Regulations Governing Assessment of Interest Expenditure on the Debts Owed by a Profit-seeking Enterprise to a Related Party in Accordance with the Condition that the Related Payments Shall Not be Considered as Expenses or Losses
(Information and Documentation to Be Provided upon Tax Filing)
Where the profit-seeking enterprise conducts controlled transactions of the type of use of funds with its related parties, it shall disclose the information regarding the associated enterprises or related parties in line with Article 21 of the TP Regulations when filing its income tax return. The capital regarded as related party debt depicted in Paragraph 1, Article 4 of the Regulations shall, except for the exemption when conforming to any one of the conditions provided in the items in Subparagraph 1, Paragraph 2, Article 4 of the Regulations, based on the prescribed format, disclose the proportion of related party debt to equity and relevant information, and prepare and retain the documentations required in Paragraph 2 for examination and verification by the tax collection authorities.
The documentations that shall be prepared and retained mentioned in the preceding paragraph are as follows:
1. The explanation of the changes in circumstances of the profit-seeking enterprise’s paid-in capital, capital reserve, retained earnings (or accumulated losses) and other items under owner’s equity.
2. The nature of the liabilities, purposes of the liabilities and market situation at the time of the acquisition of the liabilities.
3. The types of currency, amount, interest rate, period and financing condition of the liabilities, and the computation criteria of exchange rate.
4. Pledges and conditions offered by a profit-seeking enterprise.
5. Guarantors and guarantee conditions.
6. The trends of loan interest rate and financing conditions under the same period and similar loans.
7. The conversion conditions of the convertible corporate bonds.
8. Other information regarding the related parties, liabilities and owner’s equity that could impact the calculation of the excess interest expenditure that shall not be considered as expenses or losses.
Where a profit-seeking enterprise fails to disclose and prepare the relevant documentations of the liability and owner equity according to the preceding paragraph, the tax collection authorities may determine the proportion of related party debt to equity of a profit-seeking enterprise based on the available taxation data.