When profit-seeking enterprises and the collection authorities-in-charge evaluate whether the results of Controlled Transactions are at arm’s-length or determine the arm's-length results of Controlled Transactions based on the preceding Article, the following principles shall be followed:

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.