Judgment rendered on February 28, 2020

Case No. 535 of Heisei 27 (2008) - Request for Revocation of Correction of Corporate Tax, etc.

Main text

1. All of the plaintiff's claims are dismissed.

2. The court costs shall be borne by the plaintiff.

Facts and Reasons

First Claim

(The abbreviations, etc., set out in the said Annex shall also be used hereinafter.) (The abbreviations set out in the Annex shall also be used hereinafter.

2 Outline of the case

In this case, the Director of the East Tax Office filed a claim against the plaintiff, which is engaged in the manufacture and sale of plating chemicals (chemicals for plating), alleging that the plaintiff violated the provisions of Article 66-4(1) of the Act on Special Measures Concerning Taxation (the application of which differs depending on the fiscal year that constitutes the fiscal year in question). However, unless otherwise specified, the following refers to the one before the amendment by Act No. 10 of 2014 which is applicable to the most recent fiscal year). Transactions pertaining to the sale of semi-finished products, etc. of plating chemicals and transactions pertaining to the granting of a licence to use intangible assets (know-how, patent rights, etc.) necessary for the manufacture of plating chemicals using such semi-finished products, etc. as part of the raw materials (hereinafter referred to as "granting of a licence") with a foreign related party prescribed in Article 2(1) of the Act on Investment Trusts and Investment Corporations (Act No. 25 of 1951) (hereinafter referred to as the "Licence Transactions"). In this case, the amount of the consideration paid by the plaintiff to the foreign related party in relation to the transaction (hereinafter referred to as the "licensing transaction") shall be the same as the amount of the consideration paid by the plaintiff to the foreign related party in relation to the transaction (hereinafter referred to as the "licensing transaction"). The same shall apply hereinafter, unless otherwise stated when indicating the current version). The same shall apply hereinafter), Article 39-12, paragraph 8 of the Order for Enforcement of the Act on Special Measures Concerning Taxation The same shall apply hereinafter. The same shall apply hereinafter, unless otherwise stated when the current one is indicated). In the case where the amount of the residual profit is less than the arm's length price calculated by using the residual profit split method and the method equivalent to the residual profit split method (Article 66-4(1) of the Act on Special Measures Concerning Taxation) among the methods prescribed in each item of paragraph (1) of this Article In this case, the amount of income shall be calculated as if the transaction had taken place at the arm's length price. In this case, the plaintiffs claimed that (i) it is illegal to calculate the arm's length price of each of the above transactions using the residual profit split method and the method equivalent to the residual profit split method, (ii) if the residual profit split method and the method equivalent to the residual profit split (2) Even if it is possible to calculate the arm's length price of each of the above transactions using a method equivalent to the residual profit split method and the residual profit split method, the calculation of the arm's length price made by the defendant is illegal because of errors in the calculation process. (1) Provisions of the relevant laws and regulations

1 Provisions of relevant laws and regulations

The provisions of the relevant laws and regulations are as set out in Appendix 3 (including Appendix 4). (The abbreviations, etc. set out in Attachment 3 shall also be used hereinafter.) (The abbreviations set out in Annex 3 shall also be used below.

(2) The facts which are the premises of the case (with regard to facts for which no evidence is presented, these are facts which are not in dispute between the parties or which are conspicuous to this Court) Hereinafter referred to as the "Assumed Facts")

(1) The parties, etc.

(a) The plaintiff, established in 1933, is a domestic corporation engaged in the manufacture and sale of plating chemicals and surface treatment machinery, and the purchase and sale of industrial chemicals and non-ferrous metals, and is a joint-stock corporation engaged not only in the above-mentioned business in Japan but also in the same business overseas. The products (plating chemicals) manufactured and sold by the plaintiff include several electroless nickel plating solutions, electroless gold plating solutions, etc., which are used in the manufacture of printed wiring boards, and the plaintiff also grants licenses to third parties for the use of intangible assets (know-how, patent rights, etc.) necessary for the manufacture of such plating chemicals. The plaintiff has a right to use the plating chemicals.

The plaintiff has a central laboratory which is in charge of the development of new products and the improvement of existing products relating to plating chemicals, and is divided into three main development departments. The first development department is in charge of the development of plating processes for printed circuit boards, wafers, IC packages, etc., and the second development department is in charge of the development of plating methods for copper wiring patterns. The second development group is in charge of the development of plating methods for copper wiring patterns. The Third Development Department is in charge of the development of plating equipment and plating chemical management equipment. In addition to the above, the Central Research Laboratory has a department in charge of basic research and an administrative department.

(a) Z1 has its head office in Taiwan and is engaged in the manufacture and sale of plating chemicals and the purchase and sale of surface treatment machinery. In each of the fiscal years in question, the plaintiff held more than 5% of the total number of issued shares (the ratio was 87.78% for the fiscal years ending March 2007 through March 2009, and 87.78% for the fiscal year ending March 2010). In each of the fiscal years in question, the Claimants held more than 50% of the total number of issued shares (87.78% in the fiscal years ended March 2007 and March 2009, 88.76% in the fiscal year ended March 2010, and 88.76% in the fiscal year ended March 2011). The percentage was 87.78% for the years ended March 2007 to March 2009, 88.76% for the year ended March 2010, and 92.01% for the years ended March 2011 and March 2012. The percentage was 92.01% for the fiscal years ended March 31, 2011 and March 31, 2012.) In addition, Z1 is a foreign corporation directly owning 87.78% of the company's shares in the research institute, 88.76% in the fiscal year ended March 2010, and 92.01% in the fiscal years ended March 2011 and March 2012, and is a foreign related party of the plaintiff (B18-1 to 6). (a) Z3 (hereinafter referred to as "Z3") is a foreign company that directly owns Z3 (hereinafter referred to as "Z3"), which is a foreign affiliate of the plaintiff (B18-1 to B18-6).

(b) Z3 (hereinafter referred to collectively with Z1 as "the foreign related party") Z3 was established in 2003 as a wholly-owned subsidiary of Z1 in order to obtain preferential corporate tax treatment in Taiwan. Z3 was established in 2003 as a wholly-owned subsidiary of Z1 in order to obtain preferential corporate tax treatment in Taiwan. Z3 was a foreign corporation in which the plaintiff indirectly held more than 50% of the total number of issued shares in each of the fiscal years in question, and was a foreign related party of the plaintiff. On 31 December 2011, after the above preferential treatment had expired, Z3 filed a complaint against Z1. On December 31, 2011, after the above preferential treatment ended, the company was merged into Z1 and dissolved (above, B19).

(c) In Taiwan, the foreign related party in question provided the customer with

In Taiwan, the foreign related party provided its customers with: (i) technical support services for obtaining certification, which the customers should have performed themselves (assistance in prototype testing, process finalization testing, report preparation, etc., in order for the customers of the foreign related party to obtain certification, which is necessary when the customers of the foreign related party receive orders for products from their business partners); (ii) a support system, such as stationing technical staff for a certain period of time at the time of launching a new line; and (iii) 24-hour mobile phone service for customer support staff. (2) A support system in which all personnel have 24-hour mobile phones so that they can make emergency contact with customer representatives in the event of a complaint and hold a countermeasure meeting within a few hours; and (3) A system in which we can provide customers with high-grade complaint analysis services using various analytical instruments that our competitors do not offer. (iii) a system which enables us to provide our customers with high-grade claim analysis services using various analytical instruments, which our competitors do not provide, and (iv) a system which enables us to provide our customers with quality control services, such as analysis of plating solution, measurement of physical properties of plating film, corrosion resistance test and plating application test, which should be carried out by our customers themselves, on their behalf or in parallel with them, and to provide them with services to enhance their reliability ( In Taiwan, there is no other company that provides such services to its customers.

In each of the fiscal years in question, the foreign related party had a high share (around 70%) of the Taiwanese market for plating solution (electroless nickel plating solution) used in the manufacture of printed wiring boards (A78 118, B33, the whole purpose of the argument).

(d) Z3's ratio of operating profit to sales was about 70% for the six fiscal years from March 2007 to March 2012. (d) The ratio of operating profit to sales of Z3 was 40.44% as a simple average for the six fiscal years from the fiscal year ended March 2007 to the fiscal year ended March 2012, and the ratio of operating profit to sales of the The operating profit to sales ratio of the foreign related party was 2.6.90% on a simple average for the six fiscal years from the fiscal year ended March 2007 to the fiscal year ended March 2012. The ratio of operating profit to sales of the foreign related parties was 2.6.90% on simple average for the six fiscal years from March 2007 to March 2012. In addition, the ratio of operating profit to sales of the 22 companies engaged in the manufacturing of chemical products in Taiwan was 26.90% on a simple average from 2006 to 2011. The operating profit to sales ratio of 22 chemical product manufacturing companies in Taiwan was approximately 5.3% as a simple average for the six years from 2006 to 2011. The operating profit ratio of the 22 chemical product manufacturing companies was approximately 5.3% on a simple average over the six years from 2006 to 2011.

c) (a) Z4 is a company incorporated in the People's Republic of China ("China"). Hong Kong Special Administrative Region (hereinafter referred to as "Hong Kong"). Z4 is a foreign corporation in which the plaintiff directly owns 75% of the total number of issued shares (so-called sales subsidiary (a subsidiary which is engaged only in the business of purchase and sale and not in the business of technical support)). The same applies hereinafter. The same applies hereinafter.) The same applies hereinafter). (a) Z5 is a foreign corporation (a so-called sales subsidiary (a subsidiary that is engaged only in the business of purchase and sale and not in the business of technical support; hereinafter the same)) and a foreign affiliate of the plaintiff (B18-1 to 6).

(b) Z5 has its head office in Shanghai, China, and is engaged in the business of purchasing and selling plating chemicals, machinery, etc., and also has its own technical support base (named "Z6"). (Z6). (c) Z7 is a foreign corporation in which the plaintiff directly holds 100% of the total number of issued shares in each of the business years in question, and is a foreign related party of the plaintiff.

(c) Z7 has its head office in the Republic of Singapore and is engaged in the business of purchasing and selling plating chemicals and surface treatment machinery. (d) Z8 is a foreign corporation in which the plaintiff directly holds 1% of the total number of issued shares in each of the business years in question, and is a related party of the plaintiff.

(d) Z8 has its head office in California, USA, and is engaged in the business of purchasing and selling plating chemicals and surface treatment machinery. Z8 is a foreign corporation in which the plaintiff directly owns 100% of the total number of issued shares in each of the business years in question, and is a foreign related party of the plaintiff (B17, 18-1 to 18-6). (e) Z9 is a foreign affiliate of the Claimant (B17, 18-1 to 6). (e) Z9 is a corporation with its head office in the Republic of Korea (hereinafter referred to as "Korea"), which was established in July 2010. (e) Z9 is a corporation with its head office in the Republic of Korea (hereinafter referred to as "Korea"), which was established in July 2010 and in which the plaintiff directly held 100% of the total number of issued shares in some of the fiscal years in question (the fiscal years ending March 2011 and March 2012). (hereinafter, the whole of the Plaintiff's foreign related parties including the Plaintiff and the foreign related parties of the Plaintiff pointed out so far are collectively referred to as the "Plaintiff Group"). (hereinafter referred to as the "Claimants' Group"). (d) (a) Z10 is a member of the Claimants' group.

(a) Z10 is a corporation having its head office in Korea and engaged in the manufacture of surface treatment chemicals and automatic plating machines, etc., and is a person who is not a foreign related party of the plaintiff (hereinafter referred to as a "non-affiliated person", and the non-affiliated persons of the plaintiff are referred to as "the non-affiliated persons in question"). The non-affiliated persons of the plaintiff are hereinafter referred to as "the non-affiliated persons"). (a) Z11 is a corporation.

(b) Z11 is a corporation with its head office in the Kingdom of Thailand and is a Non-Affiliated Person in this case.

(2) Contracts, etc. between the plaintiff and the foreign related party in question

a. Outline of the contractual relationship between the plaintiff and the foreign related party in question

The plaintiff entered into a contract with Z1 on 1 April 2006. The plaintiff entered into a "TECHNICAL COLLABORATION AND LICENSE AGREEMENT" (hereinafter referred to as the "Z1 Licence Agreement") dated 1 April 2006 with Z1. (hereinafter referred to as "Z1 License Agreement"). (hereinafter referred to as "Z1 License Agreement") for the licensing of intangible assets necessary for the manufacture of plating chemicals (hereinafter referred to as "License Agreement"). (hereinafter referred to as "Z1 License Agreement") and remained in force and effect until December 1, 2007 (hereinafter referred to as "2007"). It remained in force until 31 December 2007. The plaintiff also concluded an agreement with Z3 dated September 1, 2005 (hereinafter referred to as "the License Agreement"). The plaintiff also entered into a "TECHNICAL COLLABORATION AND LICENSE AGREEMENT" dated 1 September 2005 with Z3. 1 April 2011, 1 September 2011 and 1 September 2012. The parties agreed to amend the agreement on April 1, 2011, September 1, 2011 and January 1, 2012, respectively. The agreement to amend the content of the (However, the agreement for the amendment on the same date was made with Z1, which merged with Z3 on December 3, 2011). It is not necessary to distinguish between the two. Hereinafter, except where it is necessary to make a distinction, each of the above amendments, whether before or after, is referred to as the "Z3 License Agreement" and, when collectively referred to with the Z1 License Agreement, as the "License Agreement". Z3 License Agreement" and collectively with the Z1 License Agreement, the "License Agreements"). (hereinafter, the above-mentioned license agreement between the plaintiff and Z3 and the license agreement between the plaintiff and Z1 are collectively referred to as the "License Agreements") concerning the licensing of intangible assets necessary for the manufacture of plating chemicals. (hereinafter collectively referred to as the "License Agreement"). (hereinafter collectively referred to as the "License Agreement"). (collectively, the "License Agreements") with Z3 until December 31, 2011, and with Z1 after January 1, 2012. The plaintiff has been in effect with Z3 until December 31, 2011, and with Z1 since January 1, 2012.

Under the terms of the License Agreement, the plaintiff grants to the foreign related parties in question a license to use the patent rights and all technical information relating to the manufacture, sale and use of the plating chemicals (hereinafter collectively referred to as "know-how, etc.") and provides technical support. These intangible assets are hereinafter collectively referred to as the "Know-How"), and to provide technical support. (hereinafter collectively referred to as the "Licensed Transactions"), as well as transactions for the licensing and technical support of goods managed under the name of BB (black box) goods (one of the raw materials used in the manufacture of plating chemicals, which are the raw materials, additives, semi-finished products or products themselves of the so-called Licensed Products (hereinafter referred to as the "Licensed Products")). The purpose is to prevent or delay the leakage of confidential information by black-boxing part of the process of manufacturing the licensed product by not disclosing its components to the licensee. (hereinafter referred to as "BB products"). (However, the transaction was conducted to Z3 until December 31, 2011 and to Z3 after January 1, 2012. (hereinafter referred to as "BB Products") to Z3 until December 31, 2011 and to Z1 on and after January 1, 2012. (hereinafter collectively referred to as the "Inventory Sales Transactions" and, when referring to the License Transactions, the "Foreign Related Transactions"). (hereinafter collectively referred to as the "Inventory Sales Transactions" and collectively referred to as the "Overseas Related Transactions" when referring to the License Transactions).

The know-how, etc. disclosed by the plaintiff to the foreign related party in the License Agreement was used by the foreign related party to manufacture plating chemicals (hereinafter, the plating chemicals manufactured by using the know-how, etc. licensed by the plaintiff to the foreign related party in the License Agreement are referred to as the "Licensed Products"). (hereinafter referred to as the "Licensed Products"). (hereinafter referred to as the "Licensed Products"), and it is impossible for the Plaintiff to manufacture the Licensed Products without using the BB Products. The plaintiffs also required that, when the foreign related party in question manufactured plating chemicals using the know-how, etc. which the plaintiffs had licensed to the foreign related party in question under the License Agreement, the BB Products, the subject matter of the Inventory Sales Transactions, must be used as part of the raw materials. (b) Outline of the Licence Agreement

(b) Outline of the Licence Agreement

This licence agreement is summarised as follows

(a) The plaintiff provides the foreign related party with patent rights and technical information (know-how, etc.) relating to the manufacture of surface treatment chemicals (plating chemicals), and grants the foreign related party the exclusive right to manufacture and sell the plating chemicals in Taiwan. (a) to provide services to the foreign related party in Taiwan, granting the foreign related party exclusive rights to manufacture and sell the medicines in Taiwan, and to send technical experts of the plaintiff to the factory of the foreign related party to provide technical guidance, and to accept employees of the foreign related party to provide technical training at the factory of the plaintiff

(b) The foreign related party in question provides the plaintiff with the following services as a royalty in relation to the licensing, etc. mentioned in (a) above: the net sales price of the Licensed Products (the amount charged to the customer for the products sold, less the amount of transportation and insurance costs, the amount of discounts, and the amount of public taxes and dues). The same shall apply hereinafter. The same shall apply hereinafter). (c) the payment of 5% of

(c) Outline of the transactions between the foreign related parties in question and the foreign related parties of the plaintiff other than the foreign related parties in question

The foreign related party in question manufactures the Licensed Products and sells the manufactured Licensed Products directly to the non-affiliated party in question in Taiwan, as well as selling the Licensed Products to Z7 and several other foreign related parties of the plaintiff, who then sell them to the non-affiliated party in question in Taiwan. (hereinafter referred to as the "Z1, etc. Transactions", which collectively refer to the transactions in which the foreign related parties in question sell the Licensed Products to the non-affiliated parties in question via other foreign related parties of the plaintiff, and in which the foreign related parties in question sell the Licensed Products directly or via other foreign related parties of the plaintiff). The transactions in which the foreign related parties sell the Licensed Products to the non-affiliated parties in question directly or through other foreign related parties of the plaintiff are collectively referred to as the "External Sales of the Licensed Products"). Z1, etc.

The outline of the Z1, etc. Transactions in question is as shown in Exhibit 5, and Z3 sold the Licensed Products to Z4, Z5 and Z7, respectively. Z3 sells the Licensed Products to Z4, Z5 and Z7 respectively, and also has sales to Z8. Z3 has sold the Licensed Products to Z4, Z5 and Z7, respectively, and has also made sales to Z8, and Z1 has sold the Licensed Products to Z4 and Z5, respectively. Z1 sells the Licensed Products to Z4 and Z5 respectively. Z3 and Z1 also deal in plating chemicals and raw materials.

(3) Transactions, etc. between the plaintiff and Z10 and Z11 a. Z1 Outline of the contractual relationship between the plaintiff and Z10

The plaintiff has a contractual relationship with Z10. The plaintiff concluded a "Know-how License Agreement" with Z10 dated 1 December 2002 (1 January 2008). 1 January 2008, 1 January 2009 and 1 January 2010. 1 January 2008, 1 January 2009 and 1 January 2010, respectively. The agreement was amended on 1 January 2008, 1 January 2009 and 1 January 2010, respectively. Except where a distinction is necessary, these amendments are referred to below as the "Old Z10 Licence Agreement"). and the "New Know-How License Agreement" dated 9 June 2011 (the "New Z10 License Agreement"). (hereinafter referred to as the "Old Z10 License Agreement") and the "New Know-How License Agreement" dated 9 June 2011 (hereinafter referred to as the "New Z10 License Agreement" and collectively with the Old Z10 License Agreement as the "Z10 License Agreements"). (hereinafter referred to as the "New Z10 License Agreement" and collectively with the Old Z10 License Agreement as the "Z10 License Agreement"). ("New Z10 License Agreement" and collectively with the Old Z10 License Agreement, the "Z10 License Agreements"). The Z10 Licence Agreement is hereinafter referred to as the "Z10 Licence Agreement" without distinction between that under the old Z10 Licence Agreement and that under the new Z10 Licence Agreement, except where a distinction is necessary. The products manufactured using the technical information licensed to Z10 by the Plaintiff under the Z10 License Agreement are hereinafter referred to as the "Z10 Licensed Products"). (hereinafter referred to as the "Z10 Licensed Products") and concluded transactions relating to the licensing of know-how and provision of services for the manufacture of plating chemicals (hereinafter referred to as the "Z10 Licensed Transactions") based on the Z10 License Agreement. (hereinafter referred to as the "Z10 License Transactions"). In addition, the plaintiff concluded a Z10 license agreement with the company.

In addition to the Z10 License Transactions, the plaintiff had transactions with Z10 in which the plaintiff sold BB products to Z10. In addition to the Z10 licence transaction, the plaintiff also conducted a transaction in which the plaintiff sold BB products to Z10 (hereinafter referred to as the "Z10 inventory sales transaction"). In addition to the Z10 license transaction, the plaintiff sold BB products to Z10 (the "Z10 Inventory Sales Transaction").

In addition, on 30 June 2012, the plaintiff entered into a On June 30, 2012, the Plaintiff ceased all transactions with Z10.

(b) Outline of the Z10 Licence Agreement

The outline of the Z10 License Agreement is as follows

(a) The plaintiff provides Z10 with know-how (technical information and technical data useful for the manufacture of the contracted products) and technical information concerning the contracted products (some of the plating chemicals for surface treatment which the plaintiff is currently producing). (technical information and data useful for the manufacture of the contracted products) and technical information, granting a non-exclusive license to manufacture, use and sell the contracted products in Korea, dispatching technical experts of the plaintiff to the factory of Z10 to provide technical guidance, and sending trainees of Z10 to the factory of the plaintiff. (b) Z10 provides the plaintiff with a non-exclusive license to manufacture, use and sell the contracted products in Z10's factory.

(b) Z 10 provides the plaintiff with a royalty payment of a portion of the total sales price of the contracted products manufactured and sold by Z 10 during the contract period. (b) Z10 shall pay to the Claimant, as a royalty, a sum equal to 5% of the gross sales price of the contractual products manufactured and sold by Z10 during the term of the contract (hereinafter referred to as the "net sales price"), after deducting certain costs (packaging costs, advertising costs, insurance costs, transportation costs, vehicle maintenance costs and the amount of direct raw materials purchased from the Claimant for such sales). (hereinafter referred to as the "Net Sales").

(c) Contract between the Claimant and Z11, etc.

(i) The plaintiff concluded a contract with Z11 for the licensing of the plaintiff's know-how in the manufacture of plating chemicals and the provision of services (hereinafter referred to as the "service transactions"). (3) The plaintiff has entered into a contract with Z11 for the licensing of the plaintiff's know-how in the manufacture of plating chemicals and the provision of services (hereinafter referred to as the "Service Transactions"), and the plaintiff's plating chemicals have been sold to non-affiliated parties in the Kingdom of Thailand through Z11 or its related companies.

(4) Background of the Corrective Action, etc.

(a) The plaintiff filed an amended return (Order No. (ii)) in each of the "Category" columns of Appendices 1-1 to 1-6 with respect to the corporation tax for the respective fiscal years in question. However, for the fiscal year ended March 31, 2007, the "Date" column corresponds to the "Amended Return" column (Order No. (ii); for the fiscal year ended March 31, 2007, Order No. (ii) and (iv)). The taxpayer has submitted to the Director of the East Tax Office an amended tax return stating the information stated in the "Amount of Income" column and the "Amount of Tax to be Paid" column, respectively, corresponding to each of the above "Amended Tax Return" columns.

The Director of the East Tax Office filed an amended return for the corporation tax for the fiscal years ending March 31, 2007 through March 31, 2011. -The East Tax Office Director submitted amended tax returns for the fiscal years ended March 31, 2007 through March 31, 2011, in the "Determination and Disposition of Levy" column (Order No. (iii)) of the "Classification" column of Appendices 1 through 1-5. However, in the case of the fiscal year ended March 31, 2007, the order No. (iii) and No. (v)), the date stated in the "Date" column corresponding to each "Disposition of imposition decision" column, and the date stated in the "Additional tax on under-reporting" column corresponding to each "Disposition of imposition decision" column above. (a) The Director of the East Tax Office made a disposition to levy additional tax for under-reporting as stated in the "Date" column corresponding to the "Disposition of imposition of tax" column above.

(b) The Director of the East Tax Office issued a notice dated April 25, 2005 (hereinafter referred to as the "Notice of Determination of Additional Tax on Under-reporting") regarding the corporation tax for the fiscal years ended March 31, 2008 to March 31, 2011. (a) The Director of the East Tax Office issued a tax order dated April 25, 2005 (in the "Category" column of Schedule 1-2 to 1-5) for the corporation tax for the fiscal years ended March 31, 2008 to March 31, 2011. (See the "Date" column corresponding to the "Reduction or Correction" column (Order No. 4) in the "Category" column of the respective tables 1-2 through 1-5). (See the "Date of correction" column.) The East Tax Office made a disposition to the plaintiff to reduce the amount of income, the amount of tax to be paid and the additional tax for under-reporting, as stated in the "Amount of income", "Amount of tax to be paid" and "Amount of additional tax for under-reporting" columns, respectively, corresponding to each of the above-mentioned "Reduction of correction, etc." columns.

(c) The Director of the East Tax Office issued a notice dated June 27, 2013, regarding the corporation tax for each of the fiscal years in question. The East Tax Office made a disposition to reduce the additional tax for under-reporting as of June 27, 2013. However, for the fiscal year ended March 31, 2007, see column "Date" corresponding to column "Order No. 6" and for the fiscal year ended March 31, 2012, see column "Order No. 3"). (See "Date" column for the fiscal year ended March 31, 2007 and March 31, 2012.

(d) On August 23, 2013, the plaintiff filed a notice of correction, etc. However, see the "Date" column corresponding to "Order No. 7" for the fiscal year ended March 2007 and "Order No. 4" for the fiscal year ended March 2012) to the Director of the Osaka Regional Taxation Bureau. On November 20 of the same year, the Commissioner of the Osaka Regional Taxation Bureau (see the "Date" column corresponding to each of "1. On November 20 of the same year, the Commissioner of the Osaka Regional Taxation Bureau (see column (7) of the "Objection Decision" column in each of the "Classification" columns of Appended Tables 1 to 1-6; the same shall apply hereinafter) issued a notice of objection to each of the reassessment dispositions, etc. On November 20 of the same year (see "Date" column corresponding to "Objection Decision" column (Order No. 7) in each "Category" column of Appended Table 1-1 to 1-6 (Order No. 8 for the fiscal year ended March 31, 2007, and Order No. 5 for the fiscal year ended March 31, 2012)), the Director of the Osaka Regional Taxation Bureau filed an objection with the plaintiff. The decision to dismiss all of the above objections (hereinafter referred to as the "Objection Decision") was made against the plaintiff. (See the "Date" column corresponding to item (v)).

(e) On December 12, 2013, the plaintiff submitted a written objection to the decision (hereinafter referred to as the "Objection Decision"). ) on December 12, 2013 (in the "Request for examination" column (Order No. 8) of each "Category" column in Annexes 1-1 to 1-6; the same shall apply hereinafter). However, refer to the "Date" column corresponding to the "Examination Request" column (Order No. 8 for the fiscal year ended March 31, 2007, Order No. 9 for the fiscal year ended March 31, 2007, and Order No. 6 for the fiscal year ended March 31, 2012). On March 5, 2015, the Director of the National Tax Tribunal issued a notice of appeal to the National Tax Tribunal, stating that he was still dissatisfied with the corrective actions, etc. in question. On March 5, 2015, the Director of the National Tax Tribunal issued a decision in the "Examination and Determination" column (Order No. (ix); hereinafter referred to as the "Decision") in the "Classification" column of Appended Table 1-1 to 1-6. However, in the case of the fiscal year ended March 31, 2007, the order number is 10, and in the case of the fiscal year ended March 31, 2012, the order number is 7. As described in the "B. Tax due" and "C. Additional tax for under-reporting" columns, respectively, of this Reassessment Order, etc., the Board of Appeals reversed the Reassessment Order for the fiscal year ended March 31, 2007 and the Reassessment Order for the fiscal year ended March 31, 2009, as well as the corresponding decisions on the imposition of additional tax for under-reporting, and dismissed the remaining applications for examination (this decision).

(5) Filing of this action

The plaintiff filed this lawsuit on September 3, 2015.

3. Defendant's Arguments Concerning the Grounds for and Legality of the Reassessment, etc. in this Case In addition to what is described in 5 below, the grounds for and legality of the Reassessment, etc. in this case are as described in Exhibit 6, "Grounds for and Legality of the Reassessment, etc. in this Case" (the abbreviations, etc. specified in the said Exhibit shall be used hereinafter). The abbreviations, etc., set forth in the said Exhibit shall be used hereinafter). 4 Issues

4 Issues

(1) Method of calculating the arm's length price of the foreign affiliated transaction in question (Issue 1) (a) In calculating the arm's length price of the foreign affiliated transaction in question, the method prescribed in Article 6-4(2)(i)-(a) to (c) of the Act on Special Measures Concerning Taxation (hereinafter collectively referred to as the "Basic Three Methods") or the method equivalent to the Basic Three Methods

(2) (a) Whether the residual profit split method or a method equivalent to the residual profit split method may be used to calculate the arm's length price of the foreign affiliated transaction (Issue 1-2)

(3) The appropriateness of the residual profit split method and the method equivalent to the residual profit split method used by the defendant (Disputed Point 2)

5 Main points of the parties' arguments on the issues

The main points of the arguments of the parties to Dispute 1 are set out in Exhibit 7, "Main points of the arguments of the parties to Dispute 1 (Method for calculating the arm's length price of the foreign related transactions)", and the main points of the arguments of the parties to Dispute 2 are set out in Exhibit 8 (The abbreviations, etc. set forth in the said Exhibits shall also be used hereinafter). (The abbreviations, etc. specified in the said Annex shall also be used hereinafter.

No. 3 Judgment of the Court

1. Dispute 1-1 (Whether or not the three basic methods or a method equivalent to the three basic methods should be used to calculate the arm's length price of the foreign affiliated transaction in question)

(1) Introduction

a. In order to calculate the arm's length price of a foreign affiliated transaction, it is necessary to first consider how the unit of the transaction for calculating the arm's length price should be regarded. In principle, the arm's length price of a foreign affiliated transaction is to be calculated for each individual transaction (refer to Circular 66-4(3)-1), but if certain circumstances are recognized, the arm's length price may be calculated for multiple transactions as one transaction (refer to (See Notice 66-4(3)-1(1) and (2) of the Act on Special Measures Concerning Taxation).

In addition, the brackets in each of the columns of Article 66-4(2)-1 and -2 of the Act on Special Measures Concerning Taxation indicate that other methods or methods equivalent to other methods may not be used. In this case, too, since the Act provides that a method equivalent to the Basic Three Methods may be used only in cases where the Basic Three Methods or a method equivalent to the Basic Three Methods cannot be used, the method equivalent to the Basic Three Methods shall be used in relation to the License Transactions, which are transactions other than the sale or purchase of inventory assets, and the method equivalent to the Basic Three Methods shall be used in relation to the Inventory Sales Transactions, which are transactions involving the sale of inventory assets. (a) In the case at hand, it is necessary to examine whether or not the Basic Three Laws may be used for the transactions other than the sale or purchase of inventories.

(b) In this case, then, it is first necessary to examine the unit of transaction for calculating the arm's length price of the Foreign Related Transaction, bearing in mind whether the Basic Three Methods or a method equivalent to the Basic Three Methods can be used. In considering whether or not the arm's length price for the Foreign Related Transactions can be calculated using the Basic Three Basic Method or a method equivalent to the Basic Three Basic Method, the defendant shall treat the entirety of the License Transactions or the Inventory Sales Transactions as a single unit for calculating the arm's length price, and shall consider whether or not the arm's length price can be calculated for each of them. The Plaintiffs are understood to be arguing that the arm's length price should be calculated for each of the individual transactions constituting the Foreign Related Transaction.

Therefore, in considering whether or not the arm's length price of the TDK Transactions can be calculated using the Basic Three Basic Methods or a method equivalent to the Basic Three Basic Methods, in line with the above-mentioned arguments of the parties, the License Transactions and the Inventory Sales Transactions should be separated, and the main part of the TDK Transactions should be considered first. With respect to the License Transactions, which consist of a number of licensing transactions of know-how, etc. for the manufacture, etc. of the Licensed Products, whether it is reasonable to calculate the arm's length price for each of the individual licensing transactions constituting the License Transactions (3) below).

The plaintiff then argues that it is possible to calculate the arm's length price of each individual license transaction constituting the License Transaction using a method equivalent to the arm's length price comparison method, which is one of the methods equivalent to the Basic Three Methods. Therefore, we would like to examine whether it is possible to calculate the arm's length price of this license transaction (or each individual license transaction constituting this license transaction) using a method equivalent to the arm's length price comparison method (see (4) below).

Furthermore, the plaintiffs argue that even if it is not possible to use a method equivalent to the arm's length price comparison method, it is possible to use a method equivalent to the arm's length price comparison method, which is one of the methods equivalent to the three basic methods. The method equivalent to the three basic methods is one of the methods equivalent to the other methods, and although it is not immediately understood that it should be treated in the same way as the method equivalent to the three basic methods, which should be used preferentially, there are many overlaps with the consideration of whether the method equivalent to the independent price comparison method can be used. Therefore, we will continue the discussion in (4) below and consider whether it is possible to calculate the arm's length price of the subject license transaction (or each individual license transaction comprising the subject license transaction) using a method equivalent to the arm's length price comparison method. (see (5) below).

(c) Following the examination set out in (a) above, it is necessary to examine whether it is possible to calculate the arm's length price of the remaining Inventory Sales Transactions, which are part of the Foreign Related Transactions, using the Basic Triple Method. Therefore, we shall examine whether or not it is possible to calculate the arm's length price of the Inventory Sales Transactions (or of each transaction of sale of individual inventories constituting the Inventory Sales Transactions) using the cost basis method. (2) Whether it is possible to calculate the arm's length price for the Inventory Sales Transactions (or for each transaction of sale of individual inventory assets that constitutes the Inventory Sales Transactions) using the prices established by the evidence (see (6) below).

(2) Factual circumstances that can be established by the evidence, etc. (hereinafter referred to as the "established facts") (2) Factual matters that can be recognized by the evidence, etc. (hereinafter referred to as the "Recognized Facts") According to the facts before us, the facts not in dispute between the parties, the evidence presented later, and the whole purpose of the arguments, the following are recognized

(a) General knowledge on plating, etc.

(a) Plating is a general term for the technique of forming a thin metal film on the surface of a certain solid, and it is known that the films of about 20 kinds of metals and other materials (metals, alloys, oxides of metals or alloys, and composites thereof) are used for The coatings of about 20 different metals and other materials (metals, alloys, oxides of metals or alloys, and their composite materials) are used for the purpose of providing corrosion resistance, decoration, functionality, etc., and various characteristics are required depending on the application. The plating chemicals sold by the above-mentioned foreign related parties are used by the customers of the above-mentioned foreign related parties, who manufacture printed circuit boards, for plating in the process of manufacturing printed circuit boards.

Plating is completed through a number of processes (plating process) such as cleaning and other pre-treatment of the solid to be plated, soaking the aforementioned solid for a certain period of time in plating chemicals which can achieve plating according to the required characteristics in accordance with the purpose, and post-treatment such as neutralization of the plated solid. The plating process is completed by a number of steps (plating process).

The shape and properties of the thin film of metal which is coated on the surface of the material as a result of the plating process are slightly different depending on the subtle differences in the composition and ratio of the raw materials which constitute the plating chemicals, and each of them has its own unique characteristics. As a result, the shape and properties of the metal thin film can be obtained to meet the various requirements of customers. (The above is in accordance with A18 to A20, 49, 109, 119, B38, 39 and B42. (A18 to A20, 49, 109, 119, B38, 39, and the whole purpose of the argument)

(b) There are three types of plating applied in the manufacture of printed circuit boards: (1) to form metal as a conductor for circuit formation, (2) to form temporarily as an etching resist for circuit formation, and (3) for surface treatment for connection with the outside. (3) for surface treatment for connection to the outside. In recent printed circuit boards, the wiring density has become high and very fine conductor circuits are required, so the suitability and accuracy of plating have become very important technologies, and it is also important in double-sided printed circuit boards (those with circuits on both sides of the board) and multi-layered printed circuit boards (boards made by stacking insulators and circuits in a wafer shape). In addition, the physical properties of plating have a great deal to do with the reliability of the connection between the conductor layers, which is important in double-sided PWBs (boards with circuits on both sides of the board) and multilayer PWBs (boards made by stacking insulators and circuits in a wafer shape), and in this sense, the technology of plating formation has become very important. (above, B 41, 42, the whole purpose of the argument)

(b) Differences between the license transaction in question and the Z10 license transaction (a) Types of intangible assets which the plaintiff has licensed to use

a. The intangible assets that the plaintiff has licensed to the foreign related parties in the License Agreement are patent rights and technical information (B20, 21). b. The intangible assets that the plaintiff has licensed to Z10 in the Z10 License Agreement are know-how and other technical information (B20). and other technical information (B27-31).

(b) Contents of the technical information subject to the license

a. The "technical information" which the plaintiff has licensed to the foreign related parties in the License Agreement is said to be all information and knowledge used by the plaintiff in connection with the manufacture and use of the products, but there is no stipulation as to the specific content of such information (B (B20, 21).

b. The "know-how" which the plaintiff has licensed to Z10 in the Z10 licence agreement is The "know-how" which the plaintiff has licensed to Z10 in the Z10 License Agreement is technical information and technical data which are useful for the plaintiff to manufacture plating chemicals for surface treatment in production, and which are used and commercially applied by the plaintiff, specifically, the former Z10 License Agreement ( The former Z10 License Agreement (dated 1 December 2002) In the Z10 license agreements other than the former Z10 license agreement mentioned above, (1) chemical product disclosure statement, (2) product property card, (3) compounding card, (4) manufacturing instruction card, (5) raw material card, (6) quality control card and (7) equipment specification card are stipulated, respectively (B27, B31). (B27) and (B31).

(c) The number of products covered by the intangible assets licensed by the plaintiff

a. The number of "products" subject to the "technical information" that the plaintiff has licensed to the foreign related parties in the License Agreement is 246 (Z1 License Agreement), 242 1 License Agreement), 242 (Z3 License Agreement), 180 (2011 (2011)) 0 Products (Z3 License Agreement dated 1 April 2011) amendment to the Z3 licence agreement of 1 April 2011) or 189 (amendment to the Z3 licence agreement of 1 January 2012). amendment to the Z3 licence agreement dated 1 January 2012) (B 20-22, 24).

b. The number of "contracted products" subject to the "know-how" which the plaintiff has licensed to Z10 in the Z10 licence agreement The number of "contracted products" subject to the "know-how" licensed by the plaintiff to Z10 in the Z10 licence agreement is nine (old Z10 licence agreement) or six (new Z10 licence agreement). (d) The number of "contracted products" that the plaintiff has licensed to Z10 is 9 (old Z10 license agreement) or 6 (new Z10 license agreement).

(d) Details of the products covered by the intangible assets licensed by the plaintiff

a. The "products" subject to the "technical information" which the plaintiff has licensed to the foreign related parties in the License Agreement are not only the existing plating chemicals but also the new plating chemicals (unique products) which have been developed in order to respond to individual requests from customers (e.g. properties of printed circuit boards) in detail. In addition, the plaintiffs have been making efforts to develop new plating chemicals (unique products) to meet individual customer requirements (e.g. the characteristics of printed circuit boards). In addition, the plaintiff has never licensed the use of its know-how, etc. for the manufacture, etc. of the unique products to any person other than the foreign related parties in question). The plaintiff has never licensed the use of its know-how for the manufacture of its proprietary products to anyone other than the related parties outside Japan. 2, 24, 46, 47 and 56, and the whole of the pleadings).

b. The "contracted products", which are the subject of the "know-how" licensed by the plaintiff to Z10 in the Z10 licence agreement, are all conventional products. b. The "contracted products" subject to the "know-how" which the plaintiff licensed to Z10 in the Z10 License Agreement are all existing plating chemicals and some of them cannot be used for manufacturing PCBs, but no newly developed plating chemicals are added to the "contracted products" in the Z10 License Agreement. However, the newly developed plating chemicals were not added to the "contracted products" in the Z10 licence agreement, nor were they necessarily structured in such a way as to correspond precisely to the plating process (B27-31, 4 (B27-31, 4, 56, the whole purpose of the argument).

(e) Differences in the composition of sales of plating chemicals

(a) The same plating chemicals as the "contracted products" subject to the "know-how" which the plaintiff licensed to Z10 in the Z10 License Agreement a) The ratio of sales of the same plating chemicals (nine common and general products) as the "contracted products" subject to the "know-how" licensed by the plaintiff to Z10 in the Z10 licence agreement to the sales of Z3 plating products is as follows The share of sales of the same plating chemicals as "contract products" (9 common and general products) in the sales of Z3 plating products was 42.37% in the largest year (2006) and 42.37% in the smallest year (2010). The share of sales of Z3 plating products in the largest year (2006) was 42.37% and in the smallest year (2010) 25.5%. In 2011, the share was 42.37% in the largest year (2006) and 25.5% in the smallest year (2010). In 2011 (2011), the percentage decreased further to 11.52% because the number of "contracted products" was reduced to 6 products based on the new Z10 license agreement. In 2011, the percentage decreased further to 11.5%, as the number of "contracted products" decreased to six under the new Z 10 license agreement.) The share of plating chemicals ("Z12"), one of Claimants' main products (a common product) commonly used for electroless nickel plating, has generally decreased over time. The share of plating chemicals ("Z12"), one of Claimants' main products (common product) commonly used for electroless nickel plating, was 19.20% in the largest year (2006) and 19.5% in the smallest year (2011). The share of plating chemicals ("Z12"), one of the main products (common product) of the complainant, was 19.20% in the largest year (2006) and 9.46% in the smallest year (2011) (9.46%). On the other hand, the sales of plating chemicals (unique products), which were newly developed by the plaintiff and added to the "products" covered by the "technical information" licensed to the foreign related parties in the License Agreement, tended to increase year by year (B50-4. (See also Annex 2).

b. The sales of Z10 licensed products by each "contracted product" and its ratio to the total sales are shown in Annex 2. The plating chemicals ("Z12"), the common product referred to in paragraph a above, account for a very large proportion of the sales (the largest year (201 (75.6% in the largest year (20102 ) and 75.6% in the smallest year (2008)). (75.6% in the largest year (2010) and 72.7% in the smallest year (2008)). (f) Conditions for licensing

(f) Conditions of the license agreement

a. The License Agreement grants the Plaintiff an exclusive license to manufacture, sell and use the Licensed Products in Taiwan using the patent rights and technical information that are the subject of the license agreement. (2) The agreement between the plaintiff and Z1 was concluded in 2006. (2) The agreement with Z1 on April 1, 2006, and with Z3 on April 1, 2005. (3) the validity period of the contract is set at four years and five months or one year. (3) the contract is valid for a period of four years and five months or five years, automatically renewed in one-year increments, and (4) the foreign party in question pays to the plaintiff a royalty of 5% of the net selling price of the products. (4) the foreign related party in question shall pay 5% of the net sales price of the product to the plaintiff as royalty, and (5) there is no provision that the foreign related party in question shall be obliged not to compete in the manufacture and sale of the licensed product or its similar products during the term of the license agreement or for a certain period after the expiration of the term of the agreement (B (B20, 21).

The Z10 License Agreement provides that (i) the plaintiff shall grant to Z10 the non-exclusive right to manufacture, use and sell the above-mentioned plating chemicals (Z10 Licensed Products) in Korea using the technical information and technical data which are useful for manufacturing the plating chemicals for surface treatment being produced by the plaintiff and which are used and commercially applied by the plaintiff (2) The agreement with Z10 was concluded on 1 December 2002 (Heisei 14). (2) The agreement was concluded with Z10 on December 1, 2002, and was amended on January 1, 2008. 1 January 2008, 1 January 2009 and 1 January 2010. January 1, 2008, January 1, 2009 and January 1, 2010. On 1 January 2008, 1 January 2009 and 1 January 2010, the parties agreed to amend the content of the agreement. (ii) (a) the former Z10 License Agreement, which was concluded on 9 June 2011 with new contents, and of the former Z10 licence agreement dated 1 December 2002. (a) the former Z10 licence agreement, the "Know-How Licence Agreement" dated 1 December 2002, provided for a term of five years, which could be extended by agreement between the plaintiff and Z10; (b) the later Z10 licence agreement provided for a term of five years, which could be extended by agreement between the plaintiff and Z10 (b) The former Z10 licence agreement provided for a term of one year, which could be extended by agreement between the plaintiff and Z10. (c) the new Z10 License Agreement provides that the term of the agreement shall be one year and three months and that the agreement shall not be renewed; and (iv) Z10 shall pay 5% of the net sales of the Z10 Licensed Products to the Plaintiff as royalty; and (v) Z10 shall pay the Plaintiff a royalty of 5% of the net sales of the Z10 Licensed Products during the term of the Z10 License Agreement or for a certain period after the expiry of the term of the Z10 License Agreement. Z10 is obliged under the Z10 License Agreement not to compete in the manufacture and sale of the Z10 Licensed Products or similar products during the term of the Z10 License Agreement or for a certain period after the expiry of the term of the Z10 License Agreement (B 27 to 31).

(k) Differences between the Taiwanese market and the Korean market

There are some differences between the Taiwanese market and the Korean market. The ratio of the price in Taiwan to the price in Korea for the Z10 licensed product in 2004 (FY2004) was at least 21.2% (the price in Taiwan was approximately five times higher than the price in Korea) as shown in Annex 3. As shown in Annex 3, the ratio of the price in Taiwan to the price in Korea was 21.2% at the minimum (the price in Taiwan was approximately five times the price in Korea) and 225.4% at the maximum (the price in Taiwan was approximately 44% of the price in Korea). (2) In Taiwan, there are several major PCB manufacturers with high profitability and technology, and competition is fierce, and plating chemicals used to manufacture various PCBs are the main products handled. On the other hand, in Korea, although the final users are major manufacturers, their subcontractors are all small companies with low technical capabilities and there is no need for plating chemicals with high profit margins (B77); and (iii) the foreign exchange market in Taiwan is more stable than that in Korea. (3) Taiwan has a more stable foreign exchange market than Korea, while Korea has an unstable foreign exchange market and the business performance of companies tends to be greatly affected by it (B82, B83, full purpose of the argument).

(3) The unit of the transaction for calculating the arm's length price of the license transaction

(a) The case where the arm's length price can be calculated for multiple transactions as a single transaction

(a) Transfer pricing taxation in Japan is a system under which, where a corporation enters into a transaction with a foreign related party at a price different from the arm's length price, the corporation is deemed to have entered into the transaction at the arm's length price and the corporation tax related laws and regulations are applied (Article 6-4(1) of the Act on Special Measures Concerning Taxation). Therefore, it is reasonable to conclude that, in principle, the arm's length price should be calculated for each specific transaction. It is reasonable to understand that, in principle, the arm's length price should be calculated for each specific transaction, and it can be said that the main clause of Notice 66-4(3)-1 of the Act on Special Measures Concerning Taxation clarifies the same.

However, it is understood that the arm's length price is the price assuming that the transaction was conducted with normal consideration, and it should be calculated based on the understanding of the actual situation of the transaction. Therefore, in any case, it is not necessary to calculate the arm's length price for each specific transaction, and if it is not possible to calculate the appropriate arm's length price only by focusing on each specific transaction, it should be allowed to calculate the arm's length price by combining multiple transactions as one unit. Notice 66-4(3)-1 of the Act on Special Measures Concerning Taxation can be said to clarify the same.

On that basis, as there is nothing in laws and regulations that clearly defines the requirements or standards for calculating the arm's length price by combining multiple transactions as a single unit, it is necessary to comprehensively consider various circumstances related to the transactions that are the subject of the calculation of the arm's length price. Therefore, it is reasonable to conclude that the determination of the arm's length price should be based on whether or not it is reasonable to calculate the arm's length price by grouping multiple transactions together as a single unit, taking into account the various circumstances of the transactions subject to the calculation of the arm's length price. However, in light of the fact that the Guidelines relate to the calculation of the arm's length price of a foreign affiliated transaction, it is recognized that one of the important factors in determining the arm's length price of a foreign affiliated transaction is whether or not there are circumstances that affect the pricing of the assets that are the subject of the foreign affiliated transaction. (See also 1.36, 1.42, 1.43 and 1.64 of the Guidelines).

(b) The plaintiffs argue that the arm's length price can be calculated by treating multiple transactions as a single transaction only if the consideration for each of the individual transactions comprising the multiple transactions would be priced differently than if the transactions were conducted separately. However, for example, in the case of multiple transactions, the price of each transaction may be different from the price that would have been set if the transactions had been conducted separately.

However, if, for example, it is not reasonable to conduct only the individual transactions constituting the multiple transactions separately, or if it is difficult to calculate the price of such transactions, then, based on the plaintiff's argument, it would be impossible to calculate an appropriate arm's length price or to calculate the arm's length price itself. Therefore, the plaintiff's argument cannot be adopted.

(b) Whether or not it is appropriate to calculate the arm's length price for each individual licensing transaction that constitutes the license transaction in question

As stated in (a) of the Certified Facts, plating is completed by using several plating chemicals in a certain order in several processes, and it is also possible to meet various requests from customers. In order to realize the plating which produces thin films with various shapes and properties to meet the various demands of customers, it is necessary to disclose not only the know-how of manufacturing specific plating chemicals individually but also the know-how of manufacturing various plating chemicals comprehensively so that various plating chemicals can be used in various processes. It is recognized that not only individual plating chemicals are disclosed, but also know-how of manufacturing various plating chemicals should be disclosed comprehensively so that various plating chemicals can be used in various processes. And, as shown in (d)(a), in this license transaction, know-how, etc. of manufacturing various plating chemicals which can be used in multiple plating processes are disclosed, and the know-how, etc. of manufacturing new plating chemicals disclosed additionally are included in the know-how, etc. The know-how of manufacturing new plating chemicals disclosed additionally was also included in the know-how.

Based on these facts, the license transaction in question is not merely a collection of license transactions (license transactions of know-how, etc. of manufacturing plating chemicals, etc.) which exist individually and independently, but also a combination of many individual license transactions and know-how, etc. which are the subject of those license transactions. Therefore, it is possible to respond to various customers' requests by combining the know-how, etc., which is the subject of these license transactions, and such know-how, etc., beyond the individual plating chemical manufacturing, etc., also has its own economic value, and the price (economic value) of the individual license transactions constituting this license transaction also has its own economic value. The price (economic value) of the individual license transactions constituting this license transaction should also reflect such unique economic value.

Therefore, even if it were possible to calculate the price that would be the arm's length price of the license transactions by focusing only on the individual license transactions constituting the License Transactions, the sum of such prices would be equal to the arm's length price when the entire License Transactions are calculated as a single unit. Even if it is possible to calculate a price that seems to be the arm's length price of the License Transactions, it cannot be said that the sum of such prices will be equal to the arm's length price when the entire License Transactions are calculated as one unit, and it is also difficult to admit that it is possible to extract only the unique economic value mentioned above and calculate the amount of such economic value individually, or to calculate a specific amount by allocating it to each individual license transaction individually. Therefore, in calculating the arm's length price of the Licence Transactions, it is reasonable to consider the whole of the Licence Transactions as a single transaction at least.

(c) Judgment on the plaintiff's argument

The plaintiffs' arguments against the finding and judgment in (a) above cannot be adopted as follows.

(a) a. The plaintiffs argue that transfer pricing taxation is not a system which permits the substitution of an actual transaction with a foreign related party for another transaction. The license transaction in question was commenced with the conclusion of a license agreement at a different time for each know-how, etc., but this is not a license transaction which is a package deal of know-how, etc., for the manufacture of all plating chemicals subject to the license transaction. However, it is not consistent with the purpose of transfer pricing taxation system.

However, as stated in (a) above, there is no clear requirement or standard in laws and regulations as to when multiple transactions can be grouped together as one unit and the arm's length price can be calculated. Therefore, it does not mean that it is not permissible to calculate the arm's length price by grouping the license agreements for each know-how, etc. together as one unit just because the license agreements were concluded at different times. This does not mean that it is not permissible to calculate the arm's length price by grouping several transactions together as one unit. In the case of the case where it is reasonable to calculate the arm's length price by lumping them together (before the revision in 2017)3.9 This is also supported by the fact that there is no indication in the Circular 66-4(3)-1 of the Act on Special Measures Concerning Taxation and the Transfer Pricing Guidelines (before the revision in 2017) 3.9 that the arm's length price should not be calculated by combining multiple transactions as one unit when the license agreements are concluded at different times for each know-how, etc. In light of the fact that the fact that it is allowed to calculate the arm's length price by combining multiple transactions as a single unit can be interpreted as a natural assumption that the license agreement may have been concluded at different times for each know-how, etc. (b) The plaintiff argues that (i) the License Agreement is not a document which indicates that the plaintiff agreed to grant a license to the foreign related party in question to use the know-how of manufacturing a number of plating chemicals in a lump sum, and (ii) the License Agreement is not a document which indicates that the plaintiff agreed to grant a license to the foreign related party in question to use the know-how of manufacturing a number of plating chemicals in a lump sum. (1) The License Agreement is not a document which indicates that the plaintiff agrees to grant a lump sum license to the foreign related party to use the know-how of manufacturing etc. of a large number of plating chemicals, but is a document which is intended to be a basic contract which agrees on the common terms and conditions applicable to all the license transactions between the plaintiff and the foreign related party of the know-how of manufacturing etc. of a large number of individual plating chemicals. (2) In this license transaction, as in the Z1 0 license transaction, there is an agreement on the licensing of manufacturing know-how for each plating chemical; (3) The amount of consideration (amount of royalty) for the licensing of manufacturing know-how for each plating chemical is the same as the amount of consideration for the licensing of manufacturing know-how for other plating chemicals, regardless of the amount of consideration for the licensing of manufacturing know-how for other plating chemicals. The amount of consideration (royalty amount) for the license transaction of the know-how of manufacturing plating chemicals was set at 5% of the net sales price of the plating chemicals, taking into consideration the industry standard and the royalty rate generally accepted in Taiwan, regardless of the amount of consideration for the license transaction of the know-how of manufacturing plating chemicals. However, the plaintiff claims that the arm's length price should be calculated for each individual license transaction constituting this license transaction, because the amount of consideration for each license transaction concluded at different times was not determined by taking into account the amount of consideration for other license transactions.

However, even if we assume that the plaintiff had considered whether or not to enter into a license transaction of manufacturing know-how for each plating chemical, and had set the amount of consideration for each license transaction, and had not determined the amount of consideration for each license transaction by taking into consideration the amount of consideration for other license transactions, the fact that the plaintiff had not set the amount of consideration for each license transaction does not mean that the plaintiff should immediately calculate the arm's length price for each license transaction. Even if it is assumed that the amount of the consideration for each license transaction set by the plaintiff was not determined in consideration of the amount of the consideration for other license transactions, this does not immediately establish a relationship in which the amount of the consideration for each license transaction set by the plaintiff is necessarily the same as the arm's length price of the license transaction in question, which is one of several license transactions. Therefore, each of the circumstances pointed out above by the plaintiffs does not affect the finding and judgment as indicated in (a) above that calculating the price which is considered to be the arm's length price for each of the individual licensing transactions constituting the License Transactions and adding them up does not mean that the appropriate arm's length price for the License Transactions as a whole has been calculated.

(b) The plaintiffs argue that (i) the use of two plating chemicals does not create any more value than the use of a single plating chemical and (ii) the use of two plating chemicals does not create any new value different from the function of the individual plating. (ii) the existence of plating chemicals for more than one process does not increase the sales of more than one plating chemical and does not lead to a relationship whereby the price of one plating chemical is set in consideration of the price of the other; and (iii) although it is possible that a large number of plating chemicals are sold due to the wide selection of plating chemicals, the plaintiff has never changed the amount of the consideration for the licensing transaction for the use of the know-how for the manufacture of plating chemicals on the basis of the increase in the selection due to the sale of new products; (iv) each process of plating is independent and it is not necessary to use all the plating chemicals of the same manufacturer. (iv) Each process of plating is independent and it is not necessary to use all the plating chemicals of the same manufacturer, and the customer selects the most suitable plating chemicals for each process individually, and the plating chemicals used in the plating process are not always sold as a package of several plating chemicals used in the plating process. Therefore, it cannot be said that the relationship that the amount of the consideration for the license transaction of the know-how of the production of plating chemicals is determined in consideration of the license transaction of other plating chemicals has been established even in light of the characteristics of the plating chemicals. However, in this case, it is not proved that the amount of consideration for the license transaction of the know-how of manufacturing etc. of plating chemicals is determined in consideration of the license transaction of other plating chemicals.

However, in this case, even with all the evidence, there is no specific circumstance which suggests that the foreign related parties in this case mostly sold various plating chemicals individually, or that there was no value in having a wide selection of plating chemicals. Rather, the plaintiff claims that the plaintiff is the only company in the industry engaged in the manufacture of plating chemicals, which includes all three types of chemicals, machines, and plating solution management equipment, and that the supply of plating chemicals that meet the needs of customers and technical support are the main driving force of its business (B17). (B17), the plaintiffs themselves admit that they conduct their sales activities with the selling point that the foreign related parties are responsible for the entire plating process if the customers purchase all the plating chemicals which constitute the plating process. (Plaintiff's Brief (10), p.26), it is clear that there are many license transactions of individual know-how, etc., and it is possible to meet various customers' demands by combining the know-how, etc., of manufacturing, etc., which are the objects of those license transactions. It seems that the plaintiffs themselves naturally assume that there is a unique economic value in something beyond the manufacturing know-how of individual plating chemicals itself.

If so, the circumstances pointed out above by the plaintiff are all the circumstances that underlie the relationship that the amount of consideration for each license transaction set by the plaintiff and the arm's length price of the license transaction, which is one of the transactions consisting of multiple license transactions, will always be the same amount. Therefore, it is not considered that this is a circumstance that supports the relationship that the arm's length price of the license transaction is always the same as the arm's length price of the license transaction as one of the transactions consisting of multiple license transactions, and it does not affect the finding and judgment as shown in (a) above that calculating the price that seems to be the arm's length price of each individual license transaction that constitutes the license transaction and adding them up does not mean that the appropriate arm's length price of the entire license transaction has been calculated. (c) The plaintiffs have stated that they have no objection to the calculation of the arm's length price.

(c) The plaintiff stipulates that the consideration for the service transactions (technical guidance, technical training, etc.) conducted in connection with the licensing of know-how, etc. for the manufacture of plating chemicals, etc. is the actual cost of travel and transportation expenses. Therefore, it is not possible to calculate the arm's length price of the above-mentioned know-how licensing transaction and service provision transaction as one transaction, and it is argued that the arm's length price of each transaction should be calculated separately.

However, according to the evidence (B20, B21, B23), in the License Agreement, the amount of consideration for the licensing transaction of the know-how and the service provision transaction mentioned above are different. However, according to the evidence (B20, B21, B23), it is admitted that the amount of consideration is not separately stipulated in the License Agreement between the transaction of licensing of know-how, etc. and the transaction of providing the above-mentioned services, and there is no evidence sufficient to admit specifically that these are separately stipulated. As for the fact that the consideration for the provision of the above-mentioned services is said to be the actual cost such as travel and transportation expenses, there is no explicit statement to that effect in the License Agreement. Therefore, it is difficult to immediately recognize that the agreement to the effect that the foreign affiliated person in question shall bear the actual costs incurred by the plaintiff in providing the above-mentioned services to the foreign affiliated person in question is not only an agreement concerning the sharing of costs but also an agreement concerning the consideration for the provision of the above-mentioned services.

In this case, the royalty rate and the amount of consideration based on the royalty rate are considered to have been determined based on the understanding that the licensing transaction of know-how, etc. and the above-mentioned service provision transaction are one and the same, even as the reasonable intention of the plaintiff and the related parties outside Japan. Therefore, in this case, it is considered that the royalty rate and the amount of consideration based on the royalty rate are determined by considering the service provision transaction as a whole, and since there is only an agreement on the burden of costs for the service provision transaction mentioned above, it is considered that the agreement on the burden of costs should be effectively interpreted as an agreement to the effect that the consideration for the service provision itself shall be free of charge or shall be included in the amount of consideration for the know-how licensing transaction.

Therefore, in this case, the factual basis for calculating the amount of consideration separately for the know-how licensing transaction and the service provision transaction is itself lacking.

(d) Conclusion

As described above, in calculating the arm's length price of the License Transactions, it is not reasonable to calculate the arm's length price for each individual license transaction that constitutes the License Transactions, and at least it is reasonable to consider the License Transactions as a whole as one. It is at least reasonable to consider the whole of the Licence Transactions as one.

(4) Whether it is possible to calculate the arm's length price of the Licence Transactions using a method equivalent to the arm's length price comparison method

As stated in (3) above, since the plaintiffs' argument that the arm's length price should be calculated for each individual license transaction constituting the License Transactions cannot be adopted, the plaintiffs' argument that the arm's length price of the License Transactions should be calculated by using a method equivalent to the arm's length price comparison method on the basis of this argument is contradicted on the remaining points. However, as stated in (1)(a) above, in light of the fact that the Act on Special Measures Concerning Taxation stipulates that the method equivalent to the three basic methods should be used in preference to the method equivalent to other methods, it is necessary to consider the entirety of the License Transaction as a single unit. In light of the fact that the Basic Three Methods stipulate that the method equivalent to the Basic Three Methods should be used in preference to other methods equivalent to the Basic Three Methods, we will also examine whether the arm's length price can be calculated using the method equivalent to the arm's length price comparison method, taking the entirety of the license transaction as one unit.

(a) Requirements for the use of a method equivalent to the arm's length price comparison method

(a) The arm's length method shall be applied where, in the case of a transaction between a seller and a buyer who are not in a special relationship, there has been a purchase or sale of inventories of the same type as those involved in a foreign-related transaction, in circumstances where the stages of the transaction, the volume of transactions and other factors are the same as those involved in the foreign-related transaction, the amount of the consideration for the transaction (whether or not such inventories of the same type are In the case where there is a transaction in which the same type of inventory asset is bought or sold under circumstances in which the transaction stage, transaction volume or other factors differ from those of the said foreign affiliated transaction, if it is possible to adjust the difference in the amount of consideration arising from such difference, the amount of consideration after such adjustment shall be included). If the difference in the amount of consideration arising from the difference can be adjusted, the amount of consideration after such adjustment shall be included in the arm's length price of the relevant foreign affiliated transaction (Article 66-4(2)(i)(a) of the Act on Special Measures Concerning Taxation). The method equivalent to the arm's length approach is to calculate the arm's length price of transactions other than sales or purchases of inventories by the same method as described above (Article 66-4(2)(i)(a) of the Act).

As stated above, the arm's length method and the method equivalent to the arm's length method both require that the arm's length price be the amount of the consideration for a transaction between a seller and a buyer who are not in a special relationship and which took place under circumstances similar to those of the foreign-related transaction that is the subject of the verification. Therefore, in calculating the arm's length price using the arm's length method or a method equivalent to the arm's length method, it is a prerequisite that there is an arm's length transaction (comparable transaction) that is comparable to the foreign-related transaction to be verified.

(b) In addition, in the case where the method equivalent to the arm's length price comparison method is used for a licensing transaction of intangible assets, such as the licensing transaction in question, it is assumed that the intangible asset in the comparable transaction is the same type as the intangible asset in the foreign-related transaction and that the terms and conditions of the licensing transaction, such as the timing and duration of the licensing transaction, are the same as those in the foreign-related transaction. In this case, if the comparable transaction and the foreign affiliated transaction are conducted under circumstances where there is a difference in the terms of the license, such as the timing and duration of the license, the difference in the amount of consideration arising from such difference can be adjusted. It should be interpreted that the difference in the amount of consideration arising from the difference can be adjusted only when the license is made under the circumstances where there is a difference in the terms and conditions of the license, such as the timing and duration of the license. 4(6)-6 of the Act on Special Measures Concerning Taxation should be interpreted as clarifying the same.

(b) Whether the assets to be traded in this license transaction and the Z10 license transaction, which is said to be a comparable transaction, are "the same kind" or not

(a) As set out in paragraph (a) above, the arm's length comparison method, which compares the prices of inventories, requires strict homogeneity of the inventories, and the same applies to the equivalent method, which requires strict homogeneity of the subject matter of the transactions. In this regard, it should be noted that only the application of the arm's length method requires "inventories of the same kind as the inventories involved in the foreign affiliated transaction", while the other methods require "inventories of the same kind as or similar to the inventories involved in the foreign affiliated transaction". 4(2)-1 of the Circular 66 of the Act on Special Measures Concerning Taxation, which stipulates that "inventories of the same kind as or similar to those relating to foreign-related transactions" shall be used for the remaining methods, should also be regarded as clarifying the same thing.

On top of that, as stated in paragraph (a), (i) the intangible assets that the plaintiff has licensed in the License Agreement include not only know-how but also patent rights, and the content of such intangible assets is not necessarily limited, while (ii) the intangible assets that the plaintiff has licensed in the Z100 License Agreement include not only know-how but also patent rights, and the content of such intangible assets is not necessarily limited. On the other hand, the intangible assets that the plaintiff has licensed in the Z10 License Agreement are only know-how and other technical information, and the content of such intangible assets is also limited in the Z10 License Agreement. (2) The license agreement in this case provides for a number of items (180-24 (2) In the present license agreement, the manufacturing know-how, etc. of many items (180-246) were subject to the license, and there were items for which the plaintiff additionally licensed the manufacturing know-how, etc. during the term of the agreement, while in the Z10 license agreement, there were limited items. On the other hand, in the Z10 License Agreement, only a limited number of items (6 to 9) of manufacturing know-how of plating chemicals were subject to the license, and there were no items for which the plaintiff additionally licensed the use of manufacturing know-how during the term of the agreement. (iii) the sales of the same products as the Z10 Licensed Products accounted for only about 40% of the total sales of the plating products of the foreign related parties in each of the business years in question, at most. In addition to the fact that the percentage of the sales of the same products as the Z10 Licensed Products in the sales of the plating products of the foreign related parties in the respective fiscal years in question was, at most, only slightly more than 40%, and that the percentage tended to decrease over time, as described in (3) above, on the assumption that at least the entirety of the Licensed Transactions should be taken as a single unit, the transactions to be compared should be the entirety of the Z10 Licensed Transactions. In addition to the fact that the whole of the Z10 License Transaction should be taken as one unit, as stated in (3) above, it is also assumed that the transaction to be compared is the whole of the Z10 License Transaction. (a) In light of the fact that the comparable transaction is the entirety of the Z10 License Transaction, it cannot be considered that the intangible assets subject to the transaction are of the same type.

(b) The plaintiffs' arguments against the finding and judgment in (a) above cannot be adopted as follows.

(a) The plaintiffs argue that there is a high degree of similarity in the content of the technology pertaining to the know-how, etc. of the manufacture, etc. of plating chemicals, and that there is no superiority or inferiority between the know-how, etc. (2) Even if the products do not belong to the same type of product group, if they belong to similar product groups and the difference in the product groups is not so great as to affect the price, they all have a considerable degree of similarity and should be considered to be of the same type.

However, as stated in (a), the shape and characteristics of the thin film of metal which is coated on the surface of the material obtained as a result of plating are slightly different according to the subtle differences in the mixing ratio and composition of the raw materials which constitute the plating chemicals, and each has its own unique characteristics. Therefore, it is recognized that the know-how, etc. of the manufacture of each plating chemical is an intangible asset with high individuality. Therefore, it is difficult to recognize that the know-how, etc. of manufacturing, etc. of plating chemicals which belong to the same type of product group satisfy the "homogeneity" required when using the method equivalent to the arm's length price comparison method even among each other. (b) The plaintiffs

(b) The plaintiffs argue that the know-how in the manufacture of plating chemicals which the plaintiffs have licensed in the individual licence transactions constituting this licence transaction is common in terms of what raw materials are used in what proportions, in what order they are put into the tank, and for how long they are stirred. Therefore, the plaintiff argues that the know-how of manufacturing plating chemicals, etc., which share the main raw materials to be used, should be said to be "the same kind". However, even if the know-how, etc. of manufacturing plating chemicals, etc., which the plaintiffs have licensed to use in the individual license transactions constituting the License Transactions have the similarities as the plaintiffs point out above, as stated in (a) above, the know-how, etc. of manufacturing plating chemicals, etc., which the plaintiffs have licensed to use in the individual license transactions constituting the License Transactions should be considered as "the same kind" when using the method equivalent to the independent price comparison method. Even if the know-how, etc. have similarities as pointed out above by the Claimant, as stated in (a) above, the "sameness" of the assets in the comparable transactions is strictly required in the case of using the method equivalent to the arm's length price comparison method, and as stated in (a) above, in light of the fact that the know-how, etc. of manufacturing plating chemicals, etc., which the Claimant has licensed to use in the individual license transactions constituting the License Transactions are intangible assets with high individuality (c) The plaintiffs argue that it is difficult to recognize that the know-how, etc. of manufacturing plating chemicals, etc., which share the main raw materials to be used, satisfy the "sameness" of assets required when using the method equivalent to the arm's length price comparison method.

(c) The plaintiffs argue that (i) even if the range of plating chemicals is increased in order to meet the needs of various users, it does not mean that one plating chemical has more advanced know-how than the other, and (ii) even if the individuality of the know-how is high, it does not mean that the know-how of one plating chemical is more advanced than the know-how of another plating chemical, because each know-how is only a compositional ratio of raw materials and the compositional ratio of the raw materials is different. Therefore, even if the individuality of the know-how is high, it is due to the difference in the composition ratio of raw materials. They claim that there is no qualitative difference in the know-how, etc. and that the know-how, etc. of the production of plating chemicals belonging to the same product group is the same. However, the difference in the ratio of raw materials causes a difference in the shape and characteristics of plating, which is recognized as having various added values, and the difference in the ratio of raw materials itself has an economic value, and the economic value differs depending on the difference in added values. This is a different premise. In addition, it can be said that a new product which can respond to a specific need of a customer has added value not found in a conventional product in the sense that it can respond to such need, and there is a difference between the know-how, etc. of manufacturing, etc. of a new product and the know-how, etc. of manufacturing, etc. of a conventional product in the sense of added value of intangible assets. Therefore, the plaintiff's argument has a different premise in that sense as well.

Therefore, it is difficult to recognize that the above point is the basis for the fact that the know-how, etc. of manufacturing plating chemicals, etc. belonging to the same product group satisfy the "sameness" required when using the method equivalent to the arm's length price comparison method.

b(a) The plaintiffs argue that transactions in which the amount of consideration is agreed by a formula, such as licensing transactions of intangible assets, should naturally be considered to be "like kind" if there is no difference affecting the formula. However, the arm's length price comparison method or a method equivalent to the arm's length price comparison method compares the prices of the subject matter of the transaction itself, as stated in (a) above, and does not compare the formulas for deriving such prices. (b) The plaintiffs argue that

(b) The plaintiffs have argued that, even if the know-how, etc. for the manufacture of different products is similar, if the contents comprising the know-how, etc. are similar and the equipment, etc. necessary for the manufacture of the products using the know-how, etc. are also similar, it is possible to choose whether to manufacture one product or another without incurring significant additional investment or risk. However, as stated in the preceding paragraph (a), in the case where the facilities necessary for the manufacture of one product are similar to those necessary for the manufacture of another product, and it is possible to choose whether to manufacture one product or another product without having to make a large additional investment or bear a large risk, it should be interpreted as satisfying the requirements for the same type of license transaction of manufacturing know-how.

However, as stated in (a) above, the "like-kindness" required by the method equivalent to the arm's length price comparison method used to calculate the arm's length price of a license transaction of intangible assets is with respect to the intangible asset that is the subject of the transaction, and as stated in (a) above, the degree of like-kindness is also required to be strict. Therefore, apart from the similarity of the intangible asset itself, the similarity of some of the contents of the intangible asset, the similarity of the facilities used to operate the intangible asset, or the similarity of the circumstances in which the additional investment or risk involved is small should not be sufficient to make the intangible asset itself "like kind". It is difficult to admit that the intangible assets themselves, which are the subject of the transaction, are "the same kind".

(c) Whether it can be said that the License Transaction and the Z10 License Transaction, which is said to be a comparable transaction, were conducted under "similar circumstances" (a) According to the certified fact (a), the License Transaction and the Z10 License Transaction were conducted under "similar circumstances". (a) According to the certified facts (b), there is a difference between the license transaction in question and the Z10 license transaction in that (i) the plaintiff grants an exclusive license in Taiwan to the foreign related party in the license agreement, while the Z10 license agreement grants an exclusive license in Taiwan to the foreign related party. (i) in this license agreement, the plaintiff grants an exclusive license in Taiwan to the foreign related party, while in the Z10 license agreement, the plaintiff only grants a non-exclusive license in Korea to Z10; and (ii) there is no difference between the market in Taiwan and the market in Korea. (ii) the market in Taiwan is different from the market in Korea in terms of (a) the unit sales price of plating chemicals, including the same plating chemicals, (b) the demand for plating chemicals, (c) the size of customers, profit margin and other attributes, and (iii) there is a significant difference in the market conditions between Taiwan and Korea. (iii) the assets subject to the License Agreement and the Z10 License Agreement are all intangible assets, and it is difficult to ascertain the impact of the above-mentioned differences on the amount of consideration for the intangible assets as a specific amount; and (iv) as stated in (3) above (4) As stated in (3) above, at least the entirety of the License Transactions should be taken as a single unit, and in that case, the comparable transaction would be the entirety of the Z10 0 License Transactions. In this case, the comparable transaction is the entire Z10 license transaction.

Therefore, it is difficult to admit that this license transaction and the Z10 license transaction were made under similar circumstances.

(b) The plaintiffs' arguments against the finding and judgment in (a) above cannot be adopted, as follows.

a. The plaintiffs argue that, in order for the requirement of "similar circumstances", which is a requirement for using a method equivalent to the arm's length method, not to be satisfied, it must be objectively clear that the difference between the foreign-related transaction and the comparable transaction has a significant effect on the amount of consideration. However, there is no such requirement.

However, in light of the wording of Article 66-4(2)(i)(a) or 66-4(2)(a) of the Act on Special Measures Concerning Taxation, "similar circumstances" in the case of the arm's length method or the method equivalent to the arm's length method is not considered to be "similar circumstances". In light of the wording of Article 66-4(2)(i)-(a) or (ii)-(a) of the Act on Special Measures Concerning Taxation, there is no legal basis to interpret "similar circumstances" as the plaintiff claims. In addition, as stated in the preceding paragraph (a), the arm's length method or a method equivalent to the arm's length method is a method of comparing prices themselves, and even in cases where prices are not materially affected, comparability is lost unless such effects (differences in the amount of consideration) can be adjusted (Special Taxation Measures Law). In this sense, too, there is no reason why it should be interpreted as the plaintiff claims.

(b) The plaintiffs claim that (i) both the foreign related party in question and Z10 received the know-how of the manufacture of the plating chemicals from the plaintiffs at about the same time for the purpose of selling one of the common products to a PCB manufacturer. (ii) both the License Agreement and the Z10 License Agreement are valid for a period of five years (iii) the plaintiff discloses its know-how in the manufacture of the plating chemicals only (a) to Z10 in Korea and (b) to the foreign related parties in Taiwan, and (c) to the foreign related parties and to Z10. (ii) to the foreign related party and to Z10, not only delivering a document describing the contents of the know-how, but also dispatching the plaintiff's engineer and agreeing that the cost of the dispatch would be borne by the foreign related party or Z10. In this case, the plaintiff's engineers were dispatched and the plaintiff agreed to bear the cost of the dispatch.

However, in light of the differences pointed out in (a) above, it is difficult to admit that the license transaction in question and the Z10 license transaction were made under "similar circumstances" immediately based on what the plaintiff alleges above. Therefore, the plaintiff's argument is not sufficient to overturn the judgment in (a) above.

c) (a) The Plaintiffs are unable to calculate the specific impact of the difference between the Licence Transaction and the Z10 Licence Transaction, and the fact that the difference cannot be adjusted does not alone mean that the difference is not material to the amount of consideration. It cannot be said that it is objectively clear that the difference has a significant effect on the amount of consideration.

However, as indicated in paragraph (a) above, there is no reason why it should be interpreted as requiring that it is objectively clear that the difference between the foreign-related transaction and the comparable transaction has a material effect on the amount of consideration in order for the requirement of "similar circumstances" not to be satisfied. (b) The plaintiffs argue that the difference between the comparable transactions and the comparable transactions

(b) The Plaintiffs argue that both the License Agreement and the Z10 License Agreement are agreements with substantially the same terms and conditions, and that a person making an ordinary and reasonable judgment would have concluded that the difference in exclusivity or non-exclusivity in the agreements would affect the royalty rates. However, the plaintiff argues that it is not so objectively clear that the difference in exclusivity or non-exclusivity in the contract affects the royalty rate.

However, the plaintiff's argument focuses only on the fact that the same phenomenon occurred in Korea and Taiwan in terms of the fact that the use of the intangible assets was licensed only to certain companies. In Korea, the plaintiff only licensed the use of the intangible asset to Z100 as a result of the plaintiff's free choice, while in Taiwan, the plaintiff only licensed the use of the intangible asset to the foreign related party in question because the plaintiff could only license the use of the intangible asset to the foreign related party as a contractual obligation. It must be said that the fact that the licensor has the option of licensing the same intangible asset to other companies also has an independent economic value.

If this is the case, whether it is contractually possible to grant a licence to another company to use the same intangible asset, or whether it constitutes a contractual default, makes a difference to the range of choice of the licensor to grant the use of the intangible asset, which is also reflected in the amount of the consideration for granting the use of the intangible asset. Therefore, it cannot be said that the circumstances of transactions based on an agreement to grant exclusive use and transactions based on an agreement to grant only non-exclusive use are the same.

(c) The plaintiff argues that it is left to the discretion of the licensee to decide at what price to sell the product manufactured using the licensed know-how, etc., and that it is not objectively clear that the royalty rate will be different if the selling price is different.

However, as stated in a)(a) above, the Claimants' argument is based on a different premise, because the method equivalent to the arm's length comparison method is a method of comparing the prices of the foreign-related transactions and the comparable transactions themselves, and not a method of comparing royalty rates. And, in light of the fact that the amount of consideration for the License Transactions in question and the Z 10 License Transactions is calculated by multiplying the amount based on the selling price by a certain royalty rate (Assumptions (2)(a) and (3)(a)) (d) The Claimant is entitled to a royalty payment based on the selling price.

(d) The Plaintiffs argue that the difference in the selling price of the same product between Taiwan and Korea is due to the fact that the foreign related party in question provided unique services to the users, while Z10 did not provide similar services to the users. However, the evidence (B53) shows that Z10 did not provide the same service to the users.

However, according to the evidence (B53), it is admitted that the prices of some of the licensed products in Taiwan are lower than the prices in Korea. Therefore, it is difficult to admit that the difference in the selling price of the products between Taiwan and Korea is caused solely by the existence or non-existence of the services allegedly provided by the foreign related party to the users.

(e) The Claimants consider that both the foreign related parties and Z10 sell plating chemicals to a common group of electronics manufacturers that operate globally, and that they operate in the same unified market for substrates for electronics manufacturers. The plaintiff argues that, as both the Licence Transactions and the Z10 Licence Transactions relate to plating chemicals for printed circuit board manufacturers competing in the same market, the markets for the products are the same. However, the plaintiff argues that the market is the same.

However, even if we assume what the plaintiffs claim, for example

However, even if we assume what the plaintiffs allege, for example, that (i) the plating chemicals of the foreign party and the plating chemicals of Z10 are all ultimately purchased by the same manufacturer, (ii) the plating chemicals of the foreign party and the plating chemicals of The plaintiffs have not proved that (i) the plating chemicals of the foreign related party and the plating chemicals of Z10 are all purchased by the same manufacturer, and (ii) the process of the transactions of the plating chemicals of the foreign related party and the plating chemicals of Z10 until they reach the final manufacturer is the same. It is difficult to admit immediately that the stages of the transactions, the functions of the parties to the transactions, and the direct customers, etc. are the same between the License Transactions and the Z10 License Transactions. Therefore, it is difficult to admit that the market of this license transaction and the Z10 license transaction are the same.

(d) Conclusion

As described above, it cannot be admitted that the assets subject to the transactions in the License Transaction and the Z10 License Transaction are the same kind or that the transactions were conducted under the same circumstances. In this case, it should be impossible to calculate the arm's length price of the Licensed Transactions using the method equivalent to the arm's length price comparison method because there is no other appropriate comparable transaction that would enable us to calculate the arm's length price of the Licensed Transactions using the method equivalent to the arm's length price comparison method.

(5) Whether it is possible to calculate the arm's length price of the Licensed Transactions using a method equivalent to the arm's length price comparison method

(a) Introduction

As stated in (4) above, it is not possible to calculate the arm's length price of the Licensed Transactions using a method equivalent to the arm's length price comparison method, and the parties have not argued that the arm's length price of the Licensed Transactions should be calculated using a method equivalent to the three basic methods other than the arm's length price comparison method in this case. In this case, the parties have not argued that the arm's length price of the Licensed Transactions should be calculated using a method equivalent to the Basic Three Methods other than the arm's length price comparison method, and the evidence in this case is not sufficient to admit that it is reasonable to calculate the arm's length price of the Licensed Transactions using a method equivalent to the Basic Three Methods other than the arm's length price comparison method. Therefore, it is not possible to calculate the arm's length price of the License Transaction by using the methods equivalent to the Basic Three Methods, and it is considered reasonable to calculate the arm's length price by using the methods equivalent to the other methods.

By the way, the plaintiff asserts that the method equivalent to the arm's length price method, which is one of the methods equivalent to other methods, can be used for each of the individual transactions constituting the License Transactions. However, as stated in (3) above, since the plaintiff's argument that the arm's length price should be calculated for each individual license transaction constituting the license transaction cannot be adopted, the plaintiff's argument above, which is premised on this argument, also cannot be adopted without judging the remaining points.

However, as stated above, the method equivalent to the arm's length method is one of the methods equivalent to the other methods, and it is considered convenient to consider it at this stage (see (1)(a) above). Therefore, we will now consider whether it is possible to calculate the arm's length price of the Licensed Transactions using a method equivalent to the arm's length method (see (1)(a) above).

(a) The significance of the method equivalent to the arm's length price comparison method

(a) It is reasonable to conclude that a method equivalent to the three basic methods is a reasonable method that is appropriate to the nature of the transaction and that does not depart from the concept of the three basic methods, depending on the type of transaction, other than the sale or purchase of inventories. As far as that is concerned, the method equivalent to the arm's length price comparison method is, as stated in (4) (a) above, a method of comparing the price itself, and the fact that the subject of the transaction is the same kind of transaction between the foreign-related transaction and the comparable transaction, and the fact that the foreign-related transaction and the comparable transaction were conducted under similar circumstances are both important. The method should emphasize both the fact that the subject matter of the transaction is the same between the foreign-related transaction and the comparable transaction and that the foreign-related transaction and the comparable transaction were conducted under similar circumstances. In light of the fact that both methods emphasize the fact that the transactions are made under the circumstances of the country of origin (see also the differences in the requirements of the three basic methods stipulated in Article 66-4(2) of the Act on Special Measures Concerning Taxation), we believe that it is appropriate to adopt a method similar to the arm's length method. (2) In light of the fact that the method which is considered to be equivalent to the method equivalent to the arm's length price comparison method is consistent with the fact that the subject matter of the transaction is the same type of transaction between the foreign affiliated transaction and the comparable transaction and that the foreign affiliated transaction and the comparable transaction were conducted under similar circumstances, it should be examined whether the method is equivalent to the method equivalent to the arm's length price comparison method or not. (b) The plaintiffs argue that the method is equivalent to the arm's length method.

(b) The Claimant has submitted that, in the case of transactions other than sales or purchases of inventories, the price of the transaction to which the arm's length price comparison method is applied is not comparable to the price of the transaction to which the arm's length price comparison method is applied (to the extent that there is a legal presumption that the price approximates the ideal price). It is argued that the method of calculating the arm's length price by comparing the price of the comparable transaction with the price of the comparable transaction should be treated as a method equivalent to the arm's length price comparison method, as the basic concept of the method is the same as that of the arm's length price comparison method, and should be interpreted as a method equivalent to the arm's length price comparison method, and can be used for the calculation of the arm's length price. Even if there is a difference in the object of the transaction to the extent that they cannot be said to be the same kind, and the difference in the amount of consideration arising from such difference is significant and the difference in the amount of consideration cannot be adjusted, the arm's length price as an objective entity is better than the arm's length price that can be calculated by using other methods including the method equivalent to the residual profit split method. Even if it is not possible to adjust for differences in the amount of the residual profit split, there is no reason to justify having to calculate the arm's length price on the basis of another method that is less reliable as a method of calculating the arm's length price, simply because the legal presumption is not available, if the arm's length price approximates the arm's length price as it exists and the relative reliability of the calculated arm's length price is higher than the arm's length price that could be calculated using other methods, including methods equivalent to the residual profit split method. However, in the case of (a) above, there is no reason to justify having to calculate the arm's length price on the basis of another method which is less reliable as a method of calculating the arm's length price.

However, as noted in (a) above, a method equivalent to the arm's length method is a method that emphasizes both the fact that the subject matter of the transaction is the same type of transaction between the foreign-related transaction and the comparable transaction and that the foreign-related transaction and the comparable transaction were made under similar circumstances. This is also the case in the Guidelines (prior to their revision in 2017), which require that any differences between the transactions being compared or between the undertakings carrying out those transactions be included in the price. This is also the case in the transfer pricing guidelines (prior to their revision in 2017), where the CUP law (which is based on Article 66-4(2)(b) of the Special Taxation Measures Law) provides that if any differences between the transactions being compared or between the undertakings carrying out those transactions do not have a material effect on the prices, or if a reasonably precise adjustment can be made to eliminate the material effect of such differences, then the transfer pricing guidelines should be applied. The CUP method (which is a concept that includes methods equivalent to the arm's length method included in Article 66-4(2)(b) of the Act on Special Measures Concerning Taxation) It is also clear from the fact that it is a requirement to use the independent price comparison method (Article 66(2)(ii)(b) of the Act on Special Measures Concerning Taxation) (Article 2.14). Therefore, the plaintiffs' argument is based on the fact that the method does not satisfy the requirement to use a method equivalent to the arm's length comparison method. Therefore, the plaintiffs' argument is to the effect that a method which does not meet the requirements for using a method equivalent to the arm's length method should be treated as a method equivalent to the arm's length method, and the premise of the argument should be different.

Therefore, the plaintiff's argument cannot be adopted.

(c) Whether or not the method claimed by the plaintiffs can be said to be equivalent to the method equivalent to the independent price comparison method

(a) As stated in (4)(a) and (c) above, it cannot be said that the assets subject to the transaction are the same type of assets in the License Transaction and the Z10 License Transaction, and In addition, it cannot be said that the license transaction and the Z10 license transaction were conducted under similar circumstances. In light of the fact that it is not possible to adjust for such differences, the Z10 License Transaction should be used as a comparable transaction and the arm's length price of the License Transaction should be calculated by directly comparing the price of the Z10 License Transaction. In light of the fact that the Z10 License Transaction cannot be adjusted, it is difficult to accept that calculating the arm's length price of the Licensed Transactions by using the Z10 License Transaction as a comparable transaction and directly comparing the price of the Z10 License Transaction is a reasonable method that does not depart from the concept of the method equivalent to the arm's length price comparison method, and it should not be considered that the arm's length price was calculated by using a method equivalent to the arm's length price comparison method.

(b) The plaintiffs' arguments cannot be adopted in each case, as follows

(a) The plaintiffs argue that (i) the know-how of manufacturing plating chemicals which the plaintiffs licensed in this license transaction and (ii) the know-how of manufacturing plating chemicals which the plaintiffs licensed in the Z10 license transaction are all the same. (1) the know-how of manufacturing plating chemicals which the plaintiff has licensed in this license transaction and the know-how of manufacturing plating chemicals which the plaintiff has licensed in the Z10 license transaction all relate to the same business of manufacturing plating chemicals; (2) the know-how in (1) above all perform the same function of surface treatment and are highly similar in terms of the type and content of technical information, etc. required for manufacturing plating chemicals; and (3) there is a high degree of similarity in the type and content of technical information, etc. required for manufacturing plating chemicals. (iii) the actual situation of how the royalty is determined in the case of licensing transactions of intangible assets between independent companies, (iv) the fact how the plaintiff determined the royalty in the case of licensing transactions of intangible assets with Z10, an unrelated party in this case, and (v) the fact that the plaintiff has not been able to obtain the consent of Z10. (4) the fact how the plaintiff determined the royalty when conducting the intangible asset licensing transaction with Z10, the non-affiliated party in question, and (5) the characteristics of the know-how of manufacturing plating chemicals, which is the subject matter of the license agreement in question, the similarity of the comparable transactions is sufficiently satisfied and the basic concept is common. In light of the characteristics of the Z 1 0 license transaction, the similarity of the comparable transactions is sufficiently satisfied and the basic idea is common.

However, as stated in (a) above and (a) above, the method equivalent to the arm's length price comparison method is a method that emphasizes the similarity of the subject matter of the transaction and the similarity of the circumstances of the transaction. Even if there are circumstances as pointed out above by the plaintiffs, it is difficult to recognize that the method does not deviate from the concept of the method equivalent to the independent price comparison method in terms of the similarity of the subject of the transaction and the similarity of the circumstances of the transaction.

b. The plaintiffs argue that, in this case, the marketing activities of the foreign related parties with the provision of their unique services have made a significant contribution to the generation of residual profits in Taiwan, while the contribution of the plaintiffs' research and development activities is unclear and has not contributed to the generation of residual profits at least as much as the contribution of the activities of the foreign related parties. In light of this, the method equivalent to the residual profit split method cannot be said to be a method capable of calculating a result that approximates the profit split that would have been made if it had been an arm's length transaction, and is therefore unreliable. On the other hand, the method of calculating the arm's length price of the Licence Transaction based on the royalty rate of the Z10 Licence Transaction, using the Z10 Licence Transaction as a comparable transaction, is not reliable because it cannot be said to be a method that can approximate the profit split that would have been achieved if the transactions were conducted on an arm's length basis. In light of the fact that both the Z10 License Transaction and the Z10 License Transaction are priced in a manner consistent with the general practice of determining royalty rates based on the level of royalty rates prevailing in the industry, it is possible to calculate a price that approximates the price that would have been obtained in an arm's length transaction. In light of the fact that the price is set by a method that is consistent with the general practice of determining the price at the arm's length level, the plaintiff argues that the method can be used to calculate the arm's length price for this license transaction as a method equivalent to the arm's length price comparison method.

However, as stated in a. above, the method claimed by the plaintiffs cannot be said to be a reasonable method that does not deviate from the concept of a method equivalent to the arm's length price comparison method, and it cannot be a method equivalent to the arm's length price comparison method. The question of whether or not the method equivalent to the residual profit split method was properly used in this case and the question of whether or not the method claimed by the plaintiff in this case is equivalent to the method equivalent to the independent price comparison method are not logically related and are separate issues. Even if the method equivalent to the method of division of residual profit claimed by the defendant was used inappropriately or illegally, this does not mean that the method claimed by the plaintiff can be immediately evaluated as equivalent to the method equivalent to the independent price comparison method, which is a different premise.

(d) Conclusion

As described above, the method of calculating the arm's length price of the Licensed Transactions by using the Z10 Licensed Transactions as a comparable transaction using a method similar to the arm's length method is not considered to be equivalent to the method equivalent to the arm's length method. The evidence in this case does not reveal any other appropriate comparable transactions that would allow the use of a method equivalent to the arm's length method, and therefore, in this case, the arm's length price of the Licensed Transactions cannot be calculated using a method equivalent to the arm's length method. Therefore, in this case, it should not be possible to calculate the arm's length price of the license transaction using a method equivalent to the arm's length method.

(6) Whether the arm's length price of the Inventory Sales Transaction can be determined using the cost basis method

(a) Requirements for the use of the cost basis method

The cost basis method is a method for calculating the arm's length price of inventories involved in a foreign-related transaction by adding the amount of the seller's cost of acquisition of the inventories by purchase, manufacture or other act to the amount of the seller's normal profit (calculated by multiplying the amount of such cost of acquisition by the normal profit margin) (Article 6(2)(i) of the Act on Special Measures Concerning Taxation). Article 6-4(2)(i)(c) of the Act on Special Measures Concerning Taxation), and the above-mentioned "normal profit margin" shall be the amount calculated by adding to the amount of profit obtained by a person who has acquired, by purchase, manufacture or other act, inventories of the same kind or similar kind as those involved in a foreign affiliated transaction, the amount of profit obtained by multiplying the amount of such inventories by the normal profit margin. The "normal profit margin" shall be the ratio of the amount of the gross profit on sales of the seller in relation to a transaction in which a person who has purchased, manufactured or otherwise acquired inventories of the same kind or similar kind as those involved in a foreign affiliated transaction sells the same kind or similar inventories to a person who is not in a special relationship with the seller (the comparable transaction) to the total amount of the cost of the inventories. However, where there is a difference between the comparable transaction and the foreign-related transaction in terms of the functions performed by the seller and other factors, the ratio shall be the one after making necessary adjustments for the difference in the ratio arising from such difference (Article 39-12, Paragraph 7 of the Enforcement Order of the Act on Special Measures Concerning Taxation).

This means that, in order to calculate the arm's length price of the Inventory Sales Transactions using the cost basis method, it is necessary to calculate the "normal profit margin" for BB products, which are the subject assets of the Inventory Sales Transactions.

(b) Whether a "normal profit margin" should be calculated for the Inventory Sales Transactions in question

(a) First, if the arm's length price of the Inventory Sales Transactions were to be determined using the cost basis method, whether the unit of transaction subject to the cost basis method should be the sale of each individual BB product comprising the Inventory Sales Transactions or not With respect to the Inventory Sales Transactions, for the same reason as explained in (3) above with respect to the License Transactions, it would not be reasonable to calculate the arm's length price for each individual transaction comprising the Inventory Sales Transactions. For the same reasons as those set out in paragraph (3) above for the Licence Transactions, it would not be reasonable to calculate the arm's length price for each of the individual transactions comprising the Inventory Sales Transactions, and it is appropriate to treat the Inventory Sales Transactions as a whole as a whole.

(b) The BB product, which is the subject matter of the transaction (inventory) in the Inventory Sales Transactions, is a product whose purpose is to prevent or delay the leakage of confidential information, and it is meaningful that its components are not disclosed. (There is no dispute between the parties as to this point.) (There is no dispute between the parties on this point.) Therefore, it is not recognized as a product which is generally traded in the market, but as a special product which is premised on the existence and use of certain intangible assets such as the plaintiff's know-how in the manufacture of plating chemicals.

Therefore, as BB products are not products which are generally traded in the market, it is impossible to calculate the "normal profit margin" of BB products based on the transactions in the general market.

(c) Leaving aside point (a) above for the moment, if we were to take the Z10 inventory sales transaction as a comparable transaction, we would have to consider whether it is possible to calculate the "normal profit margin" for the inventory sales transaction in question. Even if we were to take into account whether or not it is possible to calculate the "normal profit margin" in the Inventory Sales Transactions in question by using the Z10 Inventory Sales Transactions as a comparison transaction, the evidence (B104-2, B105, B106) shows that (i) BB According to the evidence (B104-2, B105, B106), (i) the profit margin of BB products varies greatly from 2% for the smallest model to 9% for the largest model The evidence (B104-2, B105, B106) shows that (i) the profit margin of BB products varies greatly from 2% for the smallest model number to 9% for the largest model number, and that BB products are highly individualized assets; (ii) only three types of BB products related to common products are traded in the Z10 inventory sales transaction (iii) the number of BB products traded in the Inventory Sales Transactions varied from a minimum of 12 to a maximum of 22, depending on the time of year. (iii) that the number of BB Products traded in the Inventory Sales Transactions varied from a minimum of 12 to a maximum of 22, although the number varied depending on the time of year, and that most of the BB Products traded in the Inventory Sales Transactions were unique products; and (iv) that the percentage of the value of sales of BB products, which are also traded in the Inventory Sales Transactions, to the value of sales of BB products in the Inventory Sales Transactions was only 0.7% on a weighted average basis for each of the fiscal years in question. The weighted average of the sales of B B, which are also traded in the inventory sales transactions, was only 0.7% in each of the fiscal years in question.

In light of the foregoing, and taking into account the facts set out in (i) to (iv) above in addition to the facts set out in (4) above with respect to the License Transactions, it is reasonable to conclude that B B in the Z10 Inventory Sales Transactions cannot be considered to be "the same or similar inventory" in relation to the Inventory Sales Transactions, and the profit margin of the Z10 Inventory Sales Transactions as a whole cannot be used to calculate the "normal profit margin" in the Inventory Sales Transactions. Therefore, it is not possible to calculate the arm's length price of the Inventory Sales Transactions by using the cost basis method with respect to the Z10 Inventory Sales Transactions as a comparison transaction. (d) Accordingly, it is not possible to calculate the arm's length price of the Inventory Sales Transaction using the cost basis method.

(d) Accordingly, it should not be possible to calculate the arm's length price of the Inventory Sales Transactions using the cost basis method.

(c) Judgment on the Claimants' Arguments

The plaintiffs argue that (i) the plaintiffs sell BB products to Z10 in the same way as they sell to the foreign related parties in question, and (ii) the plaintiffs sell BB products to Z10. (2) Both the BB products sold by the plaintiff to Z10 and the BB products sold to the foreign related parties are semi-manufactured products for manufacturing plating chemicals and are identical in terms of their properties, structure, functions, etc. (iii) the plaintiff has not made any claim against the BB products sold to Z10 or the BBB products sold to the foreign related parties. (iii) the plaintiff shipped the Products BB to Z10 and the Products B to the Foreign Related Party in question after carrying out the manufacturing act of mixing several raw materials necessary for the manufacture of plating chemicals; and (iv) there was a clear difference between the transactions in respect of the sale of Z10's inventory and the transactions in respect of the sale of the inventory in question which affected the profit margin. (iv) there are no apparent differences between the Z10 Inventory Sales Transactions and the Inventory Sales Transactions that would affect the profit margin, and that the arm's length price of the Inventory Sales Transactions may be calculated using the cost basis method with the Z10 Inventory Sales Transactions as the comparator transaction. However, none of the points made by the Claimants above is sufficient to overturn the finding and the decision in the light of what has been found in paragraph (a) above, and no other evidence has been found to support the Claimants' allegations above.

Therefore, the plaintiff's argument cannot be adopted.

(7) Conclusion

According to the above, it is not possible to calculate the arm's length price of either the License Transaction or the Inventory Sales Transaction using the Basic Three Basic Method or a method equivalent to the Basic Three Basic Method.

2. Issues 1-2 (Whether the residual profit split method or a method equivalent to the residual profit split method may be used to calculate the arm's length price of the Foreign Related Transaction)

(1) Introduction

As indicated in 1 above, it is not possible to calculate the arm's length price of the foreign affiliated transaction in question using the three basic methods or a method equivalent to the three basic methods, and therefore it is not possible to calculate the arm's length price of the foreign affiliated transaction using any other method or a method equivalent to any other method (Article 66(2)(i) of the Act on Special Measures Concerning Taxation). Therefore, it is considered necessary to calculate the arm's length price of the foreign affiliated transaction using other methods or methods equivalent to other methods (Article 66-4(2)(i)(d) or (ii)(b) of the Act on Special Measures Concerning Taxation).

In addition, the defendant is required to calculate the arm's length price of the foreign affiliated transaction using the residual profit split method and the method equivalent to the residual profit split method, which are one of the other methods and methods equivalent to the other methods, after treating the entirety of the foreign affiliated transaction as one unit of transaction to calculate the arm's length price. Therefore, we would first like to examine whether, in the case of using the other method or one of the methods equivalent to the other methods, it is necessary to specifically assert and prove that such method is more appropriate than any other method. Next, with respect to the unit of transaction for calculating the arm's length price of the foreign affiliated transaction, we examined whether it would be reasonable to treat the entire foreign affiliated transaction as a single unit by assessing the License Transaction and the Inventory Sales Transaction as a single unit (see (2) below). Finally, we shall consider whether it is appropriate to calculate the arm's length price of the Foreign Related Transaction using the residual profit split method and a method equivalent to the residual profit split method (see (4) below).

(2) Requirements for the use of other methods (other than the Basic Three Methods) or methods equivalent to other methods (equivalent to methods other than the Basic Three Methods)

(a) Interpretation of Article 66-4(2) of the Act on Special Measures Concerning Taxation

Article 66-4(2) of the Act on Special Measures Concerning Taxation stipulates that, when calculating the arm's length price of a foreign affiliated transaction, the three basic methods or a method equivalent to the three basic methods should be preferentially used to calculate the arm's length price of the foreign affiliated transaction. However, when calculating the arm's length price using other methods or methods that are equivalent to other methods, there is no provision as to which of those methods must be used first (paragraph (1)(i) and (2)(i)). Therefore, when calculating the arm's length price using other methods or methods equivalent to other methods, it is sufficient to select a reasonable method from among other methods or methods equivalent to other methods in light of the characteristics of the case in question. It is reasonable to conclude that it is sufficient to select a reasonable method from among other methods or methods equivalent to other methods in light of the characteristics of the case.

(b) Judgment on the plaintiff's argument

The plaintiffs argue that (1) according to the principle of clarity of taxation requirements, it is impossible for the taxation authority to select and use any one of several methods to calculate the arm's length price, and (2) according to the interpretation of Article 66-4(2) of the Act on Special Measures Concerning Taxation According to the interpretation of Article 66-4(2) of the Act on Special Measures Concerning Taxation, only the method which can be unambiguously determined as the most appropriate method for calculating the arm's length price based on the arm's length principle under specific circumstances is a legitimate method for calculating the arm's length price. (3) The phrase "the most appropriate method" in Article 66-4(2) of the current Act on Special Measures Concerning Taxation is merely a confirmation provision. (4) The provision of Article 66-4(2) of the Act on Special Measures Concerning Taxation, which states that the Basic Three Methods should be used preferentially, is a legal presumption that the Basic Three Methods are more appropriate than other methods. In the case where the arm's length price of a foreign affiliated transaction is calculated by using other methods or methods equivalent to other methods, the method chosen by the taxation authority must be the most appropriate method among other methods or methods equivalent to other methods, and the defendant should assert and prove that it is the most appropriate method.

However, as stated in the preceding paragraph (a), there is no basis in law which stipulates the order of application of the other methods or methods equivalent to the other methods, nor is there any explicit basis in law which stipulates that the Taxation Office must select the most appropriate method among the other methods or methods equivalent to the other methods. In addition, there is no explicit basis in the law to provide that the taxation authority shall select the most appropriate method among other methods or methods equivalent to other methods, and it is natural in the nature of the matter that the method selected by the taxation authority shall be the appropriate method. (2) The taxation authority shall always specifically consider whether or not it is possible to use all the methods belonging to the other methods or methods equivalent to the other methods, and shall specifically compare the appropriateness of what is considered to be the arm's length price calculated by all the methods, even though it may be necessary to assert and prove that the other methods are more appropriate. It should not be interpreted that the plaintiff must always specifically assert and prove that the method chosen by the taxation authority is the best one.

Therefore, the plaintiff's argument cannot be adopted.

(3) Whether the arm's length price of the Foreign Related Transaction should be calculated on the basis of the License Transaction and the Inventory Sales Transaction as a single transaction

(a) The relationship between the License Transactions and the Inventory Sales Transactions

(a) As stated in (2)(a) above, the BB Products constitute part of the know-how for manufacturing the Licensed Products and are raw materials or part of the plating chemicals (semi-finished products, etc.) that are indispensable for manufacturing the Licensed Products. In addition, the know-how, etc. of the manufacture, etc. of the Licensed Products disclosed by the Plaintiff to the Foreign Affiliated Party in question was premised on the use of BB products designated by the Plaintiff when manufacturing the Licensed Products using the know-how, etc. in question.

Based on this premise, (1) the BB product is an article that is difficult to use effectively unless it is premised on the know-how, etc. that the plaintiff has licensed to use in the License Agreement, and (2) the B (2) The know-how disclosed by the plaintiff to the foreign related parties under the license agreement was also incomplete and could not be used in the ordinary course of business unless the BB products provided by the plaintiff were used. (2) The know-how, etc. disclosed by the plaintiff to the foreign related parties under the License Agreement was incomplete by itself and could not be the subject of normal transactions, because it was impossible to manufacture the Licensed Products only with the know-how, etc. unless the BB Products provided by the plaintiff were used.

In that case, the know-how of the manufacture of the licensed products and the BB products corresponding to the know-how

Therefore, the know-how, etc. of the manufacture, etc. of the Licensed Products and the corresponding BB Products are established as independent and complete know-how, etc. capable of manufacturing, etc. the Licensed Products only when they are combined, and can be considered as the subject of ordinary transactions, and the arm's length price can be assumed. (b) In addition, the evidence (i) and (ii) are not in dispute.

(b) In addition, according to the evidence (B56, 57, 60, 64, 77) (b) According to the evidence (B56, 57, 60, 64, 77), the Plaintiff has not been able to recover sufficient profit from the royalty income from the Licensed Transactions alone. Therefore, it is admitted that the Plaintiffs entered into the License Transactions and the Inventory Sales Transactions based on the understanding that the Plaintiffs could control the prices and that it was necessary to recover profits by trading in BB products, which were essential for the manufacture of the Licensed Products, and that, in the Plaintiffs' subjective view, the License Transactions and the Inventory Sales Transactions were separate and independent. (c) Accordingly, the plaintiffs' subjective perceptions of the License Transactions and the Inventory Sales Transactions were not separate and independent, but were considered to be one and the same.

(c) Therefore, under the circumstances of the evidence in this case, it is reasonable to calculate the arm's length price of the Foreign Related Transaction as one unit, which is the combination of the License Transaction and the Inventory Sales Transaction. Notice 66-4(3)-1(2), Transfer Pricing Guidelines (2010) (See also Notice 66-4(3)-1(2) of the Act on Special Measures Concerning Taxation and Transfer Pricing Guidelines (prior to the revision in 2010) 1.42).

(b) Judgment on the Claimant's Arguments

(a) The Claimants argue that the transactions of BB products for the year ended 31 March 2007 were 24 (a) The plaintiff claims that the transactions of BB products in the fiscal year ended March 31, 2007 were only 12 items in comparison with the 24 items of intangible asset licensing transactions, and that most of the BB products were not used as raw materials in manufacturing the licensed products. In order to manufacture the Licensed Products, most of them do not use BB products as raw materials, and therefore, most of the Licensed Transactions do not have any transactions of BB products (inventory sales transactions) which may affect the price of the Licensed Products in the first place.

However, according to the evidence (B139), it is admitted that the number of products controlled as BB products has been increasing year by year, and all the evidence in this case also shows that the number of products controlled as BB products has been increasing year by year. Therefore, the total number of the Licensed Products listed in the License Agreement and the number of the Licensed Products that were traded at the time of the fiscal year ended March 31, 1999 are not identical. Therefore, the result of comparing the total number of licensed products in the license agreement with the number of BB products traded at the time of the fiscal year ended March 1997 is not significant. Furthermore, according to the evidence (B50-4, B142) and the whole purpose of the argument, the number of BB products in the sales of Z Furthermore, according to the evidence (B50-4, B142) and the whole purpose of the argument, the ratio of the sales of Z3 licensed products in which BB products were used to the sales of Z3 plated products in each of the fiscal years in question exceeded at least 60%. It can be admitted that the ratio of the sales of Z3 Licensed Products in which BB Products were used to the sales of Z3 Plated Products in each of the fiscal years in question exceeded 60% at least, and it can be seen that there is a significant linkage between the License Transactions and the Inventory Sales Transactions.

In light of the foregoing, even if we assume what the plaintiffs have pointed out above, it is not sufficient to overturn the finding and judgment set out in paragraph (a) above that the Inventory Sales Transactions and the License Transactions should be treated as a single unit for the purpose of calculating the arm's length price (see also paragraph 1(3)(a) above). As stated in 1(3)(a) above, as to whether or not it is possible to calculate the arm's length price by combining multiple transactions as a single unit, it is necessary to comprehensively consider the various circumstances relating to the transactions for which the arm's length price is to be calculated, and to consider whether or not the arm's length price can be calculated by combining multiple transactions as a single unit. Therefore, whether or not it is reasonable to calculate the arm's length price by treating the Inventory Sales Transactions and the License Transactions as one unit should be determined. Therefore, it is only possible to calculate the arm's length price by treating the Inventory Sales Transactions and the Licence Transactions together as one unit if the ratio of sales of the Z3 Licensed Products in which BB Products are used to total sales of the Z3 Plated Products in each of the business years in question is equal to or greater than the ratio of sales of the Z3 Licensed Products in which BB Products are used to total sales of the Z3 Plated Products in each of the business years in question. The plaintiff's argument to the contrary cannot be adopted.) The plaintiff's argument to the contrary cannot be adopted.

Therefore, the plaintiff's argument cannot be adopted.

(b) The plaintiffs argue that (i) the BB product itself is not worth more than the total price of the mixed raw materials, and (ii) the sale of the raw materials to the licensee who has received the disclosure of the know-how, etc. including the BB product, is not worth more than the total price of the mixed raw materials. (2) The amount of consideration for the sale of raw materials to a licensee who has received disclosure of know-how, etc., including the BB product, and the amount of consideration for the sale of raw materials to a licensee who has received full disclosure of know-how, etc., are theoretically the same in a competitive market, and the BB product is not traded at a high price as containing know-how, etc. The fact that the price of the BB product is affected by the amount of the consideration for the licensing transaction of the intangible asset in relation to the licensing transaction of the know-how, etc. for the manufacture, etc. of the product using the BB product as one of the raw materials (1) there is no fact that the price of the BB product is affected by the amount of the consideration for the licensing transaction of the intangible asset, and (2) there is no fact that the amount of the consideration for the licensing transaction of the intangible asset is affected by the price of the BB product. (ii) there is no fact that the royalty rate for the license agreement using BB products is set lower than the royalty rate for the license agreement not including BB products, and there is no proof of such fact in this case. However, the plaintiff argues that it is not possible to calculate the arm's length price by treating the license transaction and the inventory sales transaction as one unit.

However, even with the plaintiff's argument, the know-how of manufacturing the Licensed Products, which is the subject matter of the License Transaction, and the BB Products, which is the subject matter of the Inventory Sales Transaction, are both incomplete as stand-alone units and cannot be the subject of ordinary transactions. In the end, it does not affect the finding and judgment in the preceding paragraph (a) either.

Therefore, the plaintiff's argument cannot be adopted.

(4) Whether the residual profit split method or a method equivalent to the residual profit split method should be used to calculate the arm's length price of the foreign affiliated transaction

(a) Characteristics of the residual profit split method

In the residual profit split method, in a foreign-related transaction involving the sale or purchase of inventory, the first step is to allocate to each party to the foreign-related transaction the profit normally earned in an unrelated party transaction that does not involve a significant intangible asset (the basic profit), and the second step is to allocate to each party to the foreign-related transaction the residual profit after allocating the basic profit (the profit arising from the significant intangible asset). The second step is to calculate the arm's length price by allocating the residual profit (profit arising from significant intangible assets) after allocating the basic profit in a reasonable manner according to the value of the significant intangible assets held by both parties (Article 39-1 of the Enforcement Ordinance of the Special Taxation Measures Law). (See current Enforcement Order of the Act on Special Measures Concerning Taxation, Article 39-1-2, paragraph 8, item 1(c), and Circular 66-4(4)-5). (See Article 39(12)(1)(c) of the current Enforcement Ordinance of the Act on Special Measures Concerning Taxation, and Notice 66-4(4)-5 of the Act on Special Measures Concerning Taxation), which can be used when a significant intangible asset is considered to generate a larger amount of operating profit (i.e. residual profit) than in ordinary unrelated party transactions (B8). The method equivalent to the residual profit split method is to calculate the arm's length price of foreign-related transactions other than sales or purchases of inventories by the same method as above.

In this context, the residual profit split method and the method equivalent to the residual profit split method are characterized by the rational allocation of the residual profit in proportion to the value of the significant intangible assets. Therefore, where both the corporation subject to the application and the foreign related party have their own significant intangible assets, it should be recognized as a reasonable calculation method in that the contribution of such unique significant intangible assets can be reflected in the division factor.

(b) Whether the arm's length price of the foreign-related transaction can be calculated using the residual profit split method or a method equivalent to the residual profit split method

In this case, according to the facts set out in (1) (a) and (b) and (2) above, as well as the previous rulings, (i) the plaintiff conducted research and development activities relating to the manufacture of plating chemicals, etc., and formed know-how, etc. (intangible assets) relating to the manufacture of various types of plating chemicals, etc., and granted permission to the foreign related party to use such know-how, etc. (intangible assets) (intangible assets), and then licensed the use of such know-how, etc. (intangible assets) to the foreign related party in question (the License Agreement) and obtained consideration for it (the License Transaction); and (ii) the foreign related party in question was able to manufacture a wide variety of plating chemicals based on the premise that the plaintiff disclosed the above-mentioned know-how, etc. (intangible assets) to it. (iii) the foreign related party in question is able to provide technical support to its customers by providing services such as technical support for obtaining certification, 24-hour support, claim analysis and after-sales service. (iii) the foreign related parties have formed intangible assets related to the provision of technical support to customers through services such as technical support for obtaining certification, 24-hour support, complaint analysis and after-sales service; and (iv) the foreign related parties have succeeded in obtaining a high market share for at least some of the plating chemicals necessary for manufacturing printed circuit boards in Taiwan and have also succeeded in obtaining high profits as a result of (ii) and (iii) above. It is admitted.

Therefore, it is reasonable to calculate the arm's length price of the foreign related transaction by using the residual profit split method and the method equivalent to the residual profit split method, because both the plaintiff and the foreign related party have important intangible assets in this foreign related transaction and each intangible asset is recognized to have contributed to the acquisition of profit. Therefore, it is reasonable to calculate the arm's length price of the foreign related transaction using the residual profit split method and the method equivalent to the residual profit split method

(c) Judgment on the Claimants' Arguments

We will examine the Claimants' arguments in relation to the finding and judgment set out in (a) above in turn, but as follows, none of them can be adopted.

However, with respect to the Claimants' argument that the standard for the division of residual profit is unreasonable and that it is inappropriate to use the residual profit division method or a method equivalent to the residual profit division method, we will examine the appropriateness of the results of the calculation of the arm's length price by specifically using the residual profit division method or a method equivalent to the residual profit division method. (a) The plaintiffs argue that

(a) The plaintiffs argue that, in this case, there is a comparable transaction, the Z10 license transaction, and that the special tax treatment under the CUP method set out in the Transfer Pricing Guidelines does not apply. (a) The plaintiff argues that in this case, since there is a comparable transaction, the Z10 license transaction, and the method is equivalent to the arm's length method prescribed by the Act on Special Measures Concerning Taxation, which falls under the CUP method, the plaintiff can use a method that is more appropriate than the method equivalent to the residual profit split method. (a) The plaintiffs argue that the method is not equivalent to the method equivalent to the arm's length price comparison method, as described in 1(5) above, which is a different premise.

(b) Even if the Plaintiffs assume that there is a difference in the circumstances between the Licence Transactions in question and the Z10 Licence Transactions, and adjust this difference by the royalty rate, the proportion of the royalty rate that increases as a result of such adjustment will be Even if the royalty rate were to be adjusted, the percentage of the royalty rate that would increase as a result of such adjustment would not exceed 5% (A142, 143). If the result of the calculation of the arm's length price of the license transaction using the method equivalent to the profit split method is recalculated to the royalty rate, the royalty rate for the fiscal year ended March 31, 2007 would reach 20 However, if the results of the calculation of the arm's length price of the license transaction using the same method are recalculated to the royalty rate, the royalty rate for the fiscal year ended March 31, 2007 will reach 2%, which is impossible from a common sense point of view based on the normal market rate, and the defendant also claims that the results using the method claimed by the defendant show that the results can only be calculated in a way that is significantly different from the ideal price and distribution of income.

However, as stated in (a)(d)(a), the majority of the licensing transactions of the know-how for the manufacture of plating chemicals, which constitute the license transactions in question, are unique transactions which are finely tuned to the individual needs of the users who have licensed the use of such know-how to the foreign related parties. In light of the fact that the majority of the licensing transactions in this case consist of licensing transactions of know-how of manufacturing etc. of plating chemicals, which are unique to the users who have licensed the use of Miso to the foreign related parties and which are finely tuned to the individual needs of the users, and that the licensing transactions in this case consist of licensing transactions of know-how of manufacturing etc. of plating chemicals, which have a wide range of contents and can be applied to multiple plating processes, the licensing transactions in this case are difficult to assume what is considered to be the normal market rate. In addition to the above, the plaintiff has not been able to prove that it is the same as the above. In addition to this, the difference between the normal market rate (5%) or a modified version of it (at most 10%) as alleged above by the plaintiff and the calculation results alleged by the defendant (20%) Even if we assume that the above calculations made by the Claimants are accurate, we cannot say that it would not be appropriate to calculate the arm's length price of the Licence Transaction using a method equivalent to the residual profit split method. (c) The plaintiffs have stated that they do not believe that it is appropriate to calculate the arm's length price of the Licensed Transactions using a method equivalent to the residual profit split method.

(c) The plaintiff argues that the overwhelming market share and high profits in Taiwan were achieved as a result of the business model of the foreign related parties after the conclusion of the License Agreement, and are still maintained by such business model.

However, as stated in (a) above, the fact that it is possible for the foreign related party in question to provide surface treatment technology that responds to the needs of customers in a detailed manner by using plating chemicals (the Licensed Products) manufactured by using the intangible assets licensed from the plaintiff, is the reason why the sales and technical support provided by the foreign related party in question (which the plaintiff claims above to be (d) The plaintiffs believe that the business model of the foreign related party is based on the fact that the foreign related party is able to provide surface treatment technology that meets the needs of customers in a detailed manner by using surface treatment technology.

(d) The plaintiff argues that (i) the plaintiff's research and development activities are not the plaintiff's unique function, as the competitors are also engaged in such activities, (ii) the ratio of research and development expenses to sales is not higher than that of the competitors, and (iii) the plating chemicals manufactured by the plaintiff using the know-how of manufacturing the plating chemicals, which is the result of the plaintiff's research and development activities, are not the same as those manufactured by the competitors. (iii) the plating chemicals manufactured by the Plaintiff using the know-how of manufacturing plating chemicals, which is the result of the Plaintiff's research and development activities, have no particular advantage or differentiation as competitors are selling alternative competitive products with similar functions; and (iv) the know-how of the Plaintiff, such as the mixing ratio of raw materials for plating chemicals, is a common trade target in Japan, Korea and Taiwan, yet the Plaintiff has neither a higher market share nor a higher operating profit in Japan and Korea than in Taiwan. (v) According to the results of the investigation conducted by the plaintiff (A113), it is not recognized that the plaintiff's R&D activities contribute to the generation of profits, and even if there is a contribution, the degree of contribution is not considered to be significant. The results of the Claimants' research and development activities are merely a necessary function for the Claimants and the foreign related parties to continue to be players in the market of plating chemicals, and are a necessary condition for them to engage in the business of manufacturing and selling similar plating chemicals. It is a necessary condition for the manufacture and sale of similar plating chemicals and is not a unique function that can generate residual profits.

However, in addition to what is indicated in (a) above, what the plaintiff asserts above is not to the effect that the plaintiff has no know-how in the production of plating chemicals or that the know-how possessed by the plaintiff is worthless, but to the effect that the know-how possessed by the plaintiff is not superior in relative comparison with the competitors. Therefore, the plaintiff's argument merely points out that both the plaintiff and its competitors have their own intangible assets, and it does not deny that the know-how, etc. held by the plaintiff is the source of the residual profits in the foreign-related transactions. It does not deny that the know-how, etc. possessed by the plaintiff is the source of the residual profit in the foreign related transactions. And the evidence (A113) pointed out by the plaintiff is an analysis using statistical methods based on the knowledge of econometrics, and it is only one of the opinions constructed under various assumptions and conditions. In addition, it does not directly support the plaintiff's claim because it is for a different fiscal year from the fiscal year in question, and (i) it uses a variable different from the true R&D expenditure of Z1, which causes a measurement error, and (ii) the analysis is different between Z1 and the sample companies. In addition, it is recognized that there are some problems such as (1) using different variables from the true R&D expenditure of Z1, and (2) setting different definitions of the variables that are the premise of the analysis for Z1 and the sample companies (B152). In the first place, it is difficult to admit that it precisely supports the plaintiff's claim.

(e) The plaintiffs argue that the products must be sold at a high price in order to generate a residual profit, and that the fact that the products meet the needs of the customers is irrelevant to the question of how much the customers will pay for the products. In addition, even if the selling price of the product containing the know-how is high, if services are also offered together with the sale of the product, it is not clear whether the selling price is also high because the value of the know-how is high or because the value of the services offered is high. However, in the case of the residual profit division method or the service division method, it is not clear what the source of the residual profit realized as a result of the high selling price is, unless evidence is presented to determine whether the selling price is high because the value of the know-how is high or because the value of the services provided is high.

However, when using the residual profit split method or a method equivalent to the residual profit split method, the residual profit to be considered is the portion of profit that exceeds the profit that would be obtained if the company did not have significant intangible assets (see Notice 66-4(4)-5 of the Act on Special Measures Concerning Taxation). The residual profit to be considered is the portion of profit in excess of the profit that would be earned if the company did not have significant intangible assets (see Notice 66-4(4)-5 of the Act on Special Measures Concerning Taxation), and is not a property that depends solely on the high or low price of the product. Therefore, the plaintiff's argument is based on a different premise. In addition, the plaintiffs' argument is based on the premise that the only possible cause of the residual profits is either the know-how or the services, and in this sense, it should also be said that the premise is different.

(5) Conclusion

As described above, under the evidence in this case, it is considered that the calculation of the arm's length price of the foreign affiliated transaction is a reasonable method for calculating the arm's length price of the foreign affiliated transaction by taking the foreign affiliated transaction itself as one unit and using the residual profit split method and a method equivalent to the residual profit split method. In this case, the residual profit split method is used.

In this case, there is no circumstance which suggests that there is a concrete probability that there is an appropriate method to be used to calculate the arm's length price of the foreign affiliated transaction other than the residual profit split method and the method equivalent to the residual profit split method. Therefore, the defendant's calculation of the arm's length price of the foreign related transaction using the residual profit split method and the method equivalent to the residual profit split method is lawful.

3. Issue 2 (the appropriateness of the residual profit split method and the method equivalent to the residual profit split method used by the defendant)

(1) The scope of the transactions for which the residual profit split method and the method equivalent to the residual profit split method are used

As set out in (2)(c) above, in the present case, a series of transactions (chain transactions) have been conducted between multiple foreign related parties of the plaintiff (the Z1 transactions). Therefore, in calculating the arm's length price of the foreign affiliated transactions in question using the residual profit split method and the method equivalent to the residual profit split method, the first issue to be considered is whether or not it is necessary to include the Z1 transactions in question.

(a) Application of the residual profit split method to a chain of transactions

Where a foreign related transaction and a chain of transactions between foreign related persons (chain transaction) are conducted and the chain transaction is not conducted at arm's length, the income of the foreign related person who is a party to the above-mentioned foreign related transaction will be reduced, which will affect the calculation of the profit subject to division in respect of the foreign related transaction. In such a case, when calculating the arm's length price of the relevant foreign-related transaction, it is understood that the arm's length price should be calculated including the relevant chain transaction.

On the other hand, even if there is a chain transaction, the arm's length price should be calculated including the chain transaction when (a) the chain transaction is not considered to have transfer pricing problems (probability of income shifting) (for example, when there is no significant difference from the average profit level in the industry as a result of verification such as comparison with the average profit level in the industry), (b) the scale of the transaction is small (the amount of the transaction is small), or (c) the chain transaction is not considered to have transfer pricing problems (probability of income shifting). (ii) Where the effect of the foreign related transaction on the calculation of the divisible profit is small due to the small size of the transaction (i.e., the amount of the transaction is small), and even if the chain transaction is disregarded, there is no effect on the reliability of the calculation of the divisible profit, etc., the chain transaction shall not be included when calculating the arm's length price of the foreign related transaction. In such a case, it is reasonable to conclude that there is no need to include the chain transaction in the foreign affiliated transaction for which the arm's length price is to be calculated because the arm's length price of the foreign affiliated transaction can be calculated properly even if the arm's length price is calculated without including the chain transaction. (With respect to the above, please also refer to the "Collection of Reference Cases for the Application of Transfer Pricing Taxation" (B110) prepared by the National Tax Agency.)

(b) Transactions between Z3 and Z7 and Z8

(a) According to the evidence (B112) and the full purpose of the argument, (i) in each of the fiscal years in question, the amount of sales between Z3 and Z7 as a percentage of the total sales of Z3 The evidence (B112) and the whole purpose of the pleadings show that (i) in each of the fiscal years in question, the ratio of the sales of the transactions between Z3 and Z7 to the total sales of Z3 was at most 3.4% (20 In each of the years in question, (i) the sales of the transactions between Z3 and Z7 accounted for a maximum of 3.4% of Z3's total sales (2010) and a minimum of 1.7% (2007), and (ii) the sales of the transactions (2007) and 2008). In the period from 2006 to 2011, the percentage of (2) The weighted average between 2006 and 2011 was 2.3%. (2) that the turnover of the transactions between Z3 and Z7 was the highest at NT$46.79 million (2010). In addition, the sales of Z3 as a whole in the same year were TWD 46.79 million (2010). The total turnover of Z3 in the same year was 1,380,560,000 TWD. 1,380,560,000 Taiwan Dollars in the same year). The smallest amount was 27.37 million TWD (2008).

(2008). The lowest amount was 27.37 million Taiwan Dollars in 2008 (2008), and the total sales of Z3 in the same year was 1,600,160,000 Taiwan Dollars. In the same year, the total sales of Z3 was 1,600,160,000 TWD.) The total sales of Z3 in the same year was NT$1,600,160,300. The total sales of Z3 for the six years from 2006 to 2011 was 211,191,000 TWD. In the six years from 2006 to 2011, the total sales of Z3 was 211,111,000 NT$ (the total sales of Z3 for the above six years was 9,096,347,000 (The total sales of Z3 for the above six years was 9,096,347,000 NT$). ); and (iii) in each of the years in question, the ratio of the turnover of the transactions between Z3 and Z8 to the total turnover of Z3 was less than 0.1%. (iii) in each of the years in question, the ratio of the turnover of the transactions between Z3 and Z8 to the total turnover of Z3 was less than 0.1%; (iv) in each of the years in question, the turnover of the transactions between Z3 and Z8 was TWD 62,000 (2007). 2007). The total turnover of Z3 in the same year was NT$1,894,200,000. TWD1,894,420,000) and the smallest amount was TWD500,000. The smallest amount was less than NT$500 (in 2009 and 2011). In addition, the total sales of Z3 in the same year were 1,894,270,000 TWD. In the six-year period from 2006 to 2011, the total amount of The cumulative total for the six years from 2006 to 2011 was TWD 147,000. The total sales of Z3 for the six years from 2006 to 2011 was NT$147,000 (the total sales of Z3 for the above six years was NT$9,096,347,000). The total turnover of Z3 for the above six years was TWD 9,096,347,000.) Based on the above facts, it is admitted that the total sales of Z3 for the above six years was TWD 147,000.

Based on the above facts, the sales of the transactions between Z3 and Z7 and Z8 Z7 and Z8 are small in relation to the total sales of Z3 and their share in the total sales of Z3 is also small.

Therefore, it is not necessary to include the transactions between Z3 and Z7 and Z8 to calculate the arm's length price of the foreign-related transactions in question.

(b) The plaintiffs argue that (i) the verification of whether the transactions are at arm's length price must be done on a year-by-year basis, (ii) there is no theoretical basis for the weighted average of the six fiscal years, and (iii) depending on the fiscal years constituting the fiscal years in question, the weighted average of the six fiscal years may not be sufficient to calculate the arm's length price of Z3 as a percentage of Z3's total sales. In addition, in some of the years comprising the fiscal years in question, the ratio of the sales of transactions between Z3 and Z8 or Z7 to the total sales of Z3 exceeded 3 (2) At least for the fiscal years ended March 2009 and March 2010, the ratio of the sales of transactions between Z 3 and Z 8 or Z 7 to the total sales of Z 3 exceeded 3.5%. (2) At least for the fiscal years ended March 31, 2009 and March 31, 2010, whether or not the prices of the transactions between Z3 and Z7 were arm's length prices had a significant impact on the amount of profit subject to division, which is the basis for calculating the arm's length allocation of profit between the plaintiff and Z3. As a general rule, the transactions between Z3 and Z7 or Z8 shall be treated as transactions subject to the residual profit split method and the method equivalent to the residual profit split method. However, in the case of the transaction between Z3 and Z7 or Z8

However, as set out in (a)(ii) above, the turnover of the transaction between Z3 and Z7 was at most (a)(ii) above, the maximum turnover of the transactions between Z3 and Z7 was NT$46.79 million in 2010, and the total turnover of Z3 in the same year was In light of the fact that the total turnover of Z3 in the same year was NT$1,380,561,000 The total sales of Z3 in the same year was TWD 1,380,561,000. In light of the fact that the sales of the transactions between Z3 and Z7 and Z8, including the above-mentioned transactions, account for a small percentage of the total sales of Z3, and that the effect of the foreign-related transactions on the calculation of the profit subject to divestiture is also small, in this case, there are no other specific circumstances that are consistent with the plaintiff's claim. In the present case, there is no other specific circumstance that meets the Claimant's assertion (the Claimant has not specifically pointed out any such circumstance). Therefore, under the evidence in this case, even with what the plaintiff points out, it should not be sufficient to immediately overturn the judgment in (a) above.

Therefore, the plaintiff's argument cannot be adopted. (c) The Z5 transaction in question

(a)a. Evidence (B17, 113, 11) 1) According to the evidence (B17, 113, 11-1 to 3, 145-1 and 2) (1) Z5's ratio of operating profit to net sales was 26.51% at its highest (for the year ended December 31, 2008), and 14.51% at its lowest. (1) Z5's operating profit to sales ratio was 26.51% at its highest (for the year ended December 31, 2008) and 14.58% at its lowest (for the year ended The operating profit ratio of Z5 was 26.51% at its highest (for the year ended December 31, 2000) and 14.58% at its lowest (for the year ended December 31, 2011). (ii) USC was a mere sales subsidiary. (2) USC is not just a sales subsidiary, but also an organization that owns Z6 and provides technical support to customers; (3) USC is located in China, and its main industry is SIC code (3) USC is located in China and is a wholesaler with SIC codes 5000 and 5100, which are similar to Z5. (iii) the company is located in China and is a wholesaler with SIC codes 5000 and 5100, whose main industry is similar to that of Z5. (a) more than 50% of the issued shares are owned by a single shareholder, (b) financial data are not available for more than four of the past six fiscal years, or (c) the company has been in operation for more than two consecutive fiscal years out of the past six fiscal years. (c) firms which have suffered operating losses in two or more consecutive periods or three or more of the past six fiscal years; (d) firms for which the average of selling, general and administrative expenses as a percentage of gross profit for the six fiscal years falls outside the upper or lower 5% of the same ratio in Z5. (e) enterprises whose average selling, general and administrative expenses as a percentage of gross profit for the six periods falls outside the range of 5% above or below the same ratio in Z5; (f) enterprises whose net sales fall outside the range of one-tenth to ten times the average sales for the six periods in Z5 (o) whose net turnover is outside the range of one-tenth to ten times the average of Z5's turnover in the last six fiscal years; (f) whose business activities differ significantly from those of Z5; (g) whose products differ significantly from those of Z5; and (h) whose business activities do not include technical services. The operating profit to sales ratio of Z5 is within the range of the maximum and minimum values in all of the years in question, even when compared with the operating profit to sales ratio of the nine companies which are the result of excluding the companies whose business does not include technical services. The fact that Z5's ratio of operating profit to sales was within the range of the maximum and minimum values in all of the years in question is admitted.

It cannot be said, then, that Z5's ratio of operating profit to net sales is significantly higher than that of other companies in the same industry that also provide technical services. The relatively high ratio of operating profit to sales (22.12% on average, weighted over six periods) can be attributed to the technical services provided by Z5 to its customers. (b) According to the evidence (B112), it is not obvious that the price of the Z5 transaction is far from the arm's length price.

(b) According to the evidence (B112), (i) the ratio of the sales of the Z5 Transactions to the total sales of Z3 in each of the business years in question is The evidence (B112) shows that (1) in each of the fiscal years in question, the ratio of the sales of the Z5 Transactions to the total sales of Z3 was 7.6% at the maximum (2006 (Heisei 18)) and 1.6% at the minimum (1) In each of the fiscal years in question, the ratio of the sales of the Z5 Transactions to the total sales of Z3 was 7.6% at the maximum in 2006 (2006) and 1.7% at the minimum in 2008 (2008). The percentage of sales of the Z5 Transactions was a maximum of 7.6% (2006) and a minimum of 1.7% (2008). (2) the weighted average of the Z5 transactions from 2006 to 2011 was 4.7%. (2) that the sales amount of the Z5 Transactions was the largest amount of 133,279,000 Taiwan dollars (2006 (2006)) in each of the fiscal years in question. In addition, the overall sales of Z3 in the same year were approximately 1,000,000 Taiwan Dollars. In addition, the total sales of Z3 in the same year was 1,753,063,000 NT$. In the same year, the total sales of Z3 was 1,753,060,000 NT$.) The smallest amount was NT$27,835,000 (2008). 2008). The lowest amount was NT$27,835,000 (2008). In the same year, the total turnover of Z 3 was NT$1,603,160,000.) The total sales of Z 3 for the same year was NT$1,600,163,000. The total sales of Z 3 for the six years from 2006 to 2011 was NT$427,914,000. The total sales of Z3 for the six years from 2006 to 2011 was NT$427,934,000. 9,096,347,000 (The total sales of Z3 for the above six years was NT$9,096,347,000). The total sales of Z3 for the above six years was TWD 9,096,340,700,000.

Therefore, the sales amount of the Z5 transaction was at most NT$133,279,000 (2006 (Heisei 16)). The sales amount of the Z5 transaction was at most NT$133,279,000 (2006). In light of the fact that the total turnover of Z3 in the same year was TWD 1,753,063,000 In light of the fact that the turnover of the Z5 transactions including the above-mentioned transactions was TWD 1,753,060,000 in the same year, the ratio of the turnover of the Z5 transactions to the total turnover of Z3 In light of the fact that the turnover of the Z5 Transactions, including the above-mentioned transactions, accounts for a relatively small percentage of the total turnover of Z3, the effect of the foreign-related transactions on the calculation of the divisible profit is also considered to be relatively small.

c. On the basis of a) and b) above, it is not clear that the price of the Z5 Transactions is far from the arm's length price, and Therefore, under the evidence in this case, the Z5 Transaction is not subject to transfer pricing Therefore, it is reasonable to conclude that, under the evidence in this case, it cannot be said that there is a probability of income transfer that should be corrected under the tax system.

In addition, taking into account the fact that it is difficult to calculate the arm's length price for transactions between foreign related parties which are all located outside Japan, it is not necessary to calculate the arm's length price for the foreign related transactions including the Z5 Transaction.

(b) The Plaintiffs argue that, if the price of the Z5 Transaction were not an arm's length price, Z3's operating profit would be significantly affected and that such affected operating profit should not be included in the If such affected operating profit is used as the basis for the division of profits between Z3 and the Claimants, the result of the division of profits, which would have been made on an arm's length basis, cannot be calculated correctly. Therefore, it is argued that the Z5 transaction should be included in the transactions subject to the residual profit split method and the method equivalent to the residual profit split method.

However, in addition to what is indicated in (a) above, there are no other specific circumstances in this case that are in line with the plaintiff's argument (the plaintiff has not specifically pointed out any such circumstances). Taking into consideration the fact that the plaintiff has not specifically pointed out any such circumstances), under the evidence in this case, even with what the plaintiff has pointed out, it is not enough to immediately overturn the judgment in (a) above.

Therefore, the plaintiff's argument cannot be adopted. (d) The Z4 transaction in question

(a) The evidence (B17, 115-2, 1 According to the evidence (B17, 115-2, 1, 46-1, 2), (i) Z4's ratio of operating profit to sales was at most 8.1% (in 2006). (2) According to the evidence (B17, 115, 2, 1 46, 1 and 2) (2) The operating profit ratio of Z4 was 8.1% at its highest in 2006 and 0.9% at its lowest in 2010. (2006 to 2011). (2) Z4 is a sales subsidiary that does not have the function of providing technical services; (3) Z4 is located in China, Taiwan and Hong Kong, and its main industry is that of Z4. (4) Z4 is a sales subsidiary with no function to provide technical services; (5) Z4 is located in China, Taiwan and Hong Kong and has SIC codes 500 0 and 5100, which are located in China, Taiwan and Hong Kong and whose main industries are similar to those of Z4. (a) companies whose sole shareholder owns more than 50% of the issued shares, (b) companies whose financial data are not available for more than four of the last six fiscal years, and (c) companies whose financial data are not available for more than four of the last six fiscal years. (ii) firms for which financial data are not available for more than four of the past six fiscal years, (iii) firms for which operating losses have been incurred for more than two consecutive fiscal years or more than three fiscal years out of the past six fiscal years, and (iv) firms whose business activities differ significantly from those of Z4. Even when compared with the ratio of operating profit to sales of 23 companies, which is the result of excluding companies whose business is significantly different from that of Z4, there are several companies whose ratio of operating profit to sales is both lower than and higher than that of Z4 for all of the years in question. The fact that there are several companies which are below and above Z4's ratio of operating profit to sales for all the years in question is admitted.

In light of the foregoing, we do not find that Z4's ratio of operating profit to sales was higher than that of other companies in the same industry that functioned only as sales subsidiaries for all of the years in question. The probability that the price of the Z4 transaction is far from the arm's length price is considered to be low.

(b) According to the evidence (B112), (i) the ratio of the sales of the Z4 Transactions to the total sales of Z3 in each of the business years in question is The evidence (B112) shows that (1) in each of the fiscal years in question, the ratio of the sales of the Z4 Transactions to the total sales of Z3 was at most 15.3% (2007) and at most 1.5% (2008). (1) In each of the fiscal years in question, the ratio of sales of the Z4 Transactions to the total sales of Z3 was at most 15.3% (2007) and at most 1.9% (2011). From 2006 to 2011, the ratio of sales of the Z4 Transactions to the total sales was 15.3% at the maximum (2007) and 1.9% at the minimum (2011). (2) The weighted average of the sales of the Z4 Transactions was 9.7% from 2006 to 2011. (ii) that the turnover of the Z4 Transactions was, in each of the fiscal years in question, the largest amount of 209.94 million Taiwan Dollars (2007). In addition, the total sales of Z3 in the same year were) The total sales of Z3 in the same year was 1,894,207,000 TWD. In the same year, the total sales of Z3 was 1,894,200,000 NT$.) The smallest amount is NT$25.433 million (2011). (2011). The lowest amount was NT$2,543,000 (2011), and the total sales of Z3 in the same year was NT$1,365,880,000. In the same year, the total turnover of Z 3 was 1,365,880,000 NT$.) The total sales of Z 3 for the same year was NT$1,365,889,000. The cumulative total for the six years from 2006 to 2011 was TWD 881,993,000. In the six-year period from 2006 to 2011, the total sales of Z3 was 881,919,000 Taiwan dollars (the total sales of Z3 for the above six-year period was 9,096,347,000 (The total sales of Z3 for the above six years was NT$9,096,347,000). The total sales of Z3 for the above six years was TWD9,096,340,000.

Therefore, the sales amount of the Z4 transaction was at most TWD209,104,000. The sales amount of the Z4 transaction was at most TWD209,104,000 (2007). In light of the fact that the total sales of Z3 in the same year was 1,894,207,000 TWD In light of the fact that the turnover of the Z4 transactions including the above-mentioned transactions accounted for only a small percentage of the total turnover of Z3, it is reasonable to conclude that the turnover of the Z4 transactions including the above-mentioned In light of the fact that the turnover of the Z4 Transactions including the above-mentioned transactions does not account for a significant proportion of the total turnover of Z3, and the effect of the foreign-related transactions on the calculation of the divisible profit is not significant.

c. On the basis of a) and b) above, there is a low probability that the price of the Z4 Transaction is far from the arm's length price and that the Z4 Transaction is not a foreign related transaction. Therefore, under the evidence in this case, there is no probability that the Z4 transaction is a transfer of income that should be corrected under transfer pricing taxation. Therefore, under the circumstances of the evidence in this case, it is reasonable to conclude that there is no probability of income transfer that should be corrected under transfer pricing taxation.

In addition, taking into account that it is difficult to calculate the arm's length price for transactions between foreign related parties which are all located outside Japan, it is not necessary to calculate the arm's length price for the foreign related transactions including this Z4 transaction.

(b) The Plaintiffs have stated that (i) the sales of the Z4 Transactions accounted for 14.9% of the total sales of Z3 in 2006, 14.9% in 2007, and 14.9% in 2008, and (ii) the sales of the Z4 Transactions accounted for 14.9% of the total sales of Z3 in 2007. (b) The plaintiffs argue that (i) the percentage of sales from the Z4 Transactions to total Z3 sales was 14.9% in 2006, 15.3% The ratio of the sales of the Z4 Transactions to the total sales of Z3 was 14.9% in 2006, 15.3% in 2007, 10.9% in 2000, 6.4% in 2009 and 4.4% in 2010. (2) In 2006, the percentage was 14.9%; in 2007, 15.3%; in 2000, 10.9%; in 2009, 6.4%; and in 2010, 4.4%, all of which exceeded 3%. (2) The ratio of operating profit to sales of Z4 in 2006 was 8.1%, while that of the comparator companies mentioned in (a) above was 8.1%. (a) the average ratio of operating profit to sales of the comparator companies in 2006 was 4.8%, while the average ratio of operating profit to sales of Z4 in 2010 was 8.1%. The average ratio of operating profit to sales of the comparator companies in (a) above is 4.8%, while the ratio of operating profit to sales of Z4 in 2010 (2010) is 0.9%. (iii) there is a significant difference between the maximum and the minimum of Z4's operating profit to sales ratio. (iii) the fact that the operating profit margin of Z4 is between the maximum and the minimum of the operating profit margin of the comparables does not indicate that the price of the Z4 transaction is an arm's length price. However, it is argued that the Z4 transaction should be included in the transactions subject to the residual profit split method and the method equivalent to the residual profit split method.

However, even if the ratio of operating profit to sales of a company may be higher or lower than the average of the ratios of operating profit to sales of comparable companies from year to year, it is not excluded that the performance of a company is not always constant but may always fluctuate upwards or downwards and that the fluctuation of the ratio of operating profit to sales of a company may be due to unique factors. In light of the fact that the performance of a company is not always constant, but can always fluctuate upward or downward, and that fluctuations in the ratio of operating profit to sales of the company in question may be caused by unique factors, it cannot be said that the ratio of operating profit to sales of the company in question should be evaluated as being different from the ratio of operating profit to sales of the company subject to comparison. And, in addition to what has been judged in (a) above, there are no other specific circumstances in this case that are in line with the Claimants' argument (the Claimants have not specifically pointed out any such circumstances). Taking into consideration the fact that there is no other specific circumstance which is in line with the plaintiff's claim (the plaintiff has not specifically pointed out any such circumstance), under the evidence in this case, the points pointed out by the plaintiff are not sufficient to immediately overturn the judgment in (a) above. Therefore, the plaintiff's argument cannot be adopted.

(e) The transactions between Z3 and Z1

(a) According to the evidence (B116), (i) in each of the fiscal years in question, Z3's sales of plating chemicals to Z1 accounted for about half of Z3's total sales, and (ii) in each of the fiscal years in question, Z3's sales of plating chemicals to Z1 accounted for about half of Z1's total sales. (a) According to the evidence (B116), in each of the fiscal years in question, the ratio of sales of plating chemicals by Z3 to Z1 to Z3's total sales was at most 1.5% (in 2011). Z3's sales of plating chemicals to Z1 accounted for a maximum of 1.5% of Z3's total sales in 2011 and a minimum of 0.1% in 2007 and 2007. (2007) and 2010 (2010)). (2007) and 2010 (2010)). (2) The weighted average from 2006 to 2011 was 0.4%. (2) Z3's sales of plating chemicals to Z1 were the highest in each of the years in question at NT$2,102,000 (2011). 2,102,000 (2011). Z3's sales of plating chemicals to Z1 were the highest in each of the years in question.) The total sales of Z3 in the same year was NT$1,365,889,000. In the same year, the total sales of Z3 was NT$1,365,880,000.) The smallest amount was 1,467,000 Taiwan Dollars (2 Year 007 (2007). The lowest amount was 1,467,000 TWD (in 2007). TWD 1,894,200,000). The total sales of Z3 in the same year was 1,894,207,000 NT$. The cumulative total for the six years from 2006 to 2011 was NT$40.615 million. The total sales of Z3 for the six years from 2006 to 2011 was NT$40,610,000 (the total sales of Z3 for the above six years was NT$996,347,000). The total sales of Z3 for the above six years was 9,096,347,000 NT$.) (iii) in each of the business years in question, the amount of Z3's transactions to purchase plating chemicals from Z1 (the amount of purchase) accounted for a proportion of Z3's total purchase amount. (iii) that in each of the years in question, the ratio of the amount of transactions in which Z3 purchased plating chemicals from Z1 (purchase amount) to the total purchase amount of Z3 was 14.2% at the maximum (2006 (Heisei 18)) and 0.0% at the minimum. In the case of Z3, the ratio of the amount of purchase to the amount of purchase from Z1 was 14.2% at the maximum in 2006 (1998) and 0.1% at the minimum in 2008 (2000). In the period from 2006 to 2011 The weighted average from 2006 to 2011 was 1.9%. (4) Z3 received the largest amount of payment from Z1 in each of the years in question. TWD 43,000,000 (2006). In addition, the total amount of Z 3's purchase from Z 1 in that year was TWD 44,443,000.) The total amount of Z 3's purchases in the same year was NT$312,294,000. The largest amount was NT$44,443,000 (2006). In the same year, the total amount of purchases of Z3 was 4,443,000 TWD (in 2006), and the smallest amount was 430,000 TWD (in 2008). In the same year, the total amount of purchase of Z3 was NTD 584,266,000. In the same year, Z3's total purchase amount was 584,266,000 NT$.) The total purchase amount of Z3 in the same year was NT$584,266,000. The cumulative total for the six years from 2006 to 2011 was NT$53,361,000. In the six years from 2006 to 201 1 (2011), the total amount of purchases by Z3 was TWD 53,361,000 (the total amount of purchases by Z3 in the above six years was TWD 2,810,740,100). 2,810,741,000 (The total amount of Z3's purchases for the above six years was 2,810,741,000 NT$). Based on the above facts, it is admitted that the total amount of purchases by Z3 during the above six years was TWD 53,361,000.

On the basis of the foregoing facts, the transactions between Z3 and Z1 were not related to Z3's overall sales or Z3's overall purchases. Z3's overall sales or Z3's overall purchases are small in relation to Z3's overall sales or Z3's overall purchases, and their ratio to Z3's overall sales or Z3's overall purchases is also low.

Therefore, it is not necessary to calculate the arm's length price of this foreign-related transaction including the transaction between Z3 and Z1.

(b) The plaintiffs argue that although Z1 carried out various sales management activities not only for Z1 but also for Z3 (b)

Although Z1 performed various sales management activities not only for Z1 but also for Z3, the plaintiff did not claim compensation for these activities, which formally constituted inter-group service transactions. Therefore, the profit subject to the demerger of each of Z3 and Z1 is significantly distorted as a result of the fact that no consideration was charged for the intra-group service transactions between Z3 and Z1 as arm's length transactions. In this case, however, the plaintiffs argue that the residual profit split method and the method equivalent to the residual profit split method should be used.

However, in the present case, the plaintiffs argue that, with respect to the alleged intra-group service transactions between Z3 and Z1 for which no consideration has been claimed, the specific nature, scale and monetary evaluation of the services (alleged sales management activities In the case of the alleged service transaction between Z3 and Z1, which was not claimed for consideration, no specific facts concerning the details of the service (alleged sales management activity), its scale, monetary valuation, etc. were alleged, and the entire evidence in this case is insufficient to admit this, so there is room for reasonable doubt that the alleged service transaction mentioned above actually existed. Even if we leave this point aside for the moment, according to the evidence (B64, 91) and the whole purpose of the argument, as far as the plaintiff's claim is concerned, the above-mentioned alleged service transaction is not some kind of specific transaction. Therefore, it is sufficient to take this into account when calculating the operating profit. Therefore, it is sufficient to take this into account when calculating operating profit.

Therefore, the plaintiff's argument cannot be adopted. (f) Conclusion According to the above, in calculating the arm's length price of the Foreign Related Transactions by using the residual profit split method and the method equivalent to the residual profit split method, it is not necessary to take into account the Z1 Transactions, etc., and it is sufficient to calculate the arm's length price by taking into account only the Foreign Related Transactions. (2) In calculating the arm's length price of the plaintiff's business

(2) Calculation of the plaintiff's operating profit

In order to calculate the arm's length price of a foreign affiliated transaction using the residual profit split method, it is necessary to calculate the profit subject to split in relation to the foreign affiliated transaction. It is clear that the profit subject to the divestiture mentioned above is the total amount of the operating profit accruing to the corporation and the foreign related party who conducted the foreign related transaction as a result of the sale, etc. of the inventories involved in the foreign related transaction.

In this case, then, (i) with respect to the plaintiff, the amount after deducting the amount related to the cost of sales and other expenses incurred by the plaintiff from the amount of income from the said foreign affiliated transaction, and (ii) with respect to the said foreign affiliated person, the amount after deducting the amount related to the cost of sales and other expenses incurred by the said foreign affiliated person from the external sales of the Licensed Products (2) For the foreign related party, the amount after deducting the amount related to the cost of sales and other expenses incurred by the foreign related party from the external sales of the Licensed Products in question must be calculated respectively.

Therefore, the calculation of each of the plaintiff's operating profit and the operating profit of the foreign related party in question will be examined in the following order.

(a) General Comments on the Calculation of the Claimant's Business Profit

(a) The plaintiff's operating profit is calculated by deducting the amount of cost of sales, the amount of selling, general and administrative expenses, and other expenses from the amount of income from the plaintiff's foreign related transactions. In this case, among the above-mentioned expenses, (i) research and development expenses, (ii) legal department expenses, and (iii) overseas development project expenses are considered to be common to the above-mentioned overseas-related transactions, and (iv) international sales department expenses and (v) the amount of cost of sales are considered to be problematic only with respect to the inventory sales transaction in question. Therefore, under the circumstances of the evidence in this case, it is considered sufficient to examine the appropriateness of the calculation of the above five costs. And since there is no dispute between the parties as to the existence of the above-mentioned item (5) and the method of calculating it, we shall examine the above-mentioned items (1) through (4) in order below.

(a) The plaintiff argues that in each of the business years in question, no expenses corresponding to the License Transactions were incurred, and that the plaintiff's operating profit corresponding to the License Transactions should be the amount of royalty income received by the plaintiff in each of the business years in question.

However, the intangible assets which are the subject of the License Transactions (such as know-how for manufacturing the Licensed Products) were formed as a result of the research and development conducted by the Plaintiff, and it is difficult to recognize that they were formed without incurring any costs. It is also difficult to admit that no costs were incurred in the formation and maintenance of the above-mentioned intangible assets in the respective fiscal years in question (the plaintiffs do not specifically allege and prove the circumstances on which this is based). In addition, even if the plaintiff, as a licensor, should bear the entire amount of the above-mentioned expenses, this does not immediately mean that it is not permissible to deduct such expenses from the amount of income in calculating the plaintiff's operating profit corresponding to the License Transactions.

Therefore, the plaintiff's argument cannot be adopted.

(b) Expenses to be deducted from the amount of the plaintiff's income from the foreign-related transactions in question, Part 1 - Research and development expenses

(a) According to the preceding facts and evidence (B86 to 88), (i) the plaintiff has conducted transactions related to plating chemicals in each of the fiscal years in question, in addition to the foreign-related transactions in question. (2) Plaintiff also licensed the know-how of manufacturing plating chemicals to Z10 and Z11 in the respective fiscal years in question. (2) that in each of the years in question, the plaintiff also licensed to Z10 and Z11 the use of its know-how in the manufacture of plating chemicals, etc., and that Z10 and Z11 both sold plating chemicals manufactured by using such know-how (iii) that the plaintiff is engaged in research and development of the surface treatment materials business and the surface treatment machinery business in its Central Research Laboratory; (iv) that the First Development Department and the Second Development Department are in charge of the development of the plating process in the Central Research Laboratory; and (v) that the plaintiff has sold the plating chemicals manufactured by the plaintiff using the know-how. (5) The research and development expenses spent by the plaintiff in each of the fiscal years in question have been generally constant at around 900 million to 1 billion yen.

(b) It is admitted that the foreign-related transactions in question are the transactions of licensing the know-how of manufacturing plating chemicals, which is the result of the plaintiff's research and development activities (the License Transactions) and the transactions of selling raw materials, etc. (the BB Products) used in manufacturing the Licensed Products by using the know-how, etc. (the License Transactions). According to the fact that the transaction consists of the licensing transaction of know-how, etc. of the manufacture of plating chemicals, etc., which is the result of the said know-how, etc. (the License Transaction) and the sales transaction of raw materials, etc. (BB products) used in manufacturing the Licensed Products using the said know-how, etc. (the Inventory Sales Transaction), it is admitted that the research and development expenses fall under the expenses which should be deducted in calculating the operating profit of the plaintiff in relation to the Foreign Related Transactions. And, according to a. above, the cost of the plaintiff's research and development activities is not only the cost of the plaintiff's group, but also the cost of the sales of plating chemicals of Z10 and Z11 to which the plaintiff licensed its know-how. In light of the fact that the costs of the Plaintiff's research and development activities are deemed to be deductible in calculating its operating profit not only in relation to the Plaintiff's group, but also in relation to the sales of plating chemicals of Z10 and Z11, for which the Plaintiff has licensed the use of its know-how, the research and development costs to be deducted from the amount of income from the foreign-related transactions in question are the total costs incurred by the Plaintiff's Central Research Laboratories during the respective fiscal years in question (i.e., the research and development costs). The amount of research and development expenses to be deducted from the amount of income from the Foreign Related Transactions is calculated by multiplying the amount of total expenses (research and development expenses and common administrative expenses) incurred by the plaintiff's Central Research Laboratories during the respective fiscal years in question by the ratio of the number of employees belonging to the 1st Development Department and the 2nd Development Department to the total number of employees in the Central Research Laboratories, and then by the ratio of the external sales of the Licensed Products to the consolidated sales in question. It is appropriate to multiply this amount by the ratio of the external sales of the Licensed Products to the consolidated sales in question.

(b) The plaintiffs' arguments against the finding and judgment in (a) above cannot be adopted, as follows.

(a) The plaintiffs argue that the plating chemicals are unique in that they will continue to perform the same function forever and their value will not be diminished by obsolescence. Therefore, it is argued that it is reasonable to regard the R&D expenses, which are the expenses corresponding to the royalties received in each year, as zero yen.

However, there is no dispute between the parties that surface treatment technology is progressing and developing day by day and that the plaintiff is investing a large amount of money in the development of new products or new technology for surface treatment processing at the Central Laboratory. Taking into consideration that the function of a plating chemical is always the same and how to evaluate it financially are two different issues, it is difficult to admit that the monetary value of a plating chemical does not decrease due to obsolescence, and the plaintiff's argument is based on a different premise.

(b) The plaintiffs are (i) licensing the use of the know-how, etc. of the manufacture, etc. of the plating chemicals developed in the past to the foreign related parties in question, and (ii) the research and development expenses for the year in which the royalties were received were not spent for the research and development activities relating to the know-how, etc. of the manufacture, etc. of the licensed products in question. The R&D expenses for the year in which the royalty was received were not spent for R&D activities related to the know-how of manufacturing the Licensed Products, but for the development of new products to be manufactured in the future, and since the development period of a product is different from the sales period, the R&D expenses spent for one year are not expenses corresponding to the royalty income for that year. (ii) It is not an arm's length transaction for a licensee who is engaged in a licensing transaction for the use of know-how for the manufacture of another plating chemical to bear the R&D costs for a plating chemical whose successful development is uncertain and whose know-how for the manufacture of the plating chemical will not be disclosed even if the development is successful. (iii) R&D expenses do not contribute to the current period's profit generation in a period of time, and it is uncertain whether they will contribute to the future profit, not to mention that they do not contribute to the current period's profit, and therefore it is not allowed to calculate profit and loss corresponding to the future profit after recording the R&D expenses as assets. In addition, in calculating the operating profit of the plaintiff, it is considered that the operating profit which constitutes the profit to be split off is not the operating profit itself under corporate accounting, but must be of a nature which is shared by both parties rather than belonging to one party if it is an arm's length transaction. In order to calculate the plaintiff's operating profit, the plaintiff argues that it is not reasonable to deduct the research and development expenses spent in each of the fiscal years in question from the royalty income in each of the fiscal years in question.

However, in addition to the facts stated in (a)(a) above, (i) the amount of operating profit of a corporation for a given fiscal year is the amount after deducting the amount of cost of sales and the amount of selling, general and administrative expenses of the corporation for the relevant fiscal year from the amount of net sales of the corporation for the relevant fiscal year, and (ii) the amount of operating profit of a corporation for a given fiscal year is the amount after deducting the amount of cost of sales and the amount of selling, general and administrative expenses of the corporation for the relevant fiscal year from the amount of net sales of the corporation for the relevant fiscal year (Business Accounting Principles No. 2). (2) Research and development expenses fall under the category of general and administrative expenses (see Article 22(3)(ii) of the Corporation Tax Act), and should be accounted for in the fiscal year in which they are incurred, in accordance with the so-called periodization method in business accounting. (2) R&D expenses are general administrative expenses (see Article 22, Paragraph 3, Item 2 of the Corporation Tax Law) and should be accounted for in the fiscal year in which they are incurred, in accordance with the so-called periodical accounting method (see also B84). In addition, we believe that there is reasonableness in treating the research and development expenses incurred in each of the fiscal years in question as expenses corresponding periodically to the profits of the relevant fiscal year and as expenses to be deducted when calculating operating profit. In addition, there is no rational basis for adopting the interpretation that operating profit, which constitutes the profit subject to demerger, should not be attributed to one party if it is an arm's length transaction, but should be shared by both parties. c. The plaintiff argues that it is wrong to deduct the research and development costs in calculating the plaintiff's operating profit in the inventory sales transaction in question because the BB product is merely a combination of several raw materials and there is no evidence that research and development was conducted for the combination. Therefore, the plaintiff argues that it is wrong to deduct the R&D expenses in calculating the plaintiff's operating profit in the inventory sales transaction.

However, according to the evidence (B57, B60), (i) BB products were made from a part of raw materials with high added value, taking into consideration their economic value as well as the prevention of information leakage, and (ii) BB products were made from a part of raw materials with high added value, taking into consideration their economic value. However, according to the evidence (B57, B60), it is admitted that (1) BB products specify some of the raw materials with high added value in order to prevent information leakage and also in consideration of their economic value, (2) BB products contain, in addition to essentially necessary raw materials, a very small amount of substances that do not affect the performance of the products, and In addition, considering the fact that the BB products themselves are part of the know-how of manufacturing plating chemicals (the Licensed Products), which is the result of the plaintiff's research and development activities, the BB products also constitute part of the results of the plaintiff's research and development activities. Therefore, it is reasonable for the plaintiff to deduct the R&D expenses in calculating the plaintiff's operating profit in the inventory sales transaction.

(c) Expenses to be deducted from the amount of the plaintiff's income from the Foreign Related Transactions, Part 2 - Legal Department Expenses

(2) Legal expenses

(a) a. According to the preceding facts, evidence (B89) and the full text of the pleadings, (i) the plaintiff's group conducted transactions relating to plating chemicals in addition to the above-mentioned foreign-related transactions in the respective fiscal years in question, and (ii) (ii) the expenses of the Legal Department are divided into the Legal Department's various fees, which are the fees paid to attorneys, patent attorneys, etc., and the Legal Department's other expenses, which are the personnel expenses, etc., related to general legal and contractual services; and (iii) the Legal Department of the Claimant is responsible for (a) the reception, examination and storage of contracts (iii) that the plaintiff's legal department is in charge of (a) receiving, examining, and storing contracts, (b) applying for, searching, and managing industrial property rights, (c) maintaining and managing technology-related contracts, and (d) other legal matters; and (4) On May 1, 2013, the plaintiff told the person in charge of the investigation that the legal department's various fees were highly related to the profits generated from the licensing transactions of intangible assets, while the legal department's other expenses included expenses that were not related to the profits generated from the licensing transactions of intangible assets, such as personnel expenses for general legal or contractual work. In our opinion, the sum of the entire amount charged to the legal department fees and one-half of the amount charged to the legal department other expenses should be used as the basis for the legal department expenses to be deducted in calculating the divisible profit of the foreign-related transactions. (b) According to the above (a)

(b) According to the above (a), the legal department expenses are considered to be expenses that should be deducted in calculating the operating profit of the plaintiff in relation to the Foreign Related Transactions. The amount of Legal Department expenses to be deducted from the amount of income from the Foreign Related Transactions is calculated as the sum of the entire amount recorded as Legal Department fees and one-half of the amount recorded as Legal Department other expenses, multiplied by the ratio of external sales of the Licensed Products to the consolidated sales in question. (b) The plaintiff is not entitled to receive any payment for the Licensed Products.

(b) The plaintiff argues that: (1) there are no legal department costs incurred in response to this license transaction; (2) the costs of maintaining rights, such as know-how for manufacturing the product subject to the license transaction, are generally the responsibility of the licensor itself, and the licensor should bear the costs; and The plaintiff argues that it is wrong to deduct the cost of the legal department from the operating profit of the plaintiff, because the cost of maintaining the rights, such as manufacturing and other know-how, is generally the responsibility of the licensor and the licensor should bear the cost, and it is not a cost that should be shared between the licensor and the licensee.

However, as stated in (a) above, the legal department expenses are expenses necessary for the conclusion and maintenance of the License Agreement, and can be said to be expenses corresponding to the License Transaction. In addition, it is the same as (a)(b) above that we cannot adopt the interpretation that the expenses to be deducted from the operating profit in calculating the operating profit which constitutes the profit to be split must be of a nature to be shared by both parties if it is an arm's length transaction. Therefore, the plaintiff's argument is not valid.

Therefore, the Claimant's argument cannot be adopted.

(d) Expenses to be deducted from the amount of the plaintiff's income from the foreign-related transactions in question, Part 3 - Overseas development project expenses

(a) a. According to the preceding facts, evidence (B65) and the whole purpose of the arguments, (i) the plaintiff group has conducted transactions related to plating chemicals in addition to the overseas-related transactions in each of the fiscal years in question, and (ii) (2) The Overseas Development Project is a project under the direct control of the Sales Division for the purpose of sharing technical information of the entire Plaintiff Group and providing prompt technical support to customers who are expanding overseas in the fields of (a) printed wiring board and semiconductor package technology, (b) wafer-related technology, (c) general-purpose technology, and (d) hard disk-related technology. (ii) the project is a project under the direct control of the Sales Division, with the aim of sharing technical information on hard disk-related technology throughout the plaintiff's group and providing rapid technical support to customers expanding overseas; (iii) most of the costs of the overseas expansion project are travel and other transportation costs, including the costs of visiting the plaintiff's overseas affiliates and their main customers located in foreign countries; and (iv) the plaintiff submitted a written request to the person in charge of the investigation on April 18, 2013. (iii) on April 18, 2013, the Plaintiff told the person in charge of this investigation that the Overseas Development Project was a business related to the Foreign Related Transactions, and that the total amount of the Overseas Development Project expenses multiplied by the ratio of the external sales of the Licensed Products to the overseas sales of the Plaintiff's group would be deducted from the amount of income from the Foreign Related Transactions. (b) According to the aforementioned aforementioned b), the total amount of the overseas development project cost should be multiplied by the ratio of the external sales of the Licensed Products to the overseas sales of the Plaintiff Group.

(b) According to the above (a), the cost of the overseas development project is considered to be an expense to be deducted in calculating the plaintiff's operating profit in relation to the foreign related transactions. It is reasonable to assume that the overseas development project costs to be deducted from the amount of income from the overseas related transactions in question are calculated by multiplying the total amount of the overseas development project costs by the ratio of the external sales of the Licensed Products to the overseas sales of the plaintiff group.

(b) The plaintiff argues that the cost of maintaining the rights to the licensed product is generally the responsibility of the licensor itself, and that the licensor should bear the cost, and not a cost that should be shared between the licensor and the licensee. However, we cannot adopt the plaintiff's argument in the same manner as described in (c)(a) above.

(e) Expenses to be deducted from the amount of the plaintiff's income from the inventory sales transaction - International Sales Department Expenses According to the premises, the evidence (B65, 90) and the whole purpose of the pleadings (i) that the plaintiff is engaged in the business of manufacturing and selling plating chemicals and surface treatment machinery; (ii) that an organization called the International Sales Department was established under the plaintiff's Sales Division; and (iii) that the International Sales Department is engaged in business related to the Inventory Sales Transactions.

In light of the foregoing, the expenses of the International Sales Department are deemed to fall under the category of expenses to be deducted in calculating the operating profit of the plaintiff in relation to the Inventory Sales Transactions. The amount of the expenses of the International Sales Department which should be deducted from the amount of income from the Sales Transactions in respect of the Inventory Assets should be calculated by calculating the portion of the total amount of the expenses of the International Sales Department which corresponds to the sales of plating chemicals of the International Sales Department, and then multiplying such portion by the ratio of the sales of the Sales Transactions in respect of the Inventory Assets to the sales of such plating chemicals. (f) Conclusion

(f) Conclusion

On the basis of the foregoing, it is considered that the operating profit of the Claimants for each of the years in question should be calculated as set out respectively in columns 1 to 17 of the Order in Schedule 4.

(3) Calculation of the operating profit of the foreign related parties in question

a. General Comments

The operating profit of the foreign related parties in question is calculated by deducting the amount of the cost of sales and the amount of selling, general and administrative expenses of each of the foreign related parties from the external sales of the Licensed Products in question, and by dividing the amount of the cost of sales and the amount of selling, general and administrative expenses of each of the foreign related parties from the external sales of the Licensed Products in question. From the fiscal year ended March 31, 2009 to the fiscal year ended March 31, 2012, the operating profit of Z1 should be calculated by deducting the amount equivalent to the operating loss of Z1's plating processing services from the external sales of the Licensed Products. (As there is a dispute between the parties as to the process of calculation, we will examine it in turn.) (The process of calculation is disputed between the parties and will be discussed in due course.

Therefore, in the following, first of all, we will examine whether and what the expenses to be deducted for Z3 are (i) selling and administrative expenses excluding L&R expenses, (ii) L&R expenses and (iii) depreciation expenses. Next, as expenses to be deducted for Z1, we will examine (iv) selling, general and administrative expenses excluding L&R expenses and (v) operating loss related to plating process service. Finally, I shall add a summary of my judgment on the Claimants' claims. The parties do not dispute that the amount of the cost of sales of each of the foreign related parties in question should be deducted in calculating the operating profit of the foreign related parties in question and the amount of such deduction.

(b) Expenses to be deducted for Z3

(a) With respect to the portion of selling, general and administrative expenses other than L&R expenses, according to the evidence (B85) and the whole purpose of the argument, the amount of selling, general (a) With regard to the portion of selling, general and administrative expenses excluding L&R expenses, according to the evidence (B85) and the whole purpose of the argument, the amount of selling, general and administrative expenses [A] recorded in the financial statements of Z3 after deducting the amount of L&R expenses [B (A) after deducting the amount of L&R expenses (B) from the amount of selling, general and administrative expenses (SG&A) recorded in Z 3's financial statements (A), multiplied by the ratio of Z 3's sales of the licensed products (D) to Z 3's total sales (= (A - B) D (A - B) x D / ).

(b) L&R expenses (excluding depreciation expenses) in selling, general and administrative expenses According to the evidence (B85) and the whole purpose of the argument, (a) the amount of L&R expenses [A] in the amount of selling, general and administrative expenses recorded in the financial statements of Z3 is equivalent to the amount of L&R expenses [B] in the amount of selling, general and administrative expenses recorded in the financial statements of Z3. (a) the amount of L&R expenses [A] in the amount of SG&A expenses recorded in Z3's financial statements, multiplied by the ratio of Z3's sales of the Licensed Products [A] to Z3's sales of the Plating Products [B] (= A (A) (B) / (C), and (D) the amount of depreciation expenses for Z3 from the amount of L&R expenses in the amount of selling, general and administrative expenses recorded in Z1's financial statements. 3 (see (c) below) from the amount of depreciation expenses relating to Z2, the amount of expenses incurred by the personnel engaged in the business of the Research and Development Department in Z2 in relation to such business, and the amount of expenses incurred by the The portion of such expenses corresponding to the License Transaction is considered to be the expenses which should be borne by Z3. Therefore, it is admitted that the amount of depreciation expenses for Z3 is included in the amount of L&R expenses in the amount of SG&A expenses recorded in the financial statements of Z1. Therefore, the amount of L&R expenses [] in the amount of selling, general and administrative expenses recorded in the financial statements of Z1 is added to the amount of depreciation expenses [] in relation to Z3, and the total number of employees [] in Z2 and the number of employees in the research and development department of Z1 is added to the amount of depreciation expenses [] in relation to Z3. ] of Z2 and the number of personnel in the research department of Z1, as a percentage of the sum of []. (= () {() {() {() {() {() {() {()}) (-) x {(+)/()} x (= ( + ) / ()) and the total amount (= (a) + (i)).

(c) As for the depreciation included in L&R expenses in selling, general and administrative expenses, the depreciation of fixed assets is recorded in Z1's financial statements, and the evidence (B64) and the whole gist of the argument (B65) show that the depreciation of fixed assets is included in L&R expenses in selling, general and administrative expenses. According to the evidence (B64) and the whole purpose of the argument, the said fixed assets were in fact commonly used by the research department and Z2 of the foreign related parties and were used in connection with the foreign related transactions and other transactions. Therefore, the above depreciation cost is also recognized to be related to both of them, and it is also recognized to be an expense to be borne by Z3 in relation to this foreign related transaction. According to the evidence (B85) and the whole purpose of the pleadings, the amount of depreciation recorded in Z1's financial statements [A], the total number of employees of Z2 [B], the number of employees of the research and development department of Z1 [C], the number of employees of the research and development department of Z2 [D () and () of Z3 in the sum of the total number of employees of Z2 [] and the number of employees of Z3 []. () and the number of employees in the research department of Z3 [脹脹], multiplied by the ratio of the total of the number of employees in the research department of Z2 [] and the number of employees in the research department of Z3 [◯◯ ], multiplied by the ratio of Z3's sales of licensed products [] to Z3's sales of plated products [] (= (+188)/(++xD)}/).

c. Expenses to be deducted for Z1

(a) With regard to the selling, general and administrative expenses excluding L&R expenses, according to the evidence (B85) and the whole purpose of the argument, it is reasonable to assume that the expenses recorded in the financial statements of Z1 are (a) With respect to the selling, general and administrative expenses excluding L&R expenses, according to the evidence (B85) and the whole purpose of the argument, the amount of selling, general and administrative expenses [A] recorded in the financial statements of Z1 excluding the amount of L&R expenses [B (A - B) x (∆) x (∆ / ∆)), which is the amount after multiplying the ratio of Z1's sales of the Licensed Products [∆] to Z1's overall sales [∆]. (A - B) x (A - B) x (A - B) / (B - C)).

(b) According to the evidence (B64, B66) and the whole purpose of the argument, the plating processing factory of Z1 was engaged in the following activities (b) According to the evidence (B64, 66) and the whole purpose of the argument, it is admitted that the plating processing factory of Z1 is engaged in the business of sales support through sales technology such as support for customers to obtain certification, troubleshooting, etc., and that the profit and loss related to such business includes the profit and loss related to the foreign affiliated transaction in question, and therefore, it is reasonable to reflect a part of such profit and loss in the calculation of the operating profit of the foreign affiliated party in question. The amount of the above-mentioned profit and loss is calculated, according to the evidence (B85) and the whole purpose of the argument, from the sales amount (A) related to Z1's plating processing service to the cost of sales (B) related to Z1's said service. The above amount of profit and loss is calculated by multiplying the amount of Z1's sales [A] for the plating service by the amount of Z1's cost of sales [B] and the amount of selling, general and administrative expenses [], and then by the ratio of the external sales of the Licensed Products [] to the sales of the Plating Products [D () to the sales of the plating products of the foreign related parties in question (= ( - - ) / ).

(d) Judgment on the plaintiff's argument The plaintiff's argument against the finding and judgment in (a) and (c) above cannot be adopted, as follows.

(a) The plaintiffs argue that, in calculating the selling, general and administrative expenses to be deducted in calculating the operating profit of the foreign related party in question, it is not appropriate to calculate the amount of selling, general and administrative expenses on the basis of sales, which have no direct relationship with the incurrence of selling, general and administrative expenses, but rather on the basis of gross profit on sales, which has a relationship with the incurrence of selling, general and administrative expenses. However, from a general point of view, it is not appropriate to make the calculation on the basis of sales.

However, since it is generally accepted that there is a correlation between the amount of sales and the amount of SG&A expenses, the calculation of the proportion of SG&A expenses on the basis of sales itself is reasonable, unless there are specific circumstances that do not make it reasonable. On the other hand On the other hand, what the plaintiffs assert only means that there is a relationship between gross profit and selling, general and administrative expenses to the extent that operating profit is calculated by deducting selling, general and administrative expenses from gross profit. It is difficult to accept that this is a reasonable reason to base the calculation of the amount of SG&A expenses on gross profit. On the other hand, if we adopt the method of dividing SG&A expenses on the basis of gross profit, (i) if there are two or more business segments, one of which has a deficit in gross profit and the other has a surplus in gross profit, the entire amount of SG&A expenses will be allocated to the business segment with the surplus in gross profit, and (ii) if the amount of net sales of the two or more business segments is greater or less than the amount of gross profit, the amount of SG&A expenses will be allocated to the business segment with the surplus in gross profit. (2) If there is no correlation between the amount of sales and the amount of gross profit in multiple business segments, there may be a situation in which a large amount of SG&A expenses are allocated even though sales are small, which is far from the actual situation. In addition to the above, there are no specific circumstances which suggest that it would be unreasonable to calculate selling, general and administrative expenses on the basis of sales in this case.

(b) In view of the actual business activities of the foreign related parties in question, the Plaintiffs believe that the costs corresponding to the business activities of manufacturing and selling the Licensed Products should be extracted from the total SG&A expenses of Z1 and Z3 as a whole. The defendant argues that the calculation of the operating profit of the foreign related party is erroneous because it is impossible to properly calculate the profit subject to the split of the foreign related party unless the expenses corresponding to the business activities of the manufacture and sale of the Licensed Products are extracted from the total selling, general and administrative expenses of Z1 and Z3 as a whole.

However, Z3 and Z1 are companies with separate legal personality, and they prepare separate financial statements and account for each company on the assumption of unity of business as the plaintiff claims. (1) and (2) of each of B158 and 159), it is not reasonable to assume that Therefore, it is difficult to accept that the plaintiff's argument is a reason why it is reasonable to treat both companies as a single entity and calculate the operating profit of the foreign related party without considering the accounting treatment. (c) The Claimant has not shown any other circumstances that are consistent with the Claimant's argument.

(c) The Plaintiffs believe that the development of products that meet the needs of customers by Z1 and the sales of the Licensed Products by Z3 are inseparable, and that the earnings are obtained by the combination of the two. Therefore, Z2's product development activities are closely related to Z3's revenue generation, and the costs of Z2's product development activities are deducted from the costs corresponding to Z3's sales. Therefore, it is wrong to exclude the cost of Z2's product development activities from the cost corresponding to Z3's sales.

However, according to the evidence (B56, 57) and the whole purpose of the argument, Z2 conducted research based on its own research theme in Taiwan and developed products based on the research theme. However, according to the evidence (B56, 57) and the whole purpose of the argument, Z2 conducted research based on its own research theme in Taiwan and also developed products based on that theme, and the newly developed products in Z2 were all based on that original research theme and not based on the Licensed Products or research related thereto. Therefore, it is difficult to recognize that the cost of Z2's product development activities should be treated as the cost of selling the Licensed Products. In addition, even if we assume that the results of the above-mentioned product development activities have an effect on the sales of the Licensed Products, such results are not of a nature that affects the profit or value of the Licensed Products themselves, as described above, and it is difficult to determine in this case how much such results have increased the sales of the Licensed Products. In light of the fact that there is no evidence sufficient to admit the specific amount of the increase in the sales of the Licensed Products in this case, it is considered that it should be evaluated that it only has an indirect effect that it contributes in some way to the increase in the sales of the Licensed Products in this case. And, in this case, as stated in (a) above, the expenses spent for the part of Z2's activities related to the work of the research department of the foreign related party are treated as expenses related to the sales of the Licensed Product. It can be said that the impact of Z2's activities on the sales of the licensed products has already been taken into account in the evaluation.

Therefore, it is difficult to admit that it is reasonable to treat the cost of Z2's product development activities as the cost related to the sale of the Licensed Products, beyond what we evaluated in (a)(i) above.

(e) In summary, on the basis of the foregoing, we find that the operating profits of the foreign related parties in each of the years in question should be calculated as set out in Appendix Table 5 of Schedule 4 (see also Appendix Tables 1 to 4 of the same Schedule). (See also Appendix Tables 1 and 4 of the Annex).

(4) Calculation of the Claimant's Basic Profit

In order to calculate the arm's length price of a foreign related transaction using the residual profit split method, it is necessary, after calculating the profit to be split in relation to the foreign related transaction, to calculate the amount of the profit to be split that corresponds to the profit normally earned in unrelated party transactions without significant intangible assets (basic profit). As is clear from the definition above, the basic profit mentioned above cannot be naturally calculated from the foreign affiliated transaction itself, which is the subject of the residual profit split method. It is reasonable to conclude that it is possible to calculate the basic profit of each party to the foreign affiliated transaction subject to the residual profit split method through the process of selecting a similar corporation to which the parties to the foreign affiliated transaction can be compared, calculating the profit indicator of the corporation to be compared, and then calculating the basic profit of each party to the foreign affiliated transaction subject to the residual profit split method based on the profit indicator.

If this is the case, the basic profits in the foreign affiliated transaction in question should be calculated by separately selecting a comparable corporation similar to the plaintiff and the foreign related party, calculating the profit index of the comparable corporation, and then calculating the basic profits of the plaintiff and the foreign related party based on the profit index. Then, it is necessary to calculate the basic profit of the plaintiff and the foreign related party based on the profit index.

Therefore, the calculation of the basic profits of the Claimants and the Foreign Affiliated Persons will be examined in the following order. With respect to the Claimant's basic profits, we shall first examine the License Transaction and the Inventory Sales Transaction, which constitute the Foreign Affiliated Transaction, separately, and then, with respect to the Inventory Sales Transaction, we shall examine in turn whether the method and details adopted by the Director of the East Tax Office are appropriate. I shall add my judgment on the plaintiff's claim.

a. The basic interest of the plaintiff in this license transaction The license transaction is a licensing transaction of the plaintiff's material intangible assets, and due to its nature, it is impossible to envisage a transaction which does not involve material intangible assets, or to envisage a similar transaction between unrelated parties which does not involve material intangible assets. Therefore, it is reasonable to conclude that there is no fundamental interest of the plaintiff in the Licence Transactions.

(b) The profit indicator to be adopted in the calculation of the plaintiff's basic profit in the Inventory Sales Transactions The Inventory Sales Transactions are transactions in which the plaintiff is the seller and the related parties outside Japan are the buyers, and it is necessary to determine a profit indicator to be used in calculating the plaintiff's basic profit as the seller. In this case, considering the fact that the impact of differences in the functions performed by the parties and other factors on the indicator is small and comparability can be easily ensured, it is considered appropriate to use the operating profit margin as the above profit indicator.

As for the calculation of the operating profit margin as a profit indicator, as stated above, in order to calculate the basic profit of the plaintiff as a seller, it is necessary to consider transactions in which the plaintiff is the seller (transactions that fall under the plaintiff's sales and should be included in the amount of the plaintiff's income; hereinafter the same). The inventory sales transaction in question also falls under this category.) Therefore, it is considered appropriate to use the ratio of operating profit to total expenses, which is the ratio of operating profit to total expenses, rather than the ratio of operating profit to sales, which is the ratio of operating profit to sales. In addition, it is considered reasonable to use the simple average of the ratio of operating profit to total expenses as a profit indicator, assuming that the comparison is made with multiple companies.

(c) Selection of the Japanese comparables in the inventory sales transaction In the first place, the fact that the Director of the East Tax Office used any method to select the Japanese comparables should be established, and then whether or not the content of such selection is appropriate should be examined.

(a) The process and results of the selection of the Japanese comparator companies are as follows, and there is no dispute between the parties as to these facts.

(a) The plaintiff used OSIRIS to select companies located in Japan with SIC codes in the 2800 range, whose main business is similar to that of the plaintiff. The plaintiff used OSIRIS to identify 27 companies in Japan whose main industry is the chemical industry with SIC code 2800 that are similar to the plaintiff. The plaintiff used OSIRIS to select 27 companies that are located in Japan and whose main industry is chemical industry with SIC code 2800 similar to the plaintiff. (ii) companies for which financial data for the most recent three fiscal years is not available; (iii) companies that have incurred operating losses for two or more consecutive fiscal years out of the three most recent fiscal years; (iv) companies for which R&D expenses as a percentage of net sales exceed 3% on a weighted average basis for the three fiscal years; (v) companies for which (4) companies whose ratio of R&D expenses to net sales exceeded 3% on a weighted average basis for three fiscal years; (5) companies whose ratio of SG&A expenses to net sales exceeded 15% on a weighted average basis for three fiscal years; and (6) companies whose business activities differed significantly from those of the plaintiff. In August 2012, he presented these companies to the investigators.

b. Using OSIRIS, the Director of the East Tax Office selected 19 companies which are located in Japan and whose main business is similar to that of the Claimant. The Director of the East Tax Office used OSIRIS to identify 25 companies in the chemical industry with SIC codes in the 2800 range, whose main industry is similar to that of the Claimant. From among the 25 companies, the Director-General obtained the following information from OSIRIS: (1) companies in which more than 50% of the issued shares are owned by a single shareholder; and (2) companies for which financial data were not available for three or more of the past six fiscal years; (3) companies that had incurred operating losses for two or more consecutive fiscal years or three or more fiscal years out of the past six fiscal years; (4) companies that had R&D expenditures as a percentage of sales (4) companies whose R&D expenses as a percentage of net sales exceed 3%, (5) companies whose SG&A expenses as a percentage of net sales exceed 15%, (6) companies whose business is significantly different from that of the plaintiff, and (7) companies whose products are not used in semiconductor-related industries. As a result, the plaintiffs were able to exclude 7 more companies from the 19 companies mentioned in a. above, which is 12 companies (Z13, Z14, Z15). Z13, Z14, Z15, Z16, Z17, Z18 Z16, Z17, Z18, Z19, Z20, Z21 Z19, Z20, Z21, Z22, Z23 and Z24). Z22, Z23 and Z24).

The Director of the East Tax Office stated that, as stated in a. above, of the 19 companies presented by the plaintiff to the person in charge of this investigation, Z25 and Z25 and Z26 deal in products that are not related to electronics products, such as fertilizers, and Z27, Z28, Z29, Z30 and Z 27, Z 28, Z 29, Z 30 and Z In the case of Z27, Z28, Z29, Z30 and Z31, the ratio of R&D expenses to sales exceeds 3%, and these seven companies were excluded and selected as described above.

The person in charge of this investigation presented the above results to the Claimant around March 2013.

(c) On April 4, 2013, the Claimant told the person in charge of this investigation that the results presented by the person in charge of this investigation in (b) above had no significant impact on the amount of money, and that the taxpayer was not affected. (b) On April 4, 2013, the plaintiff told the person in charge of the investigation that he had no further opinions on the results presented by the person in charge of the investigation in b. above, saying that they did not have much influence on the amount of money and that the decision was made in the taxpayer's favor.

(b) According to (a) above, the Director of the East Tax Office said that the Japanese comparator companies were selected from (i) companies whose main industry is chemical industry, which is relatively similar to the plaintiff's business, (ii) companies which are not controlled by other companies and can obtain financial data for multiple years, and (iii) companies which are not controlled by other companies and can obtain financial data for multiple years. (ii) the selection was made from companies that are not controlled by other companies, have access to multiple years of financial data, and ensure normal profit margins on a reasonable and stable basis; (iii) the selection was made by excluding companies that spend a large amount of money on research and development, thereby excluding companies that are likely to have significant intangible assets that are more strongly reflected in their sales; and (iv) the selection was made from companies whose business activities or product applications were found to be significantly different from those of the plaintiffs. In addition, the fact that the plaintiff was satisfied with the selection at least at the stage of the investigation, the selection of the Japanese companies for comparison made by the Director of East Tax Office is considered to be appropriate.

(d) Judgment on the plaintiff's claim

The plaintiffs' arguments in relation to (a) and (c) above cannot be adopted, as follows

(a) The Claimants argue that the Transfer Pricing Guidelines (prior to their revision in 2017) 1.55, 2.68, 2.69 and 2.71. (a) The Claimants argue that the Transfer Pricing Guidelines (prior to the revision in 2017) 1.55, 2.68, 2.69 and 2.71 require strict comparability.

However, this is not the case in the transfer pricing guidelines (prior to the revision of the transfer pricing guidelines in 2017), which require the identification of comparable transactions between unaffiliated parties when using the per-transaction operating profit method. However, this is premised on the view that the process of calculating the operating profit margin to be required in calculating the basic profit when using the residual profit split method should be the same as that pointed out by the Transfer Pricing Guidelines (prior to the revision in 2017) regarding the identification of comparable transactions between unaffiliated parties when using the transaction unit operating profit method. (a) The plaintiffs' position is that the process of calculating the operating profit margin should be the same as the process of calculating the operating profit margin.

(b) The Claimant argues that the Japanese comparators cannot be said to be comparable because none of them has the same or similar inventories as the Claimant and has a function equivalent to the function of research and development activities which the Defendant claims to be the Claimant's unique function.

However, the similarity of inventories as a precondition for calculating the operating margin as a profit indicator differs from the similarity of comparable transactions in the arm's length comparison method, and it is reasonable to conclude that, by its very nature, it is not required to be strict but relatively loose (see also (a) above).

In this case, (1) the number of Japanese comparator companies is reasonably large (12 companies in total), (2) the Japanese comparator companies are all companies engaged in the manufacture of chemicals and related products, and the manufacture of surface treatment agents handled by the plaintiff is also included in the manufacture of chemicals and related products. (2) the Japanese comparators are all companies engaged in the manufacture of chemicals and related products, and the manufacture of surface-treatment agents handled by the Claimants is included in the manufacture of chemicals and related products; and (3) ultimately, the operating profit margin is defined as the average of the operating profit margins, so that the differences between individual companies can be disregarded to a considerable extent. In light of this, even assuming that there are differences in inventories between the Claimants and the Japanese comparators as alleged by the Claimants, the similarity in inventories as a precondition for calculating the ratio of operating profit to total expenses should be deemed to be satisfied.

In addition, it can be reasonably assumed that only a very small number of so-called listed companies engaged in the manufacturing of chemicals and related products, which could be the plaintiff's comparator companies, do not engage in any research and development. In addition, as stated in c. (a) above, the Commissioner of the Eastern Taxation Bureau selected the Japanese comparator companies by excluding all companies whose R&D expenses as a percentage of sales exceeded 3%. In light of the fact that it can be inferred that companies whose significant intangible assets contribute to their turnover to a considerable extent are excluded and that by adopting the average of the operating profit to total cost ratios of those companies, the differences between individual companies can also be inferred to a considerable extent. (c) The plaintiffs argue that the selection of the Japanese companies for comparison by the Director of the East Tax Office is not sufficient to overturn the finding that the selection of the Japanese companies for comparison by the Director of the East Tax Office is reasonable to the extent that there is comparability in relation to research and development activities.

(c) The plaintiff says that the BB product is merely a mixture of several raw materials of plating chemicals for the sole purpose of making unknown the mixing ratio of raw materials which is the know-how of manufacturing plating chemicals. The development of BB products itself does not require any research and development activities and does not create any new value, and the value of plating chemicals is completely different whether BB products or B The value of the plating chemicals is exactly the same whether the BB product is used or the BBB product is not used, and the Japanese comparator companies are engaged in important R&D activities, and the intangibles produced as a result of those activities may realize high profits. The level of function of the R&D activities is obviously different from that of the plaintiff's development of the BB products, and the plaintiff argues that the inventory sales transaction in question is inappropriate as a comparable transaction for calculating the basic profit.

However, since BB products reflect the know-how of plating chemical manufacturing itself, such as the mixing ratio of raw materials of plating chemicals, even if the development of BB products themselves did not require any R&D activities, it would still be possible to calculate the basic profit of BB products. Therefore, even if the development of BB product itself does not require any R&D activities, it is clear that the plating chemicals which are the base of BB product require appropriate R&D activities, and the plaintiff's argument should be different from the premise. On top of that, taking into account what is indicated in (a) and (b) above, even if the plaintiff argues above, it is not enough to overturn the finding that the selection of the Japanese companies for comparison by the East Tax Office is reasonable to the extent that they are comparable in relation to their R&D activities. It should not be sufficient to overturn the finding that the selection of the Japanese companies for comparison by the East Tax Office was reasonable in relation to their R&D activities.

(e) Conclusion

In addition to what has been judged above, there are no circumstances which suggest that the calculation of the plaintiff's basic profit lacks reasonableness.

Therefore, in this case, the ratio of operating profit to total expenses to be calculated in calculating the plaintiff's basic profit is found to be as stated in Order No. 13 of Appendix Table 6 of Schedule 4 (the calculation process is described in Appendix Table 6). (For the process of calculation, see also Order Nos. 1 to 12 of Schedule 4), and that the amount of the Claimants' basic profits based on that calculation is as set out in Order No. 24 of Schedule 4 The amount of the Claimant's basic profit based on the calculation of the amount of the Claimant's basic profit is as shown in Order No. 24 of Appendix 4 (see also Order Nos. 20 to 23 of the Appendix for the calculation process).

(5) Calculation of the Basic Profit of the Foreign Affiliated PartyIn the case of the Basic Profit of the Foreign Affiliated Party in question, we will first examine the profit indicators to be adopted, then examine whether the method and details adopted by the Director of the East Tax Office are appropriate, and finally add our judgment on the plaintiff's claim.

(a) Profit indicator to be adopted in the calculation of the basic profit of the foreign related party in the foreign related transaction

The foreign related transaction is a transaction in which the plaintiff is the seller and the foreign related party is the buyer, and it is necessary to obtain a profit indicator to be used in the calculation of the basic profit of the foreign related party as the buyer. In this case, taking into account the fact that the impact of differences in the functions performed by the parties and other factors on the indicator is small and comparability can be easily ensured, it is considered appropriate to use the operating profit margin as the profit indicator as in the calculation of the plaintiff's basic profit.

As for the calculation of the operating profit margin as a profit indicator, as stated above, in order to calculate the basic profit of the Foreign Affiliated Party as the buyer, it is necessary to consider the transactions in which the Foreign Affiliated Party is the buyer (transactions that fall under the category of purchases of the Foreign Affiliated Party and should be included in the expenses of the Foreign Affiliated Party; the same applies to the transactions in which the Foreign Affiliated Party is the buyer). This foreign-affiliated transaction also falls under this category.) Therefore, it is considered appropriate to use the ratio of operating profit to sales, which is the ratio of operating profit to sales, instead of the ratio of operating profit to total expenses, which is the ratio of operating profit to total expenses. In addition, it is considered reasonable to use the simple average of the ratio of operating profit to sales as the profit indicator, given that the comparison is made with multiple companies.

(b) Selection of the Taiwanese comparable company in this foreign related transaction First, the fact that the Director of the East Tax Office selected the Taiwanese comparable company by what method is recognized, and then whether the content of the said selection is appropriate or not is examined.

(a) The process and results of the selection of the Taiwanese comparator companies are as follows, and there is no dispute between the parties as to these facts.

(a) On November 28, 2012, the person in charge of the investigation told the plaintiff The investigator of this case reported to the Claimant on November 28, 2012, using OSI RIS, that a company located in Taiwan and whose main business is similar to that of the Claimant The investigator asked the plaintiff, on November 28, 2012, for a list of 1,01 companies in the chemical industry with SIC code 2800, which were located in Taiwan and whose main industry was similar to that of the plaintiff. From among the 1,01 companies selected by OSI RIS as companies located in Taiwan and whose main industry is the chemical industry with SIC code 2800, which is similar to that of the Claimants, we found that (i) more than 50% of the issued shares are owned by a single shareholder, and (ii) financial data are available for at least three out of the last six fiscal years. (2) Companies for which financial data were not available for at least three of the past six fiscal years; (3) Companies for which operating losses were recorded for two or more consecutive fiscal years or three or more fiscal years out of the past six fiscal years; (4) Companies for which R&D expenses as a percentage of sales exceeded 3%. (v) a company whose net sales are more than 10 times or less than one-tenth of the net sales of the foreign affiliate; or (vi) a company whose business or products are similar to those of the foreign affiliate. (6) companies whose business activities or products handled differ significantly from those of the foreign affiliates, and (7) companies whose products are not used in semiconductor-related industries. Z32, Z33, Z34, Z35, Z36, and Z36, Z36, Z37, 37, Z38, Z39, Z40, Z41, Z42, Z4 3, Z44, Z45 Z48, Z49, Z5 0, Z51, Z52, and (Z53) and presented them as candidates for Taiwanese comparators.

b. On February 19, 2013, the plaintiff told the person in charge of this investigation that, of the two companies mentioned in a. above, Z36 was the most likely candidate. On February 19, 2013, the plaintiff told the person in charge of this investigation that 21 companies, excluding Z36, should be excluded from the Taiwanese comparables on the grounds that they deal in products that are significantly different from those of the foreign affiliates in question. In addition, three other companies (Z54, Z55, Z56) should be excluded. In addition, he suggested that three other companies (Z54, Z55, and Z56) should be selected as candidates for the Taiwanese comparator.

(c) On March 12, 2013, the person in charge of the investigation told the plaintiffs that, based on the above b. 11 companies (Z33, Z34, Z36 Z36, Z37, Z4 3, Z45, Z46 3, Z45, Z46, Z48, Z49, Z51 (Z45, Z46, Z48, Z49, Z51, Z56) as potential Taiwanese comparators.

d. On March 26, 2013, the plaintiff told the researcher in charge of the case that the plaintiff had asked one of the companies mentioned in c above to submit a report to the Taiwanese government. On 26 March 2013, the plaintiff presented to the researcher the four companies mentioned in c. 1 above ( Z40, Z44, Z47 and Z40) which deal with products for the electronics industry. Z44, Z47, and Z 53), which deal with products for the electronics industry, should be included in the Taiwanese comparables.

e. On 4 April 2013, the person in charge of the investigation told the Claimant that the 11 companies mentioned in c above should be added to the list of the Taiwanese companies. Three of the four companies pointed out by the Claimants in d above (Z40, Z44, and Z47) as candidates for the Taiwanese side. The plaintiff presented 14 companies as candidates for comparison.

(f) On April 15, 2013, the Claimant again pointed out to the person in charge of the investigation that, although the Claimant had pointed out in d above On April 15, 2013, the plaintiff again expressed his opinion to the person in charge of the investigation that one company (Z53), which the person in charge of the investigation had pointed out in d. above but which the person in charge of the investigation had not adopted in e. above, should be added to the list of companies to be compared on the Taiwan side.

g. On 25 April 2013, the person in charge of the investigation expressed the opinion that the company (Z53) pointed out by the Claimant in f above On April 25, 2013, the investigator added the company that the plaintiff pointed out in f above (Z53) to the list of Taiwanese companies for comparison. 56), which was previously a candidate for Taiwanese comparables, was removed from the list of Taiwanese comparables on the grounds that its sales level was different from that of the foreign affiliates. (1) Z33, (2) Z34, 3) Z36, 4) Z37, 5) Z40, 6) Z43, 7) Z44, 8) Z45, 9) Z46, 10) Z 45, ⑨ Z46, ⑩ Z47, ⑪ Z 48, ⑫Z49, ⑬Z51 and (⑭Z53) as Taiwan's comparable enterprises. Then, on June 27 of the same year, the Director of the East Tax Office issued the corrections based on the assumption that the above-mentioned 14 companies would be the Taiwanese comparable companies.

(b) According to (a) above, the Director of the East Tax Office selected the Taiwanese companies for comparison because (i) the companies are mainly in the chemical industry, which is relatively similar to the business of the foreign related party, and (ii) the companies are not controlled by other companies and have access to financial data for multiple years. (ii) the selection was made from companies that are not controlled by other companies, have access to financial data for multiple years, and ensure normal profit margins on a reasonable and stable basis; (iii) the selection was made by excluding companies that spend a large amount of money on research and development, thereby excluding companies that are likely to have significant intangible assets that are reflected more strongly in their sales; and (iv) the size of sales is clearly different from that of the foreign related party in question. In addition, the fact that the investigator and the plaintiff communicated with each other several times, and the Taiwanese comparable companies were determined by taking into account the plaintiff's suggestions to a certain extent, is also taken into consideration. In this regard, it is considered that the selection of the Taiwanese comparator companies made by the Director was appropriate.

(a) The plaintiff's argument in response to (a) above cannot be adopted, as follows

(a) The plaintiffs argue that, among the Taiwanese comparators used by the defendant, (a) the main products handled by Taiwanese comparator (i) are synthetic resin products such as fiber-reinforced plastics, (ii) the main products handled by Taiwanese comparator (iv) are cobalt, manganese and other crystals and powders, and (iii) the main products handled by Taiwanese comparator (vi) are cobalt, manganese and other crystals and powders. (ii) the main products handled by the Taiwanese comparator (iv) are crystalline bodies and powders of cobalt, manganese, etc., (v) the main products handled by the Taiwanese comparator (vi) are crystalline bodies and powders of plastic products, etc., (vi) the main products handled by the Taiwanese comparator (ix) are polyurethane resins, and (vii) the main products handled by the Taiwanese comparator (xiii) are plastic products. The evidence (B99), however, shows that there is no similarity between the inventories of the foreign related parties in question and those of the Taiwanese companies.

However, according to the evidence (B99), (i) printed circuit boards (etching ink, solder preservative resin, etc.) are listed as part of the applications of the products handled by the Taiwanese comparator (i), and (ii) this is a product that the plaintiff accepted as a candidate for the Taiwanese comparator at the investigation stage. (1) the products of the Taiwanese company (3) (see (a)(b) above), which the plaintiffs accepted as a candidate for the Taiwanese comparator during the investigation stage, are said to be used for etching of printed circuit boards; (2) the products of the Taiwanese company (4) are said to be used for special metallic chemicals of cobalt, manganese, and nickel, and for etching of printed circuit boards. (2) that the products handled by Taiwan's comparator (4) are special metallic chemicals of cobalt, manganese, and nickel, and electronic components, and that their use is for printed circuit boards; (3) that the products handled by Taiwan's comparator (6) are electronic chemicals, and that some of their uses are for printed circuit boards (PCBs) (4) that some of the products handled by Taiwanese comparator (9) are coating agents and some of the products handled by Taiwanese comparator (10) are PCBs; (5) that some of the products handled by Taiwanese comparator (13) are electronic components and some of the products handled by Taiwanese comparator (14) are semiconductors for monitors. As stated in (4)(d)(i) above, the similarity of inventories as a precondition for calculating the operating margin as a profit indicator differs from the similarity of comparable transactions under the arm's length price comparison method in that, by its nature, it is not required to be strict, but relatively loose. In addition, in light of the fact that, in the end, the average of operating profit margins is used as the operating profit margin as an index of profit, it can be inferred that the differences between individual companies are disregarded to a considerable extent, it is not difficult to conclude that there are differences between the plaintiffs and some of the Taiwanese comparables as pointed out by the plaintiffs. In light of this, even if we assume that there are differences in inventories between the Claimants and some of the Taiwanese comparator companies pointed out by the Claimants, the similarity in inventories as a precondition for calculating the ratio of operating profit to sales is deemed to be satisfied.

(b) a. The plaintiff states that the Taiwanese comparator (viii) is a company which mainly manufactures unsaturated polyester resins and resin paints and supplies them to Japan, Southeast Asia, Australia, South America, the Middle East and Africa. Since the application of unsaturated polyester resin is ships, etc., it is a company whose business contents or products handled are significantly different from those of the foreign related parties in question, and the application of the products manufactured and sold by it is not semiconductor-related, while the foreign related parties in question mainly sell their manufactured products to printed circuit board manufacturers in Taiwan. On the other hand, Taiwanese comparable company (8) is a global company that exports most of the products it manufactures, so its market is also different, and Taiwanese comparable company (8) cannot be a comparable company of this foreign related party.

However, according to the evidence (A129-1 and A129-2, B160), the products of Taiwanese comparator company (8) are However, according to the evidence (A129-1.2, B160), it is admitted that the products of Taiwanese company (8) are used for printed circuit boards and electronic components, and that Taiwanese company (8) does not deal exclusively with unsaturated polyester resin and resin paint, but also operates semiconductor-related business and deals with products used for printed circuit boards (products with the same application as the foreign related party in question). In addition, it is admitted that they also deal in products used for printed circuit boards (products with the same use as the foreign related party in question).

In addition, among the Taiwanese companies selected by the Director of the East Tax Office, with respect to Taiwanese companies (5), (7), and (10), which were proposed by the plaintiff, according to the evidence (B95) and the whole purpose of the argument, (a) Taiwanese company (5) was selected as a comparable company because of its website, (b) Taiwanese company (7) was selected as a comparable company because of its website, and (c) Taiwanese company (10) was selected as a comparable company because of its website. (a) Taiwan's comparable company (v) only states on its website that its products are used for electronic components, and it cannot be confirmed that it is engaged in semiconductor-related business; (b) Taiwan's comparable company (vii) only states on its website that its products are used for lithium batteries (ii) Taiwanese comparator (vii) stated on its website that its products were used for lithium batteries, and (viii) Taiwanese comparator (x) stated on its website that its products were used for LEDs, which is a different application from printed circuit boards. In the present case, the plaintiff does not dispute the comparability of the above-mentioned Taiwanese comparables with the foreign related parties, and the similarity of the inventories between the Taiwanese comparables (8) and the foreign related parties in question is not found to be significantly different from the similarity of the inventories between the above-mentioned Taiwanese comparables and the foreign related parties in question. It is also difficult to accept that the degree of similarity is significantly different.

In addition, as in (a) above, the similarity of inventories as a precondition for calculating the operating margin as a profit indicator differs from the similarity of the transactions subject to comparison under the arm's length price comparison method in that, by its nature, it is not required to be strict, and it is reasonable to conclude that a relatively loose similarity is sufficient. In addition, in light of the fact that, in the end, the average of the operating profit margins is used as the operating profit margin as a profit indicator, it can be inferred that the differences between individual companies will be disregarded to a considerable extent, even if we assume that there is a difference in inventories between the foreign related party in question and the Taiwanese comparator (8) as alleged by the plaintiff. In light of the fact that there is a difference in inventories between the foreign related party in question and the Taiwanese comparator (8) as alleged by the Claimant, it is considered that the similarity in inventories as a precondition for calculating the ratio of operating profit to sales has not yet been lost.

The plaintiffs also argue that the customers (markets) of the foreign related parties in question and the Taiwanese comparator (viii) are different, but even if the customers (markets) are different, it can be inferred that the cost of sales (labour costs, raw material costs, etc.) of companies engaged in similar businesses would be at a similar level in the same country or region, and that the difference in customers (markets) does not affect the ratio of operating profit to sales. In addition, there is no general knowledge that the difference in customers (market) will immediately cause a direct difference in the operating profit to sales ratio, and it is difficult to admit that the whole evidence in this case supports this, so the above argument of the plaintiff is not sufficient to overturn the above certification and judgment.

b. The plaintiff states that the Taiwanese comparator (12) is a manufacturer of adhesives, and that its products are used for packing cardboard boxes, etc., adhesives for general-purpose construction materials, food, beverages, solar cells, shoes, etc., medical equipment and office equipment, and that the nature of its business and products handled are significantly different from those of the foreign related parties. In addition, the products of the Taiwanese company subject to comparison (12) are exported and sold all over the world and have a different market from that of the foreign related party in question. Therefore, the Taiwanese comparator (12) should not be considered as a comparator of the foreign related party.

However, for the same reasons as set out in paragraph (a) above, even if we assume that there is a difference in inventories between the foreign related party in question and the Taiwanese comparator 12 as alleged by the Claimant, the similarity in inventories as a premise for calculating the ratio of operating profit to sales has not been lost. (c) The Claimant has not shown any evidence that the

(c) With regard to the Taiwanese comparator's ratio of operating profit to sales for the year ended 31 March 2007, the Claimant submitted that the figures for the Taiwanese comparator (ii) were missing and that, in fact, the In fact, the figures for the Taiwanese comparator (2) are missing. In fact, the figures for the Taiwanese comparator (2) are missing. In fact, the company's sales and operating profit for the year ended March 31, 2007 were TWD 814,343,000 and TWD 206,204,000 respectively, and the operating profit to sales ratio was 25.9%. 5168547%, the average operating profit to sales ratio was 7.04044681 72% but 7.843348 Therefore, the defendant's calculation of the basic profit of the foreign related parties for the year ended March 2007 is incorrect. The defendant argues that the calculation of the basic profit of the foreign related parties for the year ended March 2007 made by the defendant is wrong.

However, the evidence (B153-157, 166, 167 (but with branch numbers)) shows that the defendant's calculation of the basic profit of the foreign affiliates in the fiscal year ended March 2007 is incorrect. However, according to the evidence (B153-157, 166, 167 (however, those with branch numbers are included in the branch numbers)) However, according to the evidence (B153-157, 166, 167 (however, branch numbers are included)) and the full intent of the arguments, (1) Taiwanese comparator (2) had previously had its only factory in Kaohsiung City, but in October 2005 (Heisei 17), it was transferred to Pingtung County (Pingtung County). In October 2005 (2005), it started a project to relocate its factory to Pingtung County (a county southeast of Kaohsiung City). In October 2005, Kaohsiung City started a project to relocate its factory to Pingtung County (a county southeast of Kaohsiung City), and the new factory was completed in December 2006. (2) the compensation for the relocation of the existing factory mentioned in (1) above was recorded in the non-operating income of the Taiwanese comparator (2) in 2005; and (3) in the annual report of the Taiwanese comparator (2) for 2006 (Heisei 18) (iii) in the 2006 annual report of the Taiwanese comparator (ii), there is a statement to the effect that production was moved up to prepare for the relocation of the factory and that finished products were stored to meet customer demand during the period when production was suspended; and (iv) (a) the number of factory workers of the Taiwanese comparator (ii) at the end of the fiscal year is shown to be (a) the number of factory workers of the Taiwanese comparator company (ii) at the end of the period was 76 in 2004, and The number of workers at the end of the year decreased from 76 in 2004 to 17 in 2005, and from (ii) The number of factory workers of Taiwanese company (ii) increased from 76 in 2004 to 17 in 2005 and 42 in 2006. (ii) The number of employees of the Taiwanese comparator (ii) decreased to 17 in 2005 and increased to 42 in 2006. (b) the amount of salary paid by the Taiwanese comparator (ii) in 2005 and 2007 (5,239,000 yen in 2005) and (5,239,000 yen in 2007), respectively (i) TWD 52,398,000 in 2005 and 2005 and 2007, respectively) and the amount spent by enterprise (ii) as salary (TWD52,398,000 in 2005 and TWD39,184,000 in 2007). TWD52,398,000 in 2005 and TWD3,918,000 in 2007) and TWD2,000,000 in The difference between the amount paid as salary in 2006 (TWD 567,000) and (c) The Taiwanese comparator (ii) did not pay any salaries in 2005 and 2007. (c) In 2005 and 2007, the Taiwanese comparator (ii) reported that it had spent as part of its operating costs (c) In 2005 and 2007, the Taiwanese comparator (ii) reported social insurance premiums, retirement benefit expenses, other personnel expenses, and depreciation of fixed assets as part of operating costs. On the other hand, in 2006, the Taiwanese comparator (2) did not record any of these items as part of cost of sales. According to these facts, it can be said that the Taiwanese enterprise (ii) did not record the amount of production costs (social insurance premiums, retirement benefit expenses, other personnel expenses and depreciation of fixed assets, which are part of labor costs) in the amount of cost of sales and recorded only a small amount of direct labor costs in 2006 (2006). It can be inferred that this was due to the fact that the factory did not manufacture any products during the same year.

As a result, it can be inferred that the Taiwanese comparables (ii) did not manufacture any products in 2006 and that the foreign related parties (iii) and the other Taiwanese comparables (iv) did not manufacture any products in 2006. Therefore, it is reasonable to calculate the operating profit to sales ratio of the Taiwanese comparables by excluding the figures of the Taiwanese comparables (2) for the year ended March 31, 2007. Therefore, it is considered reasonable to calculate the ratio of operating profit to sales of the Taiwanese comparables by excluding the figures of the Taiwanese comparables (2) for the year ended March 31, 2007, and it is also considered appropriate that the Director of the East Tax Office calculated the ratio of operating profit to sales of the Taiwanese comparables with the same consideration.

D. Conclusion

In addition to the above, there is no circumstance which suggests that the calculation of the basic profit of the foreign related party in this case is not reasonable.

Therefore, in this case, the ratio of operating profit to sales to be calculated in calculating the basic profit of the foreign related party in question is found to be as set out in Order No. 15 of Appendix Table 7 of Schedule 4 (the calculation process is set out in Appendix Table 7). (For the process of calculation, see also Order Nos. 1 to 14 of the attached table), and the amount of the basic profits of the foreign related parties based on such calculation is as stated in Order No. 2 7 of Schedule 4 (see also Order Nos. 25 and 26 of the same Schedule for the calculation process).

(6) Factors in the division of the residual profits

It is possible to calculate the divisible profit in the foreign-related transactions in accordance with (2) and (3) above, and the basic profit in the foreign-related transactions in accordance with (4) and (5) above, respectively. The amount of profit after deducting the above basic profit from the above divisible profit is the profit (residual profit) that the significant intangible assets in the foreign related transaction are deemed to have contributed to the acquisition of (see Schedule 4 Order No. 28). Then, the arm's length price of the foreign-related transaction can be calculated by allocating the residual profit in accordance with the value of the significant intangible assets held by both the plaintiff and the foreign related party (the splitting factor).

Therefore, in the following order, we will examine the reasonableness of the process and conclusion of calculating each of the splitting factors for the Claimants and the Relevant Foreign Related Parties.

(a) Method of apportioning the residual profits

The allocation of residual profits should be made in proportion to the value of the material intangible assets held by the parties to the transaction; however, in addition to the fact that it is difficult to accurately ascertain the value of the intangible assets themselves in monetary terms due to their nature, there are certain reasonable correlations between the amount of costs incurred in producing the intangible assets and the value of the intangible assets. In light of the fact that there is a general rule of thumb that there is a certain reasonable correlation between the amount of costs required to produce the relevant intangible asset and the value of the relevant intangible asset, it is reasonable to conclude that it is permissible to use the amount of costs, etc. spent for the development of the relevant intangible asset instead of the value of the relevant intangible asset itself. (See also note 6-4(4)-5). (b) Consideration of the calculation of the plaintiff's division factor

As we have already indicated, the important intangible assets held by the plaintiff that contributed to the acquisition of profits in the foreign-related transactions in question are the know-how, etc. of manufacturing the licensed products in question, and in light of the individual nature of such know-how, etc., it is difficult to evaluate the value of such know-how, etc. itself in terms of a specific amount. In light of the individual nature of the know-how, etc., it is difficult to evaluate the value of the know-how, etc. in itself in terms of a specific amount, and therefore, it is considered reasonable to use the amount of expenses, etc. spent for the development of the know-how, etc. in question.

On top of that, under the evidence in this case, it is not possible to specify the amount of expenses, etc. spent for the development of each know-how, etc., and in light of the fact that the amount of expenses spent for the development of know-how, etc. (research and development expenses) is generally constant every year (see (2)(a)(v) above) (a)(v) above), it is reasonable to assess the value of the important intangible assets held by the plaintiff which contributed to the acquisition of the profits in the above-mentioned sales by the amount of the relevant expenses corresponding in time to the sales of the foreign-related transactions in question for the same reason as (2)(a) above. Therefore, the plaintiff's dividing factor is the value of the intangible assets.

Therefore, the plaintiff's divestiture factor should be calculated as the total amount of the plaintiff's research and development expenses for plating chemicals for each of the fiscal years constituting the business year in question, multiplied by the ratio of the external sales of the Licensed Products to the consolidated sales in question.

(c) Consideration of the calculation of the split factor of the foreign related party As we have already indicated, the important intangible assets held by the foreign related party which contributed to the acquisition of the profit in the foreign related transaction in question are the various sales and technical support which the foreign related party provided to its customers (Assumption (1)(a)(c)). In light of the content, individuality and other factors of such technical assistance, it is difficult to assess the value of such technical assistance itself in terms of a specific amount, and it is therefore considered reasonable to use the amount of expenses incurred in providing such technical assistance.

On top of that, under the evidence in this case, the above-mentioned expenses spent for sales technology support should be assessed as part of Z3's selling and administrative expenses in calculating the operating profit of the foreign related party in question, as described in (3) (a) above. (A) the amount of L&R expenses that should be assessed as forming part of Z3's selling, general and administrative expenses in order to calculate the operating profit of the foreign related party (B) the amount of L&R expenses among the amount of selling, general and administrative expenses recorded in Z3's financial statements The amount of L&R expenses to be assessed as forming part of the amount of Z3's selling, general and administrative expenses (the amount of L&R expenses out of the amount of selling, general and administrative expenses recorded in Z3's financial statements) (A) x /. (See (3)(a)(a) above), and (ii) from the amount of L&R expenses [∆∆] in the amount of SG&A expenses recorded in Z1's financial statements. (ii) the amount of L&R expenses [] in the amount of selling, general and administrative expenses recorded in the financial statements of Z1, minus the amount of depreciation expenses [] in relation to Z3, plus the total number of personnel in Z2 [っけ] and the number of personnel in the research and development department of Z1 [省略]. the total number of personnel in Z2 [] and the number of personnel in the research department of Z 1 [], and the total number of personnel in the research department of Z2 [] and the number of personnel in the research department of Z 1 []. 1, multiplied by the ratio of the external sales of the Licensed Products [] to the total of the sales of the Plating Products [|] of the Foreign Affiliated Party [173] ( () = ( - ) x {( + ) / ( + )} x (/360). (see (3)(a)(i) above) and the amount after the sum of (=①+②). According to the evidence (B64, B66, B85), it is reasonable to assume that the foreign related party in question is a factor in the division It is reasonable to conclude that the amount is the amount after adding the amount of expenses related to the plating factory of Z1.

Therefore, it is reasonable to conclude that the split factor of the foreign related party in question is the amount of L&R expenses which should be assessed as forming part of Z3's selling, general and administrative expenses in calculating the operating profit of the foreign related party for each of the fiscal years constituting the business year in question. In calculating the operating profit of the foreign related party for each of the business years comprising the relevant business year, the amount of L&R expenses to be assessed as forming part of Z3's selling, general and administrative expenses should be calculated as the amount after adding the amount of expenses relating to Z1's plating factory.

(d) Judgment on the plaintiff's argument

The plaintiff's arguments against the above a. to c. cannot be adopted as follows.

(a) The plaintiffs argue that (i) the source of the extremely high profits of the business of manufacturing and selling plating chemicals developed by the plaintiffs in Taiwan is Japan (approximately 20%, and even at its peak, approximately 35%), and (ii) the source of the extremely high profits of the business of manufacturing and selling plating chemicals developed by the plaintiffs in Taiwan is Japan (approximately 20%, and even at its peak, approximately 35%). Even at the peak of the business, the share was only about 35%) and Korea (about 15%). This is due to the fact that the foreign related parties have been able to gain a very high share (approximately 80%) in the field of functional plating by conducting unique business activities in Taiwan. This is due to the fact that the foreign related party in question has been able to occupy an overwhelming market share in the market of plating chemicals for printed circuit boards for printed circuit boards and IC packages, despite being a latecomer in the field of functional plating, by conducting unique sales activities in Taiwan that are not conducted by other companies. (ii) the Plaintiff's research and development activities are not unique compared to those of its competitors, and its competitors are engaged in similar research and development activities, and therefore, the Plaintiff has not achieved the overwhelming market share as seen in Taiwan outside of Taiwan despite the fact that the Plaintiff has introduced the same products into the market and engaged in various sales activities; and It is not clear whether the R&D activities of the Plaintiffs have contributed to the generation of residual profits in Taiwan, and even if they have, the contribution is extremely small compared to the contribution of the customer services of the foreign related parties. If the amount of the plaintiff's R&D expenses and the amount of the foreign related party's operating technology expenses were used as the dividing factor, it would not reflect the actual situation of the generation of the residual profits, and the amount of the plaintiff's R&D expenses and the amount of the foreign related party's operating technology expenses would not reflect the actual situation of the generation of the residual profits. The amount of the Claimant's R&D expenses and the amount of the Foreign Affiliated Party's operating technology expenses cannot be said to be sufficient to infer the extent to which they contributed to the generation of the residual profits of the Claimant and the Foreign Affiliated Party.

However, as indicated in 2(4)(c) above, the fact that it is possible for the foreign related party in question to provide surface treatment technology that responds to the needs of customers in a detailed manner using products manufactured using intangible assets licensed from the plaintiff is not sufficient to infer the extent to which the foreign related party in question contributed to the generation of residual profits. Therefore, it is difficult to accept immediately that the high profits made by the foreign related party in Taiwan can be attributed solely to the sales and technical support provided by the foreign related party, or that the contribution of the plaintiff's research and development activities to the generation of residual profits in Taiwan is extremely low. In addition, the evidence (B77) does not show the existence of any In addition, according to the evidence (B77), it is admitted that the plaintiff focused on the research and development activities related to the business of the foreign related party in question, and conducted research and development activities such as know-how of manufacturing plating chemicals. In this sense, the research and development activities conducted by the plaintiff contributed to the profits obtained by the foreign related parties from the sales of the licensed products, and it is supported that it is reasonable to consider the amount of expenses spent for such research and development activities as the division factor of the plaintiff.

(b) a. Even if the intangible assets held by the plaintiff and the foreign related party all contribute to the generation of the residual profit, the plaintiff is unable to distinguish the degree of contribution of the know-how of manufacturing the Licensed Product, which is an intangible asset held by the plaintiff, from that of the know-how of manufacturing the Licensed Product, which is an intangible asset held by the foreign related party. Even if the foreign related party also contributes to the generation of residual profit, the ratio of the contribution of the technical services provided by the foreign related party in the sale of the Licensed Product, which is an intangible asset owned by the plaintiff, to the ratio of the amount of the cost, i.e., the ratio of the cost of the technical services of the foreign related party per yen to the cost of the plaintiff's research and development per yen, is the same. In other words, there is no evidence from which it can be reasonably inferred that the cost per yen of the foreign related party's technical services and the cost per yen of the Claimant's research and development contributed to the generation of the residual profit in a similar ratio.

It is true, as the Claimant points out, that the finding and judgment in paragraphs (a) and (c) above are based on the assumption that each yen of the Claimant's research and development costs and each yen of the costs of the sales and technical support of the foreign related parties in question contributed to the generation of the residual profit in the same proportion. However, it is difficult to ascertain the degree to which the intangible asset contributed to the generation of the residual profit in concrete terms in terms of the amount of money due to its nature, and there is no reasonable reason why this should be different for each intangible asset. Therefore, as long as there is no specific evidence or circumstances sufficient to admit that the relationship between the amount of expenses incurred in relation to an intangible asset and the extent to which that intangible asset has contributed to the generation of residual income differs from one intangible asset to another, it should be reasonable to assess the ratio of the amount of expenses incurred in relation to an intangible asset to be the ratio of the extent to which that intangible asset has contributed to the generation of residual income. In the present case, it is not the case that the intangible assets contributed to the generation of the residual profit.

On top of that, in this case, all the evidence in this case shows that the amount of the plaintiff's research and development expenses, which are deemed to be the expenses required for research and development activities related to the know-how of manufacturing the Licensed Products, which are the intangible assets held by the plaintiff, and the amount of the expenses required for sales and technical support, etc. provided in connection with the sale of the Licensed Products, which are the intangible assets held by the foreign related party in this case, are considered to be the same. Therefore, it is not reasonable to evaluate that the ratio of the above-mentioned amount of expenses is the ratio of the degree of contribution. Therefore, it is reasonable to evaluate the ratio of the amount of the above expenses as the ratio of the degree of contribution.

b. The plaintiffs argue that, even if the intangible assets held by the plaintiffs and the foreign related party all contribute to the generation of residual profits, (i) the function of the plaintiffs' research and development activities and the function of the foreign related party's technical services are separate and independent functions and are completely different intangible assets; (ii) the intangible assets have different characteristics (2) Where there are intangible assets with different characteristics, they cannot be grouped together as intangible assets and the total amount of their respective costs cannot be used as the dividing factor; it is necessary to consider the dividing factor for each intangible asset in light of its characteristics and to weight the value among them; and (iii) where residual profits are generated by different types of functions, i.e. R&D activities and technical services, the division of profits must be made for each residual profit generated by each function, without distinguishing between the two different intangible assets. It is completely meaningless to assume that the ratio of the expenses spent for the formation of the two intangible assets is the ratio of the value of the two intangible assets, without distinguishing between the two different intangible assets, because the above ratio of expenses is "a factor sufficient to infer the degree of contribution to the generation of income (residual profit)" (Article 39, Paragraph 8, Item 1 of the Order for Enforcement of the Act on Special Measures Concerning Taxation). In the present case, however, the plaintiffs' argument is that the ratio of the above expenses does not fall under the category of "factors sufficient to infer the degree of contribution to the generation of income (residual profit)" (Article 39-12, Paragraph 8, Item 1 of the Enforcement Order of the Act on Special Measures Concerning Taxation).

However, in this case, both the know-how of manufacturing the Licensed Products, which is an intangible asset held by the Plaintiff, and the sales and technical support provided by the Foreign Affiliated Party for the sale of the Licensed Products, which is an intangible asset held by the Foreign Affiliated Party, are intangible assets used for the sale of the Licensed Products to third parties. Therefore, it is recognized that both of them contribute to the generation of the residual profit arising from the sale of the Licensed Products. In addition, the residual profit split method and the method equivalent to the residual profit split method are methods that are originally expected to be used when the intangible assets held by both parties to a foreign-related transaction perform their own functions (see 2(4)(a) above). In addition, we have not found any evidence sufficient to admit that, in calculating the arm's length price using the residual profit split method or a method equivalent to the residual profit split method, it is assumed that the intangible assets held by both parties to the foreign related transaction are similar or of the same type.

Therefore, the plaintiff's argument is based on a different premise. (c)a. The plaintiffs argue that (i) the subject matter of the foreign-related transactions in question relates to plating chemicals produced through past research and development activities, and that it is the past research and development expenses prior to the fiscal years in question that have a causal relationship with the occurrence of the residual profits in the fiscal years in question, (ii) (ii) the R&D expenses related to the know-how of manufacturing etc. of plating chemicals which have not yet been licensed by the plaintiff (products which may be developed in the future), because the product life of plating chemicals is extremely long and different from that of products which are obsolescent in a short period of time due to repeated model changes in a certain period. On the basis that there is no rationality in treating the current R&D expenses spent for activities relating to the know-how of manufacturing, etc. of the medicinal products (products which may be developed in the future) which have not yet been licensed by the plaintiff as expenses contributing to the generation of residual profits from the sales of the products generated by the past development, the R&D expenses for the respective fiscal years in question do not contribute to the generation of residual profits for the respective fiscal years in question in the foreign-related transactions in question. It is also argued that the R&D expenses in the Relevant Business Years did not contribute to the generation of the Residual Profit in the Relevant Business Years and cannot be regarded as a factor sufficient to estimate the degree of contribution to the generation of the Residual Profit.

However, Article 39-12, Paragraph 8, Item 1 of the Enforcement Order of the Act on Special Measures Concerning Taxation stipulates that "factors sufficient to infer the degree of contribution to the generation of the relevant income". In light of the phrase "sufficient to infer the degree", it is difficult to understand that this phrase is intended to require the existence of a direct causal relationship or proportional relationship between the splitting factor and the residual profit. Therefore, in assessing the degree to which intangible assets created by past R&D activities contributed to the generation of residual profits, it is difficult to admit that treating current R&D expenses as a factor in dividing residual profits does not itself immediately satisfy the "factor sufficient to infer the degree of contribution to the generation of the relevant income" referred to above. On top of that, in light of what has been judged in a. above, even with what the plaintiff points out above, it is not enough to overturn the finding and judgment in a. above.

b. The plaintiffs have argued that the research and development costs in relation to the profits from the manufacture and sale of the plating chemicals developed in the past should be calculated by dividing the cumulative amount of research and development costs expended during the development of the plating chemicals concerned by the percentage of the total sales volume of the foreign related parties in relation to the plating chemicals concerned and the expected cumulative sales volume of the plating chemicals from the time they were introduced to the market until their exit. Since the development of the plating chemicals takes about three years and the period from the appearance of the plating chemicals on the market to their exit is not less than 20 years, which is the term of the patent, it is reasonable to assume that the development period of the product is three years and the period from the appearance of the plating chemicals on the market to their exit is not less than 20 years. It is argued that the plaintiff should calculate the amount which is a dividing factor of the plaintiff by assuming that the period of development of the product is 3 years and the period of existence after the development of the product is 20 years, and assuming that the situation relating to the development and sales of the product from year to year will be stable.

However, it is understood that the plaintiff's argument is based on the assumption that the value of the intangible asset is the value of the intangible asset after the amount of the cost of developing the intangible asset is equally divided over a certain period of time, and there is no evidence to support that it is reasonable to calculate the value of the intangible asset in this way. However, there is no general rule of thumb that an intangible asset with a shorter duration has a higher value or value than an intangible asset with a longer duration (rather However, there is no general rule of thumb that an intangible asset with a shorter duration has a higher value or value than an intangible asset with a longer duration (in fact, there is ample room to consider that the value or value of an intangible asset that is developed at great expense but survives only for a short period is lower). In this sense, too, the plaintiff's argument should be considered unreasonable. Furthermore, in this case, there is no evidence or circumstances sufficient to admit that it is reasonable to uniformly assume a development period of 3 years and a duration of 20 years for the know-how, etc. of manufacturing, etc. of the Licensed Products.

(d) a. The plaintiff believes that the customers in Taiwan are not only the technical personnel of the research and development department of the foreign related party in question, but also the engineers of the sales department with whom the plaintiff has daily contact, who provide technical services 24 hours a day, which are not provided by competitors. Therefore, not only the technical personnel of the research department of the foreign related party but also the technical services provided by the technicians of the sales department contributed to the generation of the residual profit, and only the cost of the research department of the foreign related party contributed to the generation of the residual profit. The plaintiff argues that it is wrong to treat the expenses of the R&D department of the foreign related party as the only expenses which contributed to the generation of the residual profit and to treat it as a splitting factor.

However, the plaintiffs do not allege or prove any specific details of what the plaintiffs pointed out above, which is that "engineers in the sales department provide technical services 24 hours a day, which are not provided by competitors", and in this case, the overseas affiliate in question did not provide customer support personnel with mobile phones 24 hours a day. In this case, the foreign related party has not proved any specific details of what is supposed to be "providing technical services that no competitor can provide". Therefore, the plaintiff's allegation is based on a different premise. Even if we leave this point aside for the moment, since the sales and technical support provided by the foreign related party in question (Assumption (1)(a)(c)) is taken into account as a factor in the division of the foreign related party in question (c)(ii) above), the part of the sales and technical support in question that exceeds this is not considered to be intangible assets unless there are special circumstances. In this case, too, the plaintiff points out that "the engineers in the sales department work 2-4 hours a day, which is not the case with competitors". In this case, too, there is no precise evidence or circumstance sufficient to admit that what the plaintiff points out as "the engineers in the sales department provide technical services that are not provided by competitors on a 2-hour basis" is significantly different from the sales technical services provided by other companies. Therefore, even if the provision of services related to business and technical support as described above exists, it should be considered to have already been fully evaluated when calculating the basic profit of the foreign related party in question. b. The plaintiffs argue that Z2's function is to develop products and plating processes that meet the needs of Taiwanese PCB manufacturers, and that Z2's activities are closely related to the technical sales activities of the foreign related parties, and that the two activities together provide new value to customers. It is argued that all of Z2's costs should be included in the division factor because Z2's function is to develop products and plating processes that are in line with those of the foreign affiliate, and the activities of both are closely related to the activities of the foreign affiliate's technical sales and marketing, and together they provide new value to customers and generate high profits for the foreign affiliate.

However, for the same reason as in (3)(d)(c) above, under the evidence in this case, the costs of Z2's product development activities should be included in the division factor beyond what was assessed in (3)(a) above. Therefore, the plaintiff's argument should be regarded as a different premise.

(e) Conclusion

In addition to what has been judged above, there are no circumstances, etc., which suggest that the calculation of the division factors for the plaintiff and the foreign related parties in question lacks reasonableness.

Therefore, in this case, the division factors for the plaintiff are listed in order 32 of Schedule 4, and the division factors for the foreign related parties are listed in order 36 of the same Schedule. In this case, the factors for the division of the plaintiff are listed in Order No. 32 of Schedule 4, and the factors for the division of the foreign related parties are listed in Order No. 36 of the same Schedule, and the total of these factors is the amount listed in Order No. 37 of the same Schedule corresponding to each of the fiscal years constituting this case (see also Appendix Table 1 and Appendix Table 8 of the same Schedule for the calculation process). 8 of that Schedule).

(7) Apportionment of residual profit and transfer of income in respect of the foreign-related transactions a. Residual profit attributable to the Claimant a. The sum of the residual profit referred to in (6) above (Order No. 28 of Schedule 4) and the split factors of the Claimant and the foreign-related person referred to in (6)(e) above (Order No. 37 of the same Schedule) The amount of the residual profit attributable to the plaintiff for each of the business years constituting the business year in question is the amount after multiplying the amount of the plaintiff's division factor (order number 32 of the same schedule) by the ratio of the sum of the division factors of the plaintiff and the foreign related party (order number 37 of the same schedule) as mentioned in (6)(o) above. The amount after multiplying by the percentage of (Order No. 32 of the Schedule) is the amount of the residual profit to be attributed to the Claimant for each of the business years comprising the relevant business year and is the same as the amount stated in Order No. 38 of the Schedule corresponding to each of the business years comprising the relevant business year.

(b) The arm's length price for the foreign-related transactions in question

(a) The arm's length price in relation to the Foreign Related Transactions is the sum of the costs incurred by the Claimants and the profits attributable to the Claimants (the sum of the basic profits and the residual profits), which means that the costs incurred by the Claimants in relation to the Foreign Related Transactions (the amount of cost of sales and selling, general and administrative The sum of all the expenses incurred by the Claimants in respect of the Foreign Related Transactions (the amount of the cost of sales and the amount of the selling, general and administrative expenses), the Claimants' basic profits (see (4)(e) above) and the Claimants' residual profits (see (a) above) is the same as the amount shown in Order No. 39 of Schedule 4 for each of the business years comprising the business years in question. (b) The Claimant is not entitled to receive any payment for the services rendered.

(b) The plaintiffs argue that the method of calculating the transfer price used in the application of transfer pricing taxation cannot be said to be a reasonable method based on the arm's length principle unless it can be said that the transfer price would have been calculated in such a manner if it were an arm's length transaction in light of the specific circumstances of the transaction. In this case, the arm's length price is the price at which the plaintiff can earn huge profits ranging from 1.7 times to 3.6 times the development cost spent. However, the plaintiff argues that it is impossible for a third party to conclude a transaction concerning the development activity which can obtain such a huge profit.

However, in the first place, it seems that it is almost impossible to expect that a transaction such as the license transaction in question, which is based on the comprehensive licensing of the use of the know-how of manufacturing the licensed product, which is an important intangible asset owned by the plaintiff, can be concluded between third parties or independent companies in reality. Therefore, the fact that it is impossible to conclude a transaction between third parties for the development activity which can earn a huge profit does not immediately mean that the plaintiff can earn a profit of 1.7 to 3.6 times the cost spent. It is difficult to accept that the price at which the plaintiff would be able to obtain a profit of 1.7 to 3.6 times the cost incurred is unreasonable as an arm's length price. In addition, in light of the fact that it is not unreasonable to assume that the price that would be obtained if a transaction such as the License Transaction in question, which involves the granting of comprehensive use of intangible assets, were to be concluded on an arm's length basis, would involve a higher consideration than that which would be obtained in a transaction that could be concluded in general. In light of the fact that, even with what the plaintiffs have pointed out above, it is not sufficient to overturn the fact that the arm's length price in relation to the foreign-related transaction in question, as identified in (a) above, is reasonable.

Therefore, the plaintiff's argument cannot be adopted. The amount of the transfer of income from the plaintiff to the foreign related party in relation to the foreign related transaction is the sum of the arm's length price for the foreign related transaction as set out in (a) above and the actual amount of consideration for the foreign related transaction (B8). The amount of income transferred from the foreign related party to the foreign related party in this case is deemed to be the amount after deducting the actual amount of consideration for the foreign related transaction (B8; see Order No. 3 of Schedule 4) from the arm's length price for the foreign related transaction as described in (a) above, so it is reasonable to conclude that there has been a transfer of income of the same amount in this case.

(8) Conclusion

According to the above, the Director of the East Tax Office, pursuant to the provision of Article 66-4(1) of the Act on Special Measures Concerning Taxation, with respect to the application of the provisions of the Corporation Tax Act and other laws and regulations concerning corporation tax to the plaintiff's income for each of the fiscal years in question, has determined that the foreign-related transactions in question are in violation of the aforementioned provisions. It should be said that it is legitimate for the government to have imposed the corrective actions in this case by deeming that the foreign-related transactions were conducted at arm's length price as described in (7) (a) above.

In addition to the above, according to the evidence (A-1 to A-6, B-1) and the whole purpose of the argument, it is admitted that the grounds and the legality of each of the corrective actions in this case are as described in Exhibit 6. In addition, according to the evidence (A 1 to 6, B 1) and the whole gist of the arguments, the grounds for and legality of each of the corrective actions, etc. in this case are admitted as stated in Exhibit 6, and there is no evidence or circumstance sufficient to affect this finding.

5 Conclusion

Therefore, as there is no reason for any of the plaintiff's claims, they are dismissed and the judgment is rendered as stated in the main text.

 

Tokyo District Court, Civil Division 38

Presiding Judge: Masataka Kamano

Judge Hirotaka Fukudato

Judge Yusuke Shishino

(Exhibit 1 omitted)

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