The Regulations Governing Assessment of Profit-seeking Enterprise Income Tax on Non-Arm’s Length Transfer Pricing, introduced in 2004, form the cornerstone of transfer pricing regulations in Taiwan. These regulations incorporate OECD transfer pricing standards and similar laws in other significant countries.
Taiwan’s Income Tax Law (1971) introduced the legal framework for transfer pricing. It mandates that transfer prices in transactions among affiliated parties must align with market prices, whether domestic or international. Additional rules can be found in the Financial Holding Company Law and the Business Mergers and Acquisitions Law.
Related parties are those with equity ownership, common management, or effective financial, personnel, or operational control over another party. Joint venture agreements also qualify as related parties under specific conditions.
Companies are obliged to disclose related-party information to tax authorities. This includes investment structure, related parties, related-party transaction value, and the transfer pricing method used. New requirements necessitate the disclosure of the Master file and Country-by-Country Report (CbCR) when submitting corporate income tax returns.
Amendments in March 2015 lowered the threshold for APAs in Taiwan to TWD 500 million for accumulated transactions and TWD 200 million for annual transactions. APAs are valid for 3 to 5 years or the period covered by the transactions. No filing fee is currently required for APAs.
Transfer pricing inspections focus on management service fees and head office cost allocations. Entities with financial figures differing significantly from industry averages, and multinationals reporting continuous losses during expansions, may be subject to tax authority scrutiny.
Documentation requirements encompass various aspects, including business overview, organizational structure, and related-party transaction summaries. Financial statements are an integral part of TP documentation.
Documentation for tax authorities should be in Chinese, though English documents can be accepted with approval. Records must be maintained for at least 5 years.
Non-compliance with transfer pricing regulations can result in penalties, such as fines up to % 300 of unpaid taxes, under Taiwan’s Income Tax Law. Refusal to provide necessary documentation may lead to fines ranging from TWD 3,000 to TWD 30,000 as per the Tax Collection Act.