On 23 December 2020, the Taiwanese Supreme Administrative Court issued judgement in case (109) Pan Tzu No. 661, concerning one-off adjustments to sales prices. The court denied that a one-time Transfer Pricing adjustment (Tai Tsai Shui No. 10804629000, announced on 15 November 2019) is eligible for a “one-time” sales allowance granted by the taxpayer to its subsidiary, due to a lack of supporting documents.
In the past, one-time downward Transfer Pricing adjustments were recognized only under strict conditions, including causes for adjustment beyond the control of the parties, e.g. an act of God or financial crisis.
To mitigate the risk of double taxation for multinational corporations and to reflect the economic substance of a controlled transaction, Taiwan’s Ministry of Finance released a new tax ruling on one-time TP adjustments in November 2019, which accepts broader causes for adjustment. Enterprises now can make such adjustments before the year-end provided four criteria are met:
The taxpayer, a Taiwanese company, claimed that the factors affecting market prices hadn’t been fully considered while it sold products to its overseas subsidiary, which caused the subsidiary major losses. At the end of 2015, the taxpayer reviewed their quotation and made a reduction of transaction price, which was reported as a “sales allowance” on the tax returns. The tax authority denied their contra revenue account and required the taxpayer to file back taxes. The case was appealed to the Supreme Administrative Court in 2019, where the taxpayer claimed that a one-time TP adjustment should be applicable to their “onetime” sales allowances granted to the subsidiary prior to the end of 2015.
The court held that the one-time TP adjustment cannot be applied in this case for the following reasons:
One-time TP adjustment allows taxpayers to adjust their accounting records by the year-end before closing the accounting. However, each adjusted account must have been recorded with supporting documents that show the reason for the adjustment. Contemporaneously reviewing intercompany prices for controlled transactions and keeping documentation for each affected transaction is the key for adopting a one-time TP adjustment.
With this newsletter, we inform multinational companies on country-specific and international legislative documents and regulations.
If you have any questions about WTS Global or our global services, please get in touch.
We will respond to you as soon as possible.