The Ministry of Finance of Taiwan has proposed changes to the transfer pricing rules (Tai Cai Shui No. 10304651710). The draft of amendments was released on 7 January 2015 for public comment.
The modifications, which concern one new provision and revision of eight existing provisions, are summarized below:
- Definition of business restructuring:
Business restructuring is referred to as the reorganization of activities carried out by multinational companies or multinational group companies in respect of the reallocation of functions/assets/risks, termination or renegotiation of terms of contracts, arrangements or change of organizational structures of associated enterprises.
- Application of arm’s length principle:
The attribution of profits in a business restructuring must be in accordance with the arm’s length principle. In determining profits, the following some factors must be taken into account.
- Net profit margin on costs and expenses:
Net profit margin on costs and expenses is included in the profit benchmarks for the purposes of the transactional profit method.
- Application of the profit method to unique and valuable contributions:
The transactional profit method applies to cases where the unique and valuable contributions of each party participating in the controlled transactions are present.
- Function and risk analysis of the preceding year:
Enterprises having controlled transactions are required to submit certain documents to the tax authority when filing the tax return and settling the final tax assessment. The amendment provides that the enterprises involved in a business structuring have to submit the function and risk analysis of the current year as well as the preceding year.
- Procedure of the application of advance pricing arrangement:
Prior to filing an advance pricing arrangement (APA), the enterprise has to apply for a pre-filing meeting by providing some important information.
- Adjustment of income by the tax authority:
In cases where the enterprise fails to provide the documentation and information to the tax authority, the tax authority is authorized to deem the income on the basis of the net revenue, costs and expenses of the same or a similar business. According to the current rule, only the net revenue is considered in determining the income.
