Market overview

Since the OECD started the BEPS discussions in 2013, the Taiwan Ministry of Finance (MOF) has been expanding the scale of transfer pricing special audits which targets both domestic and foreign investors. "We see tax authorities have begun to do more TP investigations from last year, showing more aggressive attitudes. More clients are seeking for documentation and compliance work [advice] as they are receiving more notifications from the tax office," said Jay Lo, head of tax at Grant Thornton.

In the past few years, the MOF conducted 30 TP special audits annually and the average extra tax payable in each case as a result of the audits amounted to approximately $730,000.

"The targets of TP special audits are in various industries, but most targets are in the electronics industry. In the near future, TP special audits in Taiwan will focus on companies in the financial sector," said Austin Chen, head of tax at Deloitte.

The influence of BEPS on the MOF showed further in eight rounds of seminars it held to discuss BEPS recommendations. Many BEPS action points are set to be implemented in Taiwan in the near future.

The first move by the MOF will be to amend Taiwan TP guidelines and announce a safe harbour threshold for the preparation of TP master file and country-by-country reporting (CbCR) by 2017. Secondly, new regulation with respect to Actions 8 to 10 on related party intangibles transactions is expected to be issued in 2016. Thirdly, the income tax act is expected to be amended, introducing the concept of controlled foreign companies (CFC) and effective management. Lastly, the tax authorities will apply tax to the digital economy by requesting foreign companies conducting digital transactions with Taiwanese clients to apply for VAT registration in Taiwan and take the tax compliance obligation.

"From the perspectives of tax authorities, the TP and tax audits will increase, the audit techniques will strengthen, and the information exchange under tax treaty could be more common," said Chen. "We could see that most Taiwan companies will face issues like rearrangement of employee assignment accompanied with permanent establishment (PE) risk and intercompany service charge," Chen added.

Tax authorities

National Taxation Bureau of Taipei
No 2, Section 1, Jhonghua Road, Wanhua District, Taipei 10802
Tel: +886 2 2311 3711 ext. 1116
Fax: +866 2 2389 1052
Website: www.ntbt.gov.tw/etwen/

Taxation Agency, Ministry of Finance
2, Aiguo W. Road, Taipei, 10066
Tel: +886 2 2322 8000
Fax: +866 2 2396 9038
Website: www.dot.gov.tw/en/

Tax rates at a glance

(As of January 1 2016)

Corporate income tax rate 17%
Capital gains tax rate 17% (a)
Branch tax rate 17%
Withholding tax
Paid to residents 0%
Paid to non-resident corporations and individuals 20% (b)
Paid to resident corporations 10% (c)
Paid to resident individuals 10% (d)
Paid to non-resident corporations and individuals 15/20% (e)
Paid to resident corporations and individuals 10% (f)
Paid to non-resident corporations and individuals 20%
Branch remittance tax 0%
Net operating losses (years)
Carryback 0
Carryforward 10

  1. Effective from January 1 1990, income from securities transactions is not subject to regular corporate income tax. Such income is subject to alternative minimum tax.
  2. For details and the definition of a non-resident corporation.
  3. Payments in connection with securities issued under the Financial Asset Securitisation Act or Real Estate Securitisation Act and interest derived from short-term commercial paper are subject to a 10% withholding tax. In addition, they are included in the computation of the resident corporation's taxable income and are taxed at a rate of 17%.
  4. Interest arising from short-term commercial paper, asset-backed securities, bonds, structured products and repurchase agreements underlying such financial instruments is not included in the tax computation in a resident individual's tax return but is subject to a 10% withholding tax.
  5. The applicable tax rate for interest arising from short-term commercial paper, asset-backed securities, bonds, structured products and interest arising from repurchase agreements is 15%. Other types of interest are subject to a tax rate of 20%.
  6. The withholding of tax is not required if the licensor issues a Government Uniform Invoice (GUI).

Source: EY 2016 Worldwide Corporate Tax Guide