On 28 December 2020, Taiwan’s Ministry of Finance (MOF) has announced amendments to certain transfer pricing provisions based on chapter 8 to 10 of the OECD Transfer Pricing Guidelines for profit-seeking enterprises. The key amendments are summarized below:
Definition of intangible assets: Intangible assets refers to the business rights, copyrights, patent rights, trademark rights, etc. that can be owned or controlled for use in commercial activities in addition to the assets in the preceding paragraph, and if the assets are used or transferred between non-related parties, they will receive relative compensation. Business name, brand name, design or model, plan, secret method, trade secret, or information or expertise related to industrial, commercial, or scientific experience, various franchise rights, marketing networks, customer information, and other rights with property value.
For-profit enterprises and auditing agencies assess whether the profit distribution of intangible asset transactions conforms to the routines, and shall comply with Article 8 and Article 8-1 for economic activities such as the development, promotion, maintenance, protection, and utilization of intangible assets. It is required to conduct comparative analysis, especially considering the contribution of the functions performed in the previous economic activities, assets used, and risks assumed, and the results of conventional transactions should be determined based on the comparative analysis.
When evaluating intangible asset transactions, the following risks should be particularly considered:
- Development risks;
- Product obsolescence risk;
- Risk of infringement;
- Product liability risks; and
- Use risk.
Relaxation of single external comparable uncontrolled data can determine the results of conventional transactions. In practice, it is not easy to collect data on comparable uncontrolled transactions. In reference to international practices, relax the relationship between controlled transactions and comparable uncontrolled transactions. If there is no difference between the related party of the controlled transaction and the non-related person engaged in the comparable uncontrolled transaction that has a significant impact on the open market price, or although there are significant differences, the significant impact caused by the differences can be eliminated through reasonable adjustments, The single most reliable externally comparable uncontrolled transaction result can be used as the regular transaction result.
Adjusting the form of punishment in the case of review and adjustment of transfer pricing is to prevent profit-seeking enterprises from evading tax burdens and eroding the national tax base, clarifying the penalty conditions, and taking into account the declaration forms and transfer pricing documents of profit-making enterprises that are not specified in this standard according to the disclosed controlled transaction, the violation of the obligation to cooperate with honest disclosure can be blamed to a higher degree, and the penalties in the case of adjusting the transfer price are checked and adjusted.
