The National Taxation Bureau of Taipei, Ministry of Finance, states that profit-seeking enterprises, when applying to file their profit-seeking enterprise income tax return and engaging in controlled transactions with related parties, must disclose information on affiliated enterprises or related parties and their transactions in the prescribed format, in accordance with Article 21 of the Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's-Length Transfer Pricing (hereinafter referred to as the “Regulations on Transfer Pricing Tax Assessment”); and prepare a transfer pricing report as prescribed in Paragraph 1 of Article 22 of the same Regulations.
The Bureau explains that, when profit-seeking enterprises have any direct or indirect control relationship with other domestic or foreign profit-seeking enterprises as specified in Items 3 to 5 of Subparagraph 8 of Article 3 of the Regulations on Transfer Pricing Tax Assessment, the transactions between or among them shall be considered controlled transactions, if involved parties have formed a subordinate or control relationship by law. Therefore, in such circumstances, a transfer pricing report shall be prepared accordingly. However, for profit-seeking enterprises with such direct or indirect control due to special market or economic factors, if they do not have a de facto controlling or subordinate relationship, they may submit sufficient evidentiary documents to the local national taxation bureau before filing the profit-seeking enterprise income tax return to seek exemption from the transfer price report in accordance with Paragraph 2 of Article 22 of the Regulations on Transfer Pricing Tax Assessment.
(1) The profit-seeking enterprise cannot commence its production and business activities without the other enterprise's provision of patent, trademark, copyright, secret formula, proprietary technology, or any franchises, in which the sales of such production and business activities account for 50% or more of the total sales of the former profit-seeking enterprise in the same year;
(2) The price and terms of the profit-seeking enterprise's purchase of raw materials, components and goods are controlled by another profit-seeking enterprise; and the underlined purchase of such raw materials and goods accounts for 50% or more of the total purchase of raw materials and goods of the former profit-seeking enterprise in the same year; and
(3) The sales of products of the profit-seeking enterprise are controlled by another profit-seeking enterprise, and the underlined sales of such products account for 50% or more of the total sales of the former profit-seeking enterprise.
The Bureau provided an example: A domestic company, Company A, operates as a wholesaler and purchased specific products from another domestic company, Company B, in 2023. Not only were the quantity, price, and trade terms of the purchased products controlled by Company B, but also the total amount of products purchased by Company A from Company B accounted for 80% of Company A’s total purchase amount in the same year. However, since Company A and Company B do not have a de facto controlling or subordinate relationship, Company A may, before filing the profit-seeking enterprise income tax return for 2023, submit evidentiary documents (e.g., the related party structure charts, trading contracts, trade term conditions, as well as both parties' shareholders’ rosters, and lists of directors and supervisors) to the National Taxation Bureau in the location where Company A is located. This submission is made to apply for confirmation whether the aforementioned transaction conditions resulted from special market or economic factors. Upon confirmation by the National Taxation Bureau, Company A may be exempted from providing a transfer pricing report.
The Bureau further points out that if any circumstances specified in Items 3 to 5 of Subparagraph 8 of Article 3 of the Regulations on Transfer Pricing Tax Assessment exist in transactions engaged between a profit-seeking enterprise and a public enterprise, agent, distributor, or monopolistic enterprise as specified in Article 7 of the Fair Trade Act, and if the involved parties do not have a de facto controlling or subordinate relationship, they may be exempted from Paragraph 1 of Article 22 of the Regulations on Transfer Pricing Tax Assessment (i.e., preparing a transfer pricing report) and are not obliged to apply for confirmation from the collection authorities-in-charge in advance, as prescribed in Order Tai-Cai-Shui Zi No. 09704555180 issued by the Ministry of Finance on November 7, 2008.
The Bureau reminds citizens that the profit-seeking enterprise income tax return filing period for 2023 is about to start. Profit-seeking enterprises wishing to apply for exemption from Paragraph 1 of Article 22 of the Regulations on Transfer Pricing Tax Assessment (i.e., preparing a transfer pricing report) may fill in the application form and submit it, along with sufficient evidentiary documents, to the National Taxation Bureau in their location before filing the profit-seeking enterprise income tax return. The application form mentioned above can be downloaded from the Bureau’s website (Website: https://www.ntbt.gov.tw; Path: Front page/Themes/Taxation/Profit-seeking Enterprise Income Tax/Transfer Pricing System in the Republic of China).
(Contact person: Head Lin of Profit-seeking Enterprise Income Tax Division; Telephone: 2311-3711 ext.1365)