Where an enterprise of the other Contracting State carries on business in the territory of the ROC through a PE situated therein, the business profits which are attributed to such PE shall be determined in accordance with the following provisions and be subject to income tax accordingly:
1. The PE shall be treated as if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of the other Contracting State of which it is a PE. The profits attributable to the PE shall be determined in accordance with the provisions of the “Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm’s Length Transfer Pricing,” and documents shall be prepared which are sufficient to prove that the attributable profits are determined in accordance with the arm’s length transfer pricing principle for assessment by the tax collection authority-in-charge. Where the enterprise of the other Contracting State attributes the overall profits deriving in the territory of the ROC by the sale of goods or products or provision of services therein to such PE of the enterprise, the profits to be attributed to the PE may be determined without the requirement to provide the transfer pricing documents.
2. Where the enterprise of the other Contracting State is allowed as deductions expenses which are incurred for the purposes of the operation of the PE in determining the profits of a PE, such determination shall be governed by the provisions of the Income Tax Act, the “Guidelines for Examination of Profit-Seeking Enterprise Income Tax”, the “Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm’s Length Transfer Pricing”, and other relevant laws or regulations.