Transfer Pricing Trading Models And Tax Problems Analysis

Due to various factors such as steep labor costs and land prices in Taiwan, growing awareness in environmental protection and the demands for domestic corporations to adapt to competition in the global market, the trend of domestic enterprises shifting overseas seems to be inevitable. This has caused the nature of the capital market to change from capital inflow to capital export. Due to such changes, numerous incidents of domestic/offshore corporations with intentions to transfer benefits and evade tax declaration engaging in cross-national self-dealings have occurred. In light of the situation, Taiwanese authorities have promulgated the "Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's Length Transfer Pricing" at the end of 2004 and the "Enforcement Rules of the Basic Income Tax Act" at the end of 2006 to include investors' offshore incomes as a taxable item in their income tax declaration. The implementation of these regulations should be able to effectively deter multinational conglomerates to illegally transfer benefit to their low-tax or tax exempted offshore subsidiaries through transactions with their associated partner companies, which could have serious consequences due to the disruption of fairness in the taxation mechanismBased on the above-mentioned, the present study deals with transaction models applicable to the new system from the government's perspective. First of all, in terms of transfer of tangible assets, based on six types of international multi-angle trade model, fifteen possible accounting methods were adopter to process hypothetically cross-nation transfer pricing so as to induce four potential factors attributive to effects of pricing transfer. Second, in terms of use of tangible assets, five models that would influence business income tax base were developed, focusing on cross-border leasing. Third, in terms of transfer of intangible assets, two models that would affect tax base were proposed, with the emphasis of patent rights. Fourth, in terms of use of intangible assets, four models that would sways business income tax base were developed, stressing on royalties. Fifth, in terms of service offer, three models that would influence business income tax base were developed, with special attention to technique or management service. Finally, in terms of bankroll usage, by incorporating the idea of thin capitalization,interest rate level and location of loan, four models that would affect business income tax base in Taiwan were proposed.Apart from traditional ways of transactions, the present study included B2B into discussion. On the basis of electronic commerce taxing planning, two B2B transactional models were chosen to highlight the importance of the problem of electronic commerce transfer pricing. Based on the present study, it is suggested that the government enforce strictly the reform of tax system, sign tax treaties extensively, stimulate international cooperation, and re-examine the present policy of decline in tax. Furthermore, the government should fortify the tax administration, establish the database of arm's length transactions, enact laws about anti-tax shelter, and encourage international enterprises to sign the "Advance Pricing Agreements", establish price of arm's length trade, etc. Above all, the government ought to communicate well with enterprises constantly to answer their questions and ensure the direction of the policy about examining transfer pricing for the near future.