|| The multinational enterprises’ profits and taxes were affected by the transfer pricing policies carried out by most countries. As a special cross-strait political economic environment in early stages (1990s), Taiwan enterprises based on the Taiwanese region have to follow the 「 Taiwan & Mainland China Cross-region People Related Law 」to invest in China through offshore company. And nearly 90％ Taiwanese enterprises are performed upon offshore company in the tax heavens. Then they almost to leave most profit to evade tax in the offshore company or the tax heaven. If the relational enterprise transaction leaved huge profit in no substantial operations at tax heavens, then it would invited the Ministry of China and Taiwan R.O.C. to question that why the offshore companies have no substantial operation but still have high profit. So the Tax Bureau of China and Taiwan R.O.C. would focus on the international transfer pricing policy of multinational enterprises.
In addition, to follow the current world trend, the Tax Bureau of China and Taiwan R.O.C. have set regulations for transfer pricing policy of multinational enterprises in 1998 and 2004, by consulting OECD guidelines and tax law of other countries around the world. They also have started to implement transfer pricing system to monitor multinational enterprises. China had successively enacted regulations and enforcement concerning auditing of transfer pricing as early as 1998. While the Enterprise Income Tax Law of the People’s Republic of China, passed on March 16, 2007, had also been incorporated into the newly adopted chapter of special tax adjustment, including but not limited to transfer pricing. To realize the Enterprise Income Tax Law of the People’s Republic of China and its implementation measures, and to strengthen the management of special tax adjustment, the Chinese government, then moved one step forwards by promulgating the Implementation Measures of Special Tax Adjustments (Provisional) [Guo-Ze-Fa No. 2009-2] on January 8, 2009, retroacting back to January 1, 2008.
Taiwan has established the method of regulation on December 28, 2004, by consulting OECD guidelines and tax law of every country in the world, and has started to implement transfer pricing system. Since no treaty of any kind had signed between Taiwan and China for the purpose of preventing double taxation, Taiwan businesses had inevitably encountered double taxation resulted from the transfer pricing adjustments made by both fiscal authorities. If Taiwan and China will sign the tax treaty quickly. Then can set up the consultative mechanism to avoid double taxation, and reduce double taxation occur. The Tax Bureau of China and Taiwan R.O.C. government also announced its official implementation of the monitoring of the price transfer. How Taiwan businesses to get with the new strictly statutes, these emphases are the focus of this study.
The result of this study is to introduce the transaction of Taiwan businesses cross the strait, then to separate four tactics of pricing transfer adopted by the Taiwan enterprises. Additionally, it provided a comparison of cross-strait transfer pricing. This will clarify the difference on laws cross the strait, and further decrease the tax risk caused by short of knowledge. This study to sum up five important differences: definition of the relational enterprise, the related party transactions to complete the arm’s length principle, to provide an indenture, tax shelter clause, penalties for transfer pricing.
Finally, this study will make recommendations to discuss how Taiwan businesses should cope with the Regulations for Transfer Pricing in order to decrease tax risk. For example: avoid establishing the related party transactions, making use of the tax shelter clause and simplifying transfer pricing analyses, reduce the scale of relational enterprise, to draw up different strategy of transfer pricing.
We anticipate the governments can review it from the view of laws, and reach a consensus on tax treaty, so as to prevent from double taxing by the two governments. And further that those succeeding researchers will keep their efforts on the contribution to cross-strait transfer pricing, so as to provide China-investing Taiwan enterprises and government with a best reference books.