The Ministry of Finance (MOF) amended the "Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's-Length Transfer Pricing" ("Taiwan TP Rules") on 4 March 2015, to stipulate that profit-seeking enterprises which engage in business reorganization should comply with the arm's-length transaction principle in their related profit distribution. In addition, the MOF relaxed the eligibility requirement for application for Advance Pricing Arrangement ("APA"), and added a new mechanism for application for preparatory meetings for APA.

Referring to Chapter 9 of the "OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations" issued by the Organization for Economic Cooperation and Development, the MOF amended the Taiwan TP Rules to stipulate that, profit-seeking enterprises which engage in business reorganization should take into account certain factors such as the special consideration regarding risk factors, compensation for arm's-length transaction, and the reasonable compensation or remuneration for controlled transactions conducted after reorganization, in order to help the profit-seeking enterprises to decide whether they are in compliance with the arm's-length transaction principle regarding their related profit distribution in the business reorganization. The amendment will be applicable in May 2015, when the profit-seeking enterprises file their income tax returns for the year of 2014. As for business reorganizations which happened before 2014, the profit-seeking enterprises may provide other transfer pricing documents to prove that their related profit distribution in the business reorganization is in compliance with arm's-length transaction principle.

In addition, the MOF also relaxed the eligibility requirement for application for APA and added a new mechanism for application for preparatory meetings for APA. Regarding the eligibility requirement, the amount threshold has been relaxed from "total amount of the transactions being no less than NT$1 billion or the annual amount of such transactions being no less than NT$500 million" to "total amount of the transactions being no less than NT$500 million or the annual amount of such transactions being no less than NT$200 million." Regarding the new mechanism for application for preparatory meetings for APA, the profit-seeking enterprises may apply for the preparatory meetings for APA 3 months before the end of the first fiscal year in which the transactions occurred (which year-end is the application deadline for the APA), and the summarized documents, such as the global organization chart of the business group, list of the main operation items of the business, the types of controlled transactions, functions and risks analysis, and the reasons for APA applications, shall be filed by the profit-seeking enterprises together with the application for the preparatory meetings for APA. After the tax authority's review and approval, the profit-seeking enterprises may then provide further detailed information, such as the transfer pricing report, and file a formal APA application. The purpose of the amendment is to increase the flexibility of the APA application mechanism as well as to increase the profit-seeking enterprises' willingness to apply for the APA, thereby effective lowering the risks of double taxation faced by multinational enterprises.

In this amendment, the "business cost/expense net profit margin" is included as an eligible profit level indicator used in the "Comparable Profit Method," and the current business income tax return (filed in case of bankruptcy) is also included in the MOF's transfer pricing auditing scope. Moreover, for those profit-seeking enterprises who do not or could not provide relevant documentations as required by laws and regulations, and whose information regarding the revenues is not available to the tax authority, the tax authority may, based on their business cost and business expense, assess the amount of their income, according to the profit standard of the same trade.