Transfer Pricing of Taiwan's Listing/OTC Enterprises Between Mainland China and Taiwan: Quantile Regression Analysis

Abstract

The main purpose of this paper is to explore the issue of enterprise's transfer pricing which has been noticed by tax administrations of many nations in recent years. The academia has also striven to develop models for interpreting transfer pricing and assessing transfer pricing profit of enterprises. A precise model is applied in this study to interpret enterprise's transfer pricing in practice. Furthermore, this model is also used to assess the transfer pricing profit of listing/OTC electronics companies in Taiwan and study the factors affecting transfer pricing profit. The empirical results show that material expense ratio significantly impacts transfer pricing profit. Corporate income tax expenses are positively and significantly correlated with net incomes of corporate transfer pricing transactions. This study also finds that regardless of whether the net income of corporate transfer pricing transactions is high, medium, or low, the proportion of material costs is positively and significantly correlated with the net income of corporate transfer pricing transactions in all scenarios. Higher profit will be affected by exchange rate. This suggests that companies involved in wafer fabrication, IC packaging and testing, and DRAM packaging and testing (subcontractors with relatively low material costs) are less likely to be involved in transfer pricing decisions.