“Acrylic-resin manufacturer Corp” was audited for FY 2020–2022, and as a result, the tax authorities issued an assessment due to allegedly non-arm’s length pricing of sales to sister company D, disallowed labour costs for seven seconded employees, underpriced guarantee fees from subsidiary F, interest on delayed receivables from Chinese affiliates, excessive technical support fees paid to J, denial of R&D credit for three in-house researchers, and an additional tax on non-repatriated income.
After receiving the assessment in December 2024, “Acrylic-resin manufacturer Corp” filed a pre-assessment review request on 23 January 2025. In its written opinion, the company argued that all related-party transactions had been conducted at arm’s length; that its decisions regarding personnel seconded abroad, guarantee-fee rates, credit terms, and service fees were commercially reasonable and supported by comparability analyses; and that its in-house researchers were properly dedicated to R&D work.
The tax authorities defended each adjustment by reference to the International Tax Adjustment Act, the Corporate Tax Act, and related guidelines. It maintained that “Acrylic-resin manufacturer Corp” had selected inappropriate comparables and failed to substantiate the dispatch cost allocation, the choice of guarantee fee, and the payment terms. Furthermore, it argued that the company had not proven that the three research institute employees had performed substantial R&D activities.
Decision
The Board’s judgment varied by issue. Regarding sales to D, it held that the normal price adjustment could not be finalised without re-examining the comparable company set and interquartile calculations. Thus, it remanded a issue for further investigation. The Board upheld the disallowance of dispatched-employee labour costs, the guarantee-fee undercharge to F, the technical-support overpayment to J, and the denial of R&D credits for the three disputed staff. The Board found that the evidence and comparability analyses provided by “Acrylic-resin manufacturer Corp” was insufficient.
Conversely, the Board found that the agreed 120-day receivables term with Chinese affiliates reflected actual commercial practice, and that the inclusion of interest was unjustified. The Board also ruled that additional corporate tax amounts arising from audit adjustments must be deducted when calculating tax on non-repatriated income. Consequently, “Acrylic Resin Manufacturer Corp” was granted relief on the interest income and non-repatriated income issues, but remained liable for the other adjustments pending the remand on transfer pricing comparables.
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