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TRANSFER PRICING IN PARTIAL ACCOUNTING YEAR
The Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's-Length Transfer Pricing require that a profit-seeking enterprise that engages in controlled transactions should, when filing its annual income tax return for an accounting year in which such transactions took place, prepare evidentiary documents including its business profile, organizational structure, summary of information on its controlled transactions, and a transfer pricing report. The most important of these documents is the transfer pricing report.
Given that producing a transfer pricing report entails considerable costs, to reduce the burden on enterprises whose controlled transactions volume are relatively small in value, the Ministry of Finance (MOF) stated in an interpretation issued on 30 December 2005 that if an enterprise's controlled transactions for a year were less than NT$100 million, it could prepare other documents instead of a transfer pricing report to evidence that its controlled transactions conform to the arm's-length principle.
However, in an event that a profit-seeking enterprise changes its accounting year, it should, according to Article 74 of the Income Tax Act, file an income tax return with the tax authorities within one month after the date of the change, declaring its business income for the part-year prior to the change. But because the income period in such a case is less than one year, questions arose as to whether the enterprise could, on the basis of the volume of its controlled transactions during that period, calculate pro rata the equivalent full-year amount in order to determine whether it could apply the above MOF interpretation. Accordingly, on 28 March 2008, the MOF issued a further interpretation stating that under such circumstances, an enterprise may use such a pro-rata calculation to determine whether it is eligible to use other documents instead of a transfer pricing report.