Newsletter
NEW TRANSFER PRICING RULES
The Ministry of Finance announced the amended Regulations for Auditing Business Enterprises on 7 January 2004, adding a new Article 114-1 to regulate transfer pricing mechanism.
The new Article 114-1 is aimed to (1) clarify the methods for adjustment in accordance with regular business practice; and (2) release the burden of auditing and providing documents so as to reduce the chance of disputes. In addition, the mechanism of advanced pricing agreement is introduced in line with international trend. Based on the principle of equity, the tax authori-ties should make relative adjustment to the trading counter-party's payable tax who is a domestic taxpayer as well; provided, that for issues that involve the laws of an other country, the applicable tax treaty should apply.
The methods for adjustment in accordance with business practice are as follows according to their priority: (1) comparable uncontrolled price method；(2) resale price method；(3) cost plus method；and (4) other unspecified methods promulgated by the Ministry of Finance (MOF). For the time being, the MOF has not yet an-nounced any other adjustment method.
Under the advanced pricing agreement mecha-nism, taxpayers may, before the end of each fiscal year, apply with the tax authorities to de-termine the acceptable pricing structure in ad-vance. This measure will help to eliminate the uncertainty of future taxation. The detailed procedures and the threshold for filing this ap-plication are yet to be announced.