The Regulations are enacted pursuant to the provisions set out in Paragraph 5, Article 80 of the Income Tax Act (hereinafter referred to as the "ITA").

The transactions concerning allocation of the revenue, cost, expenses, and profit or loss between or among a domestic enterprise and other domestic or foreign profit-seeking enterprises with which it has an associated relationship, and those between or among such an enterprise and another enterprise by which it is directly or indirectly owned or controlled shall conform to regular business practice so as to enable the accurate computation of tax liabilities of these enterprises within the territory of the Republic of China ("ROC").
In the event that the arrangements for the transactions of the profit-seeking enterprises referred to in the preceding paragraph result in an evasion or reduction of their tax liabilities within the territory of the ROC, the collection authorities-in-charge, for the purpose of accurate computation of the taxable income and tax liabilities of the relevant profit-seeking enterprises, may conduct investigations in accordance with any applicable acts and, subject to the approval of the Ministry of Finance ("MOF"), make an adjustment in accordance with regular business practice pursuant to the provisions set out in Article 43-1 of the ITA.
The transactions concerning allocation of the revenue, cost, expenses, and profit or loss between or among companies subject to the provisions set out in the Financial Holding Company Act or the Enterprise Merger and Acquisition Act and their subsidiaries, and those between or among such companies or their subsidiaries and other local or foreign individuals, profit-seeking enterprises, as well as educational, cultural, public welfare, and charity institutions or organizations shall conform to regular transaction practice.
In the event that the arrangements for the transactions of the companies referred to in the preceding paragraph result in an evasion or reduction of their tax liabilities within the territory of the ROC, the collection authorities-in-charge, for the purpose of accurately computing the taxable income and tax liabilities of the relevant taxpayers, may conduct investigations in accordance with any applicable acts and, subject to the approval of the respective competent authorities, make an adjustment in accordance with regular transaction practice pursuant to the provisions set out in Paragraph 1, Article 50 of the Financial Holding Company Act or Subparagraph 1, Paragraph 1, Article 47 of the Enterprise Mergers and Acquisitions Act.

The circumstance whereby a profit-seeking enterprise has an affiliated relationship with other domestic or foreign profit-seeking enterprises, or is directly or indirectly owned or controlled by another enterprise as set forth in Article 43-1 of the ITA shall refer to any of the following by and among the profit-seeking enterprises:
1. A profit-seeking enterprise directly or indirectly holds 20% or more of the total issued voting shares or total capital of another profit-seeking enterprise;
2. Twenty percent or more of the total outstanding voting shares or capital stock in a profit-seeking enterprise and another profit-seeking enterprise are directly or indirectly owned or controlled by the same person;
3. A profit-seeking enterprise holds the highest percentage of the total outstanding voting shares or capital stock in another profit-seeking enterprise and such percentage reaches 10% or more;
4. One half or more of the executive shareholders or directors of a profit-seeking enterprise and those of another enterprise are the same;
5. A profit-seeking enterprise directly or indirectly holds more than 50% of the total issued shares or total capital of another profit-seeking enterprise, and the majority of a third profit-seeking enterprise's board of directors is appointed by the first two of these enterprises;
6. The chairman, general manager or its equivalent or other superior of one profit-seeking enterprise is that of another enterprise, or has the relation of a spouse or blood relation within the second degree with that of another profit-seeking enterprise;
7. In the case where the head office of a profit-seeking enterprise is located outside the territory of the ROC, its branch office within the territory of the ROC, and its head office or branch offices outside the territory of the ROC are related parties. In the case where the head office of a profit-seeking enterprise is within the territory of the ROC, the head office or branch office within the territory of the ROC and its branch offices outside the territory of the ROC are related parties;
8. A profit-seeking enterprise directly or indirectly controls the personnel, finance, or business operation of another profit-seeking enterprise, including situations where:
(1)The enterprise appoints the general manager or its equivalent or other superior of another profit-seeking enterprise;
(2)The enterprise that is not a financial institution lends money or guarantees the loans to another profit-seeking enterprise to an amount representing 1/3 or more of its total assets;
(3)The profit-seeking enterprise cannot commence its production and business activities without the other enterprise's provision of patent, trademark, copyright, secret formula, proprietary technology, or any franchises, in which the sales of such production and business activities account for 50% or more of the total sales of the former profit-seeking enterprise in the same year;
(4)The price and terms of the profit-seeking enterprise's purchase of raw materials, components and goods are controlled by another profit-seeking enterprise; and the underlined purchase of such raw materials and goods accounts for 50% or more of the total purchase of raw materials and goods of the former profit-seeking enterprise in the same year; and
(5)The sales of products of the profit-seeking enterprise are controlled by another profit-seeking enterprise, and the underlined sales of such products account for 50% or more of the total sales of the former profit-seeking enterprise.
9. A profit-seeking enterprise and another one have entered into a joint venture agreement, or an agreement to conduct business jointly; and
10. Other circumstances which prove a profit-seeking enterprise has control or major influence over the personnel, finance, business operation, or management decisions of another profit-seeking enterprise.

The definitions of the terms as used in the Regulations are as follows:
1. "Affiliated Enterprise(s)" shall mean those enterprises having a subordinate or control relationship with respect to each other as set forth in the preceding Article.
2. "Related Parties" shall mean the Affiliated Enterprises referred to in the preceding subparagraph or the following parties:
(1)Profit-seeking enterprise and a foundation which receives a donation from the profit-seeking enterprise in the amount representing 1/3 or more of the total funds in its balance sheet of such foundation;
(2)A profit-seeking enterprise and a foundation whose one half or more of the total number of directors consist of the directors, supervisors, general manager or its equivalent or other superior of the profit-seeking enterprise, as well as the spouse of any such person;
(3)A profit-seeking enterprise and its directors, supervisors, general manager or its equivalent or other superior, vice general managers, assistant general managers, and department heads under the direct supervision of the general manager;
(4)A profit-seeking enterprise and the spouses of its directors, supervisors, general manager or its equivalent or other superior;
(5)A profit-seeking enterprise and the relatives of its chairman of the board, or general manager or its equivalent and other superior within the second degree; and
(6)A profit-seeking enterprise and the persons who evidentially have the power to control over the enterprise or have material influence ability over the personnel, financial, business operation, or management policy of the enterprise.
3. "Unrelated Parties" shall mean any person other than those specified in the preceding subparagraph.
4. "Controlled Transactions" shall mean transactions conducted by and between/among Related Parties that fall within the scope set forth in Paragraph 1 or 3 of Article 2.
5. "Uncontrolled Transactions" shall mean transactions conducted by and between/among Unrelated Parties.
6. "Transaction Result" shall mean transaction price or profit.
7. "Non-arm's-length" shall mean the situation when the conditions are made or imposed between (Related) Parties in their commercial or financial relations that differ from those made by Unrelated Parties, resulting in the failure to accrue any profits that would have been accrued to one of the parties by reason of those conditions.
8. "Tangible Assets" shall mean merchandise, raw materials, supplies, work-in-progress, finished goods, by-products, short-term investment, securities, accounts receivable, notes receivable, creditor’s rights and other receivables, fixed assets, deferred assets, long-term investment, and other Tangible Assets.
9. "Intangible Assets" shall mean any asset other than those specified in the preceding subparagraph, which is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances, such as business rights, copyright, patent, trademark, enterprise name, brand name, design or model, plan, secret formula, trade secrets, or information concerning industrial, commercial, or scientific experience or proprietary knowledge, all franchises online marketing, client data, and other rights that have property value.
10. "Transfer Pricing" shall mean the price or profit in Controlled Transactions conducted by profit-seeking enterprises.
11. "Arm’s-length Method" shall mean a method for assessing whether the price or profit in Controlled Transactions is at the arm’s length or for determining the arm’s length result of Controlled Transactions.
12. "Business Restructurings" shall mean the redeployment of functions, assets, and/or risks among Affiliated Enterprises. It may also involve the termination or substantial renegotiation of existing contractual terms or arrangements, and reorganize or adjust the structure of the organizations. They have typically consisted of:
(1)Conversion of full-fledged distributors into limited-risk distributors and vice versa; similarly, conversion of full-fledged distributors into commissionaires and vice versa.
(2)Conversion of full-fledged manufacturers into contract-manufacturers and vice versa; similarly, conversion of full-fledged manufacturers into toll-manufacturers and vice versa.
(3)Transfers of intangible property rights to an intra-group-appointed enterprise to centralize control by management or to decentralize control to other enterprises of the intra-group.
(4)Streamlining an organization or closing one’s business or part of one’s business.
(5)Other arrangements announced by the MOF.
13. "Multinational Enterprise (MNE) Group" shall mean a collection of profit-seeking enterprises related through affiliated relationship or control such that it is either required to prepare consolidated financial statements for financial reporting purposes under applicable accounting principles or would be so required if equity interests in any of the enterprises were traded on a public securities exchange; the group shall include two or more enterprises the tax residence for which is in different jurisdictions, or include an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction.
14. "Ultimate Parent Entity" shall mean a constituent entity of an MNE Group that meets the following criteria:
(1)it owns directly or indirectly a sufficient interest in one or more other constituent entities of the MNE Group such that it is required to prepare consolidated financial statements under accounting principles generally applied in its jurisdiction of tax residence, or would be so required if its equity interests were traded on a public securities exchange in its jurisdiction of tax residence; and
(2)there is no other constituent entity of such MNE Group that owns directly or indirectly an interest described in (1) above in the first mentioned constituent entity.
If a company, regulated by the Financial Holding Company Act or the Corporate Merger and Acquisition Act, or one of its subsidiaries engaged in transactions with Unrelated Parties resulting in allocation of mutual revenue, cost, expenses, profit or loss not made at arm's-length, they shall be deemed as Related Parties when the collection authorities-in-charge conduct their investigations, and the transactions among them shall be deemed Controlled Transactions.

The types of transactions governed by the Regulations are as follows:
1. Transfer of Tangible Assets, including sale, exchange, gift or other arrangements;
2. Use of Tangible Assets, including lease, provided as collateral, held, used or occupied by the other party, or other arrangements;
3. Transfer of Intangible Assets, including sale, exchange, gift or other arrangements;
4. Use of Intangible Assets, including license, sub-license, provided for others’ use or other arrangements;
5. Rendering of services, including marketing, management, administration, technology, personnel, R&D, information processing, legal, accounting or other services;
6. Use of Funds, including loans, prepayments, temporary payments, guarantees, payment extension or other arrangements; and
7. Other types of transactions prescribed by the MOF.