The applicable Arm's-length Methods in connection with the transfer and use of Tangible Assets include the following:
1. Comparable Uncontrolled Price Method.
2. Resale Price Method.
3. Cost Plus Method.
4. Comparable Profit Method.
5. Profit Split Method.
6. Other Arm’s-length Methods approved by the MOF.

The applicable Arm''s-length Transaction Methods in connection with the transfer and use of Intangible Assets include the following:
1. Comparable Uncontrolled Transaction Method.
2. Comparable Profit Method
3. Profit Split Method.
4. Income-based Approach.
5. Other Arm’s-length Methods approved by the MOF.

The applicable Arm's-length Methods in connection with services rendered include the following:
1. Comparable Uncontrolled Price Method.
2. Cost Plus Method.
3. Comparable Profit Method.
4. Profit Split Method.
5. Other Arm's-length Methods approved by the MOF.

The applicable Arm's-length Methods in connection with use of funds include the following:
1. Comparable Uncontrolled Price Method.
2. Cost Plus Method.
3. Other Arm's-length Methods approved by the MOF.

The Comparable Uncontrolled Price Method under these Regulations shall refer to the situation where the Arm's-length price charged in a Controlled Transaction would be the price charged for the transfer or use of Tangible Assets, provision of services or use of funds in a comparable Uncontrolled Transaction between Unrelated Parties under comparable circumstances.
In order to evaluate the applicability of the Comparable Uncontrolled Price Method, the factors described in Paragraph 1 of Article 8 shall be considered; in particular, the differences of the characteristics of the assets or services, contractual terms and economic circumstances involved in Controlled Transactions undertaken by profit-seeking enterprises and Uncontrolled Transactions made between Unrelated Parties. Where such differences exist, appropriate adjustments are to be made to eliminate their impacts on the Arm's-length price. In the event that the impacts of such differences are unable to be eliminated by appropriate adjustments, other Arm's-length Methods as set forth hereunder shall be adopted.

The Comparable Uncontrolled Transaction Method under these Regulations shall refer to the situation where the Arm's-length price charged in a Controlled Transaction would be the price charged for the transfer or use of Intangible Assets in a comparable Uncontrolled Transaction between Unrelated Parties under comparable circumstances.
In order to evaluate the applicability of the method, the factors described in Paragraph 1 of Article 8 shall be considered; in particular, the degree of comparability of Intangible Assets which are the objects of Controlled Transactions undertaken by profit-seeking enterprises and Uncontrolled Transactions made between Unrelated Parties, and the circumstances therein between such enterprises and Unrelated Parties. Where the differences of such factors exist, appropriate adjustments are to be made to eliminate their impacts on the Arm's-length price. In the event that the impacts of such differences on the price are unable to be eliminated by appropriate adjustments, other Arm's-length Methods as set forth hereunder shall apply.
The degree of comparability of the foregoing Intangible Assets shall be assessed based on whether such Intangible Property is used for similar products or manufacturing processes within the same general industry or market, or have similar profit potential. The profit potential of Intangible Assets is measured by directly calculating the net present value of the benefits to be realized through the use or subsequent transfer of the Intangible Property, considering the capital investment and start-up expenses required, the risks to be assumed and other relevant considerations.
The differences of the following factors shall be considered in evaluating the degree of comparability of the circumstances under Paragraph 2 hereof:
1. The terms of the transfer, including the exploitation rights granted in the Intangible Assets, the exclusive or nonexclusive character of any rights granted, any restriction on use, or any limitation on the geographical area in which the rights may be exploited;
2. The stage of development of the Intangible Assets, including where appropriate, necessary governmental approvals, authorizations, or licenses- in the market in which the Intangible Assets are to be used;
3. Rights to receive updates, revisions, or modifications of the Intangible Assets.
4. The uniqueness of the assets and the period for which it remains unique, including the degree and duration of protection afforded to the assets under the laws of the relevant countries;
5. The duration of the license, contract, or other agreement, and any termination or renegotiation rights;
6. Any economic and product liability risks to be assumed by the transferee; and
7. The functions to be performed by the transferor and transferee, including any ancillary or supportive services.

The Resale Price Method set forth hereof shall refer to the situation where the Arm's-length price would be the price computed by the resale price of the assets involved in the Controlled Transactions at which the profit-seeking enterprise undertaking Controlled Transactions resells the assets involved in such Controlled Transactions to Unrelated Parties, subtracting the gross profit calculated in accordance with the gross profit margin realized in comparable Uncontrolled Transactions. The formula is set forth as below:
Arm's-length Price = Resale Price to Unrelated Parties × (1- Gross Profit Margin realized in a comparable Uncontrolled Transaction)
Gross Profit Margin = Gross Profit / Net Sales Revenue
The applicable resale price as referred to in the preceding Paragraph is the price at which the Tangible Assets involved in the Controlled Transaction is resold to the Unrelated Parties. If such resale price is not available, the applicable resale price is equal to the price at which contemporaneous, previous or subsequent resale(s) of the same assets are made, provided, however, that appropriate adjustments shall be made pursuant to Paragraph 2 of Article 8 based on the factors as described in Paragraph 1 of Article 8 that may affect the price or profit.
The gross profit margin of the comparable Uncontrolled Transaction referred to in the first Paragraph shall be the gross profit margin earned by the profit-seeking enterprise undertaking the Controlled Transactions from reselling Tangible Assets of the same category which are purchased from Unrelated Parties to other Unrelated Parties. If such gross profit margin is not available, the gross profit margin can be determined based on the gross profit margin of other profit-seeking enterprises, with similar functions, risks and contractual terms, that purchases Tangible Assets of the same category from Unrelated Parties and resells to other Unrelated Parties.
In order to evaluate the applicability of the resale price method, the factors described in Paragraph 1 of Article 8 shall be considered, particularly the following factors which may affect the gross profit margin:
1. Functions performed, such as sales, marketing, advertising program, and services.
2. Risks assumed, such as inventory levels and turnover rates, and corresponding risks.
3. Contractual terms, such as scope and terms of warranties provided, sales or purchase volume, credit terms and delivery terms.
4. Market conditions, such as the level of the markets, such as wholesale or retail market.
5. Whether or not Intangible Assets are involved in the transaction.
6. Cost structures, such as the age of machinery and equipments.
7. Business experience, such as whether or not the business is in a start-up or mature phase.
8. Management efficiency.
9. Consistency in accounting practices, such as the evaluation method of costs and inventory.
If there are any differences of the factors prescribed in the preceding Paragraph between the profit-seeking enterprise and its Controlled Transactions and comparables, appropriate adjustments shall be made to eliminate the impacts on the gross profit margins. In the event that the impacts of such differences on the margins are unable to be eliminated by appropriate adjustments, other Arm's-length Methods as set forth hereunder shall apply.

The Cost Plus Method set forth in the Regulations shall refer to the situation where the Arm's-length Price of the Controlled Transaction would be the price computed by multiplying the profit-seeking enterprise’s cost of purchasing from Unrelated Parties or producing the transferred assets by the rate of markup on cost rate, realized in comparable Uncontrolled Transactions. The formula is set forth below:
Arm's-length price = Cost of purchasing from Unrelated Parties or actual production cost for self-manufactured products × (1 + Rate of Markup on cost realized in a comparable Uncontrolled Transaction)
Rate of Markup on cost = Gross profit / Purchase cost or actual production cost for self-manufactured products
The " rate of markup on cost realized in a comparable Uncontrolled Transaction" set forth in the preceding Paragraph shall refer to the rate of markup on cost earned by a profit-seeking enterprise undertaking Controlled Transactions from sales of Tangible Assets of the same category, either purchased from Unrelated Parties or self-manufactured to Unrelated Parties. If the “markup on cost rate realized in a comparable Uncontrolled Transaction” is not available, the markup on cost rate can be determined based on the markup on cost rate earned by other profit-seeking enterprises, with similar functions, risks and contractual terms, engaging in the sale of Tangible Assets of the same category, either purchased from Unrelated Parties or self-manufactured.
In order to evaluate the applicability of the Cost Plus Method, the factors described in Paragraph 1 of Article 8 shall be considered, particularly the following factors that may affect the markup on cost rate:
1. Function performed, such as manufacturing and process engineering skills or complexity of installation, and testing function.
2. Risks assumed, such as market risk and foreign currency risks.
3. Contractual terms, such as scope and terms of warranties provided, sales or purchase volume, credit terms and delivery terms.
4. Whether or not Intangible Assets are involved in the transaction.
5. Cost structures, such as the age of machinery and equipments.
6. Business experience, such as whether the business is in a start-up or mature phase.
7. Management efficiency.
8. Consistency in accounting practices, such as the evaluation method of costs and inventory.
If there are any differences of the factors prescribed in the preceding Paragraph between the profit-seeking enterprise and its Controlled Transactions and the comparables, appropriate adjustments are to be made to eliminate the impacts on the markup on cost rate with respect to the Uncontrolled Transaction. In the event that the impacts of such differences on the rate are unable to be eliminated by appropriate adjustments, other Arm's-length Methods as set forth hereunder shall apply.
The foregoing 4 Paragraphs shall apply to the rendering of services or use of funds.

The Comparable Profit Method prescribed in the Regulations refers to the Arm's-length transaction result of a comparable transaction determined based on the comparable operating profit calculated by using the average profit margin of a comparable Uncontrolled Transaction within a specific time period.
The steps of adopting the Comparable Profit Method are as follows:
1. Select the tested parties and tested activities in accordance with Paragraph 3 of this Article.
2. Select the comparable Uncontrolled Transactions similar to the selected tested party and tested activities in accordance with subparagraph 1 of Article 7 and Article 8 hereof.
3. Select the profit level indicator in accordance with Paragraphs 4 to 6 of this Article.
4. Determine the average profit margin of the comparable Uncontrolled Transaction. The average profit margin is equivalent to the sum of the numerator under any subparagraph of Paragraph 4 of this Article within a specific time period divided by the sum of the denominator under the same Paragraph 4 of this Article within the same time period. The aforesaid specific time period is prescribed in Subparagraph 4 of Paragraph 6 of this Article.
5. Calculate the comparable operating profit by using the average profit margin prescribed in the preceding Paragraph and the annual average of the operating assets, net sales revenue, operating expenses, or other items of the related business activities of tested parties within a specific time period, and determine the Arm's-length range in accordance with Items 1 and 2, Subparagraph 5 of Article 7 hereof.
6. The operating profit is deemed to be at Arm’s-length if the average operating profit earned from engaging in the tested business activity by the tested party within a specific period falls within the Arm's-length range prescribed in the preceding Paragraph. If the operating profit falls outside the Arm's-length range, the operating profit of the tested party in the current year shall be adjusted to the median of the operating profits of all the comparable Uncontrolled Transactions in the current year. In the event that the current year data is not available as described under Subparagraph 4 of Paragraph 6 of this Article, the adjustment shall be made based on the median of the operating profit of all the comparable Uncontrolled Transactions as prescribed in the preceding subparagraph.
7. Determine the Arm's-length Result of the participant(s) of the same Controlled Transaction who, other than the tested party, which is/are liable to the ROC income tax pursuant to the ITA, based on the Arm's-length operating profit of the tested party.
The tested party will be the participant of the Controlled Transaction and who could provide the reliable data of the Comparable Uncontrolled Transactions, and the operating profit attributable to the Controlled Transactions can be verified by using the fewest adjustments and get the most reliable results of the adjustment. In other words, the most appropriate tested party will be the least complex of the controlled participants and do not own valuable intangible property or unique assets; or even if it owns such assets but they are similar to the intangible property or unique assets of potential uncontrolled comparables. The so called tested activity will be the most narrow identifiable business activity related to the Controlled Transaction which the tested party joined in.
The profit level indicators used by Comparable Profit Method include:
1. Return on operating assets (“ROA”): the ratio calculated by using the net operating profit as the numerator, and the operating assets as the denominator.
2. Return on Sales (“ROS”): the ratio calculated by using the net operating profit as the numerator, and the net sales revenue as the denominator.
3. Berry Ratio: the ratio calculated by using the gross profit as the numerator, and the operating expenses as the denominator.
4. Return on cost and expense: the ratio calculated by using the net operating profit as the numerator, and the cost of goods sold or operating cost and expense as the denominator.
5. Other profit level indicators approved by the MOF.
The net operating profit mentioned in the preceding paragraph means the amount of the gross operating profit less the operating expenses, excluding the income unrelated to the tested activities and the extra-ordinary income and loss irrelevant to going-concern activities of the tested party. The operating assets shall be the assets used by the tested party in the relevant business activity, including the fixed assets and current assets but excluding excess cash, short-term and long-term investments, idle assets, and assets irrelevant to the business activities. The operating expenses do not include the non-business related interest expenses, income tax and other expenses irrelevant to the tested activity.
The selection of the profit level indicators prescribed in Paragraph 4 of this Article shall be based on the relevant activity of the tested party, and the following factors shall be considered:
1. The nature of the tested party’s activity.
2. The degree of comparability of the available information regarding the Uncontrolled Transaction, the quality of the data used and the assumptions made.
3. The reliability of the profit level indicator measuring the Arm's-length operating profit of the tested party.
4. The time period covered by the information prescribed in Item 2 of this Paragraph should be able to reflect the reasonable profit of the Uncontrolled Transaction. The time period should include at least three consecutive years including the year of the subject transaction and two years preceding such transaction. In case the current year data is not available to the profit-seeking enterprise when filing the current year profit-seeking enterprise income tax return, the profit-seeking enterprise may use at least three of the consecutive prior years’ data of the comparable Uncontrolled Transactions without current year data.
When evaluating the applicability of Comparable Profit Method, the factors prescribed in Paragraph 1 of Article 8 hereof, especially the following factors among the tested parties and tested activities, and the unrelated parties and the related activities conducted by them, shall be considered:
1. The factors affecting the comparability, including the functions performed, risks assumed, the operating assets employed, the market level of the relevant trading products or services, the operation scale, the stage of a business or product cycle, etc.
2. The rationality and compatibility of the allocation of costs and expenses, income and assets between the relevant activities and other activities of the tested parties.
3. Consistency in accounting practices.
If there are any differences of the factors prescribed in the preceding paragraph between the tested parties with the tested activities and the unrelated parties with the business activities conducted by them, appropriate adjustments should be made to eliminate the effect with respect to the operation profit. In the event that the effect of aforementioned differences cannot be eliminated by appropriate adjustments, other Arm's-length Methods as set forth hereunder shall be employed.

The Profit Split Method prescribed in the Regulations refers to allocate the operating profit to each participant, which shall be calculated based on the contribution to the combined operating profits of all participants in the situation where the activities of the participants of the Controlled Transaction are highly integrated so that the profit or losses cannot be measured individually, or where each of the participants of the Controlled Transaction makes unique and valuable contributions in relation to the Controlled Transaction. The combined operating profit shall be allocated based on the following steps:
1. Allocate regular income based on regular contributions:
(1)Using the combined operating profit as a basis to allocate operating income to each party of the Controlled Transactions to provide a fair market return for its regular contributions of the relevant business activity.
(2)Regular contributions are contributions of the same or similar kind to those made by unrelated parties involved in similar business activities in which it is possible to identify the fair market returns.
(3)When calculating the regular profit, a functional analysis is required to identify the fair market returns on relevant business activities to be allocated in accordance with the functions performed, risks assumed, and resources employed by each participant. The fair market return can be determined pursuant to the 5 preceding Articles hereof.
2. Allocate residual profit in accordance with the contribution of intangible property:
The residual profit, which is equivalent to the amount of the combined operating profit less the regular profit allocated to each participant, shall be divided based on each participant’s relative contribution to the intangible property in the relevant business activity. The relative value of the intangible property contributed by each participant may be measured by external market benchmarks that reflect the fair market value of such intangible property, the capitalized cost of developing the intangibles and all related improvements and updates, less an appropriate amount of amortization.
When evaluating the applicability of the Profit Split Method, the factors prescribed in Paragraph 1 of Article 8, particularly the following factors, shall be considered:
1. The factors to be considered when determining the fair market return of the regular contribution, including the functions performed, risks assumed, and the assets employed.
2. The rationality and compatibility of the allocation of costs and expenses, income and assets between the relevant operating activities and other activities of the related parties.
3. Consistency in accounting practices.
4. The degree of reliability of the data used and the assumptions made in measuring the relative value of the intangible property contributed by each participant.
If there are any differences among the factors prescribed in Subparagraphs 1 to 3 of the preceding Paragraph between the participants of the Controlled Transaction and the operating activities they are engaged in, and the Unrelated Parties and the same or similar operating activities they are engaged in, appropriate adjustments should be made to eliminate the effect with respect to the differences. In the event that the effect of such differences cannot be eliminated by appropriate adjustments, other Arm's-length Methods as set forth hereunder shall be employed.

The Income-based Approach prescribed in the Regulations refers to the situation where the Arm's-length Price of a Controlled Transaction is determined based on the basic standards, relevant method of Income-based Approach, explanations and application, evaluation reports, and disclosure regulations set out in the Statements of Valuation Standards NO.7 “Valuation of Intangible Assets” announced by the Accounting Research Development Foundation when profit-seeking enterprises conduct Controlled Transactions for transfer or use of Intangible Assets.
When evaluating the applicability of the Income-based Approach, the factors prescribed in Paragraph 1 of Article 8 shall be considered, particularly the following assumptions:
1. accuracy and reliability of financial projections;
2. growth rate;
3. discount rate;
4. remaining economic life;
5. assumptions regarding taxes; and
6. other assumptions affecting the evaluation of Intangible Assets.

The financial statements of the Comparable Uncontrolled Transaction shall be used for calculating the gross margin in a Comparable Uncontrolled Transaction prescribed in Article 16 hereof, the Comparable Uncontrolled Transaction markup rate prescribed in Article 17 hereof, the profit level indicators of the Comparable Uncontrolled Transaction prescribed in Article 18 hereof, and the fair market return of the unrelated parties prescribed in Article 19 hereof. The basis to determine whether the controlled transaction is an arm’s length result should be same to the comparables.