Newsletter
TAX TREATMENT OF GOV-ERNMENT SUBSIDIES
It has been the long-standing view of the tax authorities in Taiwan that when a profit-seeking enterprise calculates its taxable income in accordance with Article 24 of the Income Tax Act, it should include any government subsidies received in the same year. In a ruling dated 22 October 1991, the Ministry of Finance (MOF) stated, with specific reference to government special-program subsidies and incentives to fi-nance the purchase of industrial equipment, that such subsidies form part of total annual income, and that therefore, pursuant to Article 24 of the Income Tax Act, they should be included in the total income for the year in which they are re-ceived. The MOF reiterated the same view in another ruling dated 12 July 1997.
However, in an interpretation dated 23 August 2004, the MOF changed the view expressed in the above two rulings. In its new interpretation, the MOF stated that if a profit-seeking enterprise receives subsidies or incentives under a special program and uses them to purchase or construct depreciable fixed assets or to acquire additional equipment to expand production capacity, then for the purposes of calculating its taxable income, the enterprise may declare the subsidy as income divided equally over the years of the service life of such fixed assets or equipment, while their depreciation, calculated in accordance with Ar-ticle 51 of the Income Tax Act, should be de-clared as costs. The MOF also stated that the relevant parts of its two previous rulings cease to have effect.