Companies Doing One-Time Transfer Pricing Adjustments Should Note 3 Requirements

On November 15, Year 108, the Taipei National Tax Administration, Ministry of Finance, issued a directive setting out clear rules on one-time transfer pricing adjustments for controlled purchase transactions of multinational enterprise groups. The rules apply starting with fiscal year 109 and mainly target cases where companies adjust the transaction prices between affiliated enterprises in the middle or at the end of the year, in order to reflect the economic substance of the transactions and ensure that profits are consistent with arm's-length standards.

Under the Ministry of Finance directive, a company making a one-time transfer pricing adjustment must meet three requirements. First, the parties to the transaction must agree in advance on the "transaction terms" and "all factors affecting pricing," and the adjusted amounts receivable and payable must be included in the amounts booked in the financial accounting records. Second, the counterparty to the transaction must make a corresponding adjustment at the same time. Third, the import declaration must state the adjustment year and be filed at a provisional price, and within 1 month after the end of the year the company must apply to customs for a determination of the dutiable value and pay the related import taxes.

The tax administration noted that companies should check for themselves whether they meet the rules when filing their profit-seeking enterprise income tax returns, and should disclose information on controlled transactions and the adjustment amounts in the prescribed format. As an example, the administration cited a company that raised its purchase costs by NT$90 million but had not reached a prior agreement and had not completed the customs duty-payment procedure; the adjustment was disallowed, and additional tax of NT$18 million was assessed.