The impact of the implementation of Taiwan’s transferring pricing regulation on Taiwanese listed electronic companies’ profit distribution arrangement
Date Issued
2011
Date
2011
Author(s)
Yeh, Wei-Tun
Abstract
Transfer pricing is the basic pricing principle to govern the prices of transfer and use of assets, provision of services and use of funds within enterprises or affiliates, to be equivalent to prices that unrelated parties would have charged in the same or similar circumstances. As the prices charged by one party is the cost of another party in the transaction, the level of transactional prices has direct impact of the profitability of both parties in the transaction. This also implies the important concept that how both parties in the transaction determine their management and investment return.
The “Regulations Governing of Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm''s-Length Transfer Pricing” was promulgated on December 28, 2004 and the said Regulation has been enforced in Taiwan for over six years now. To understand the impact of transfer pricing regulations on Taiwanese enterprises’ profit allocation, this Study adopt the 2005 to 2008 actual data reported by enterprises and audited by tax authorities and performed an analysis to outline the practice of Taiwan transfer pricing regulation. This Study then selected 279 comparable enterprises out of 1,519 listed Taiwanese companies in the electronic industry, and adopt the 2001 to 2007 financial information that excluded impact of global financial crisis, and used Event Study analysis method to observe the change in Taiwanese enterprises’ targeted “percentage of Taiwanese parent company’s operating profit to the Group’s consolidated revenue”
It is observed that Taiwanese enterprises generally follow the transfer pricing regulations since its promulgation and more profits have been allocated to Taiwan. The statistic result of the Paired samples T test shows a significant increase of profit allocation to Taiwan by Taiwanese enterprises since the practice of transfer pricing regulations.
Subjects
Transfer pricing
Profit allocation
Electronic industry
Type
thesis
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