The Tax Administration of Taiwan has strengthened its tax control measures for the current fiscal period. In this context, Taiwan will require companies engaged in related-party transactions to file Transfer Pricing documentation to ensure compliance with tax obligations.
The National Taxation Bureau of Taipei (NTBT), under the Taiwan Ministry of Finance, has issued a notice to for-profit companies engaged in related-party transactions. According to Article 22 of the Regulations for the Assessment of Income Tax on For-Profit Companies in Transfer Pricing Transactions Not Adjusted to Market Conditions, companies shall prepare a technical Transfer Pricing report for the 2024 fiscal year to be available for filing upon request by the tax authority.
Documentation Requirements for Related-Party Transactions
Companies engaged in controlled transactions during the 2024 fiscal year must maintain and, where applicable, file a Transfer Pricing report supporting that the agreed-upon conditions are consistent with the Arm’s Length Principle. This measure intends to strengthen tax compliance in related-party transactions and ensure the proper allocation of profits among jurisdictions.
The tax administration will formally request the report by a written notification to be filed within 30 calendar days. Incredibly, companies may request an extension of up to 30 days.
Exceptions: Substitute Documentation
The NTBT also provides for several cases that require the filing of substitute documentation instead of a full Transfer Pricing report.
This possibility depends on compliance with quantitative and qualitative criteria, including:
- Companies whose total income (operating and non-operating) is less than NTD 300 million.
- Companies with income between NTD 300 and 500 million that:
- Do not benefit from significant tax incentives.
- Have not deducted losses exceeding NTD 8 million.
- Have not carried out related-party transactions abroad.
- Companies whose total controlled transaction amounts during the year do not exceed NTD 200 million.
In these cases, reasonable evidence demonstrating that the results of the transactions comply with the market range will be sufficient, without requiring a functional analysis or exhaustive comparability analysis.
Importance of Compliance and Next Procedures
The Taiwanese tax authority has been emphatic in reminding that non-compliance may result in tax penalties. Therefore, it recommends that companies:
- Verify whether they meet the criteria required to prepare the full report or whether they are eligible for any of the exceptions.
- Collect and retain the required information in advance, including financial data, functional descriptions, and comparability studies.
- Consult with experts to ensure that the Transfer Pricing methodology and policies applied are defensible in audits.
- Be prepared to file the report or substitute documentation within the established deadline, if required by the tax authorities.
Conclusion
This notice once again reflects Taiwan’s proactive stance on Transfer Pricing under the OECD international standards. While smaller companies obtain some flexibility, entities that maintain significant related-party transactions should exercise extreme caution in document compliance. Implementing a preventive and technically sound approach is essential to mitigate tax risks and ensure the integrity of cross-border transactions.
Fuente: Ministry of Finance R.O.C.