm’s length range, the result of the conformation of the arm’s length and the adjustments based upon the results of the arm’s length transactions, as well as a summary of financial information used in applying the Arm's-length Method. An explanation of the reasons for performing a multi-year analysis under the proviso of Item 1, Subparagraph 4 of Article 7.
(11)A copy of existing unilateral advance pricing agreements and any advance rulings concerning cross-border income distribution with other countries or jurisdictions, and which are related to Controlled Transactions described above.
5.Statements and consolidated reports of the Affiliated Enterprises and other materials as required pursuant to Article 369-12 of the Company Law.
6.Other documents in relation to related parties or controlled transactions, which may affect pricing, if any.
1.The Ultimate Parent Entity of the MNE Group is not obligated to file a country-by-country report in its jurisdiction of tax residence; or,
2.The Ultimate Parent Entity has filed a country-by-country report in its jurisdiction of tax residence, but such jurisdiction does not have an agreement in effect that requires the exchange of country-by-country reports to which the ROC is a party by the time specified in the preceding paragraph for submitting the country-by-country report; or,
3.The Ultimate Parent Entity has filed a country-by-country report in its jurisdiction, and such jurisdiction has an agreement that requires the exchange of country-by-country reports in effect with the ROC; however, the collection authority-in-charge is unable to acquire the country-by-country report in accordance with the agreement.
1.The jurisdiction of tax residence of the Surrogate Parent Entity requires filing of country-by-country reports.
2.The jurisdiction in the preceding subparagraph has an agreement that requires the exchange of country-by-country reports in effect with the ROC by the time specified in the first paragraph for submitting the country-by-country report, and the collection authority-in-charge is able to acquire the country-by-country report in accordance with the agreement.
3.The profit-seeking enterprise has disclosed the relevant information of the Ultimate Parent Entity and Surrogate Parent Entity in accordance with Article 21.
1.“Constituent entity of the country-by-country report” shall mean an entity that meets any one of the following conditions:
(1)Any profit-seeking enterprise that is included in the consolidated financial statements of the MNE Group under the law or accounting principles generally applied in its jurisdiction of tax residence of the Ultimate Parent Entity;
(2)Any profit-seeking enterprise that is not included in the consolidated financial statements in the preceding item, but would be so required if equity interests in the Ultimate Parent Entity were traded on a public securities exchange in its jurisdiction of tax residence;
(3)Any such profit-seeking enterprise that is excluded from the MNE Group’s consolidated financial statements in the preceding two items solely on size or materiality grounds; and
(4)Any permanent establishment of any profit-seeking enterprise of the MNE group included in the preceding three items provided the profit-seeking enterprise prepares a separate financial statement for such permanent establishment for financial reporting, regulatory, tax reporting, or internal management control purposes.
2.Content of the country-by-country report:
(1)Aggregate information relating to the amount of revenue, profit (loss) before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the MNE Group operates.
(2)An identification of each constituent entity of the MNE Group setting out the jurisdiction of tax residence of such constituent entity mentioned under the preceding item, and the jurisdiction under the laws of which such constituent entity is organized, and the nature of the main business activity or activities of such constituent entity, which shall include: research and development; holding or managing intellectual property; purchasing or procurement; manufacturing or production; sales, marketing or distribution; administrative, management or support services; provision of services to unrelated parties; internal group finance; regulated financial services; insurance; holding shares or other equity instruments; dormant.
(3)A description of any activity engaged by constituent entities other than the preceding item.
1.In order to apply for advance pricing arrangements, the total amount of the transactions shall be no less than NT$500 million; or, the annual amount of such transactions is no less than NT$200 million;
2.No significant tax evasions were committed in the past three years;
3.Documentation as required under Subparagraphs 1 to 3 and Subparagraphs 5 to 9, Paragraph 1 of Article 24 has been well-prepared;
4.Preparation of a Transfer Pricing report as prescribed under Subparagraph 4, Paragraph 1 of Article 24 has been completed; and
5.Other criteria approved by the MOF.
1.Name, government uniform invoice (“GUI”) number or identification number, and address of the Applicant and its agents;
2.Original power of attorney shall be attached if the application is made and filed through an agent;
3.Brief description of the transaction being applied for advance pricing arrangement;
4.Total amount or annual amount of the transactions being applied for advance pricing arrangement;
5.Whether the documents and reports prescribed in Subparagraph 3 and 4, Paragraph 1 of this Article have been fully prepared;
6.Whether in past years the Applicants have ever been subject to investigation on their Non-Arm's-length transactions conducted by the collection authorities-in-charge; and
7.Other information required.
1.The application period of the advance pricing arrangement.
2.The global organization structure of the group.
3.Main business scope of the enterprise.
4.The related parties, the type of Controlled Transactions, and an explanation of the functions and risks.
5.Reasons of the application for the advance pricing arrangement.
6.Other necessary explanations.
1.Organization charts of Affiliated Enterprises home and abroad.
2.Relevant information on the related parties involved in the transactions being applied for advance pricing arrangement, including an analysis report covering the following six aspects: operation, legal, tax, finance, accounting, and economy as well as the income tax return and financial statements for the three years prior to the application.
3.Relevant information concerning the transaction applying for an advance pricing arrangement:
(1)Name of the related parties involved in the transaction and their relationship with the Applicant;
(2)Type, flow, date, object, amount, price, and contractual terms of the transaction as well as the use of property or services transferred. The use shall include the descriptions regarding whether the property is transferred for sale or use and its benefits; and
(3)The time period covered by the related transaction.
4.The transfer pricing report shall, in addition to being subject to Paragraph 1 of Article 22, specify the following information:
(1)Assumptions affecting the pricing;
(2)An analysis of value contribution and profit allocation of related parties in Controlled Transactions.
(3)In case of adopting an Arm's-length Method not provided in the Regulations, a special analysis along with supporting evidentiary documents explaining the reasons why such method is more suitable than those Arm's-length Methods as provided and how it can achieve an Arm's-length result.
(4)Important financial accounting policies that have a direct impact on the pricing methods.
(5)The material differences in financial accounting and tax laws between the countries involved in the transaction being applied for the advance pricing arrangement and the ROC, provided, however, that such differences would have an impact on the adoption of Arm's-length Method.
5.The pricing information of the same transactions or related transactions conducted by the Applicant and other related parties.
6.The annual forecast of the operation results and business plans within the effective period of the advance pricing arrangement.
7.Upon filing the application, the explanations or conclusions on issues related to the adoption of the Transfer Pricing method that have occurred or are currently under discussion with local or foreign competent authorities, or the advance pricing arrangements that have been approved with foreign competent authorities.
8.Whether these issues are related to potential double taxation and whether bilateral or multilateral advance pricing arrangements of tax treaty countries are involved.
9.Other information as requested by the collection authorities-in-charge.
1.Related parties to the arrangement;
2.Controlled Transactions and their period for concerned related parties;
3.Assumptions affecting the pricing policy;
4.Pricing policy and Arm’s-length method adopted;
5.Terms of the arrangement, effective period and its effect;
6.Obligation of the Applicant, including the provision of annual report and impact report in accordance with Article 29 hereof, the retention of documents and reports set forth in Article 24 hereof, and the notice of change to factors affecting the transaction result in accordance with Article 31 hereof;
7.The treatments of breaching of the arrangement;
8.Amendments to the arrangement;
9.The approach and procedure of dispute settlement; and
10.Other specific provisions.
1.Provided that the profit-seeking enterprises have produced the transfer pricing report or the substitute document as required by Article 22 hereof, the collection authorities-in-charge shall assess the Arm''s-length result of the Controlled Transactions pursuant to the Regulations, and assess the taxable income of related taxpayers.
2.Provided that the profit-seeking enterprises have not or cannot produce the transfer pricing report or the substitute document pursuant to Article 22 hereof, the collection authorities-in-charge may make an assessment in light of available data in accordance with the preceding subparagraph. In the event that no available data and the transfer pricing report or the substitute document which the profit-seeking enterprises failed to produce are relevant to the revenue, costs, or expenses, the collection authorities-in-charge may refer to the relevant business net profit, operating cost and operating expense to compute the taxable income according to the profit standard of the same trade concerned pursuant to Article 83 of the ITA and Article 81 of the Enforcement Rules of the ITA.
3.If the profit-seeking enterprises fail to submit or provide the information or document related to their taxable income, the collection authorities-in-charge may handle the case pursuant to Article 46 of the Tax Collection Act.
1.The reported price of Controlled Transaction is two times or more than the Arm’s Length price assessed by the collection authorities-in-charge; or lower than 50% of the Arm’s-length price.
2.The increase in taxable income of the Controlled Transactions adjusted and assessed by the collection authorities-in-charge is more than 10% of the annual taxable income of the enterprise; and more than 3% of the annual net operating revenue.
3.A profit-seeking enterprise cannot produce transfer pricing report as required under Paragraph 1 of Article 22 thereof, and no other documents evidencing the transactions is Arm’s-length result.
4.The increase in taxable income of the Controlled Transactions, which are not disclosed in the report or transfer pricing document in accordance with Articles 21 to 22-1 by a profit-seeking enterprise, adjusted and assessed by the collection authorities-in-charge is more than 5% of the annual taxable income of the enterprise; and more than 1.5% of the annual net operating revenue.