lunes, 21 de noviembre de 2016

Taiwan set to commence transfer pricing audits

Taiwan’s National Taxation Bureau has announced that it would commence the 2015 transfer pricing audits on October 1, 2016, and that it plans to expand the scope and depth of these audits.

According to a press release issued by the National Taxation Bureau, a Taiwan company would be a potential target for transfer pricing audit under the following circumstances:

  • The company’s reported gross profit margin, operating profit margin, and net profit margin are lower than those of other companies in the same industry;
  • The multinational group’s consolidated profit is positive but the Taiwan entity’s profit is negative, or the reported profits of the Taiwan entity are significantly lower than those of other affiliates within the group;
  • The company’s reported net income/loss significantly fluctuates over three consecutive years, including the current year and the two preceding years;
  • The taxpayer fails to disclose related-party transactions;
  • The taxpayer fails to analyze whether its related-party transactions are in compliance with the arm’s length principle, and fails to prepare a transfer pricing report in accordance with Taiwan’s transfer pricing guidelines;
  • The taxpayer avoids or evades tax liability through other non-arm’s-length arrangements;
  • The taxpayer enters into large and frequent transactions with its related parties located in tax-free or low-tax countries/regions;
  • The taxpayer enters into large and frequent transactions with its related parties that enjoy tax incentives; or
  • The taxpayer has other arrangements to avoid or evade tax liability.

The National Taxation Bureau of the Central Area emphasized that it would focus on a company if the following circumstances are present:

  • Transfers of tangible assets: the purchase or sales prices of controlled transactions significantly deviate from those of uncontrolled transactions, or profits are kept outside of Taiwan, resulting in non-arm’s length transactions.
  • Use of intangibles: the taxpayer’ foreign related parties are licensed to use technology, patents, and trademarks developed in Taiwan but it does not charge a reasonable license fee.
  • The provision of services: the taxpayer has its employees provide technical or management services to foreign subsidiaries but it does not charge a reasonable service fee.
  • Financing activities: arrears or advance payment terms between related parties significantly deviate from those between unrelated parties, which results in non-arm’s-length transactions, or the taxpayer provides guarantees or endorsements for loans and undertakes risks without receiving a reasonable remuneration.
  • Inappropriate comparables: the taxpayer does not conduct an appropriate analysis of the functions and risks of the related-party transactions, or does not adjust for the significant differences identified, which results in choosing inappropriate comparable companies.
  • Incorrect transfer pricing method: the taxpayer does not use the profit-split method as the most appropriate method to analyze its related-party transactions in situations in which the transactions are highly integrated and it is difficult to evaluate individual transactions, or the related parties involved made valuable or special contributions to the controlled transactions.

Taxpayers should check their related-party transactions and operations to verify whether the aforementioned circumstances are present, and prepare transfer pricing documentation.

Source: Deloitte

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