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TAX FILING FOR ENTERPRISES FROM TAX TREATIES COUN-TRIES
In an interpretation dated 11 January 2007, the Ministry of Finance stated that if a foreign en-terprise of a country that has concluded a double taxation agreement (DTA) with Taiwan (a) has a permanent establishment within Taiwan, (b) has income from an ROC source, and (c) complies with the provisions of the relevant DTA regard-ing operating profits, then the operating profit attributable to the permanent establishment should be calculated and the tax payable should be assessed according to the following rules:
‧Calculations of operating profit attributable to a permanent establishment:
1.The permanent establishment should be treated as if it were an independent enter-prise conducting identical or similar busi-ness activities under identical or similar conditions, and trading with the foreign enterprise in an entirely independent man-ner, and the profit attributable to the per-manent establishment should be calculated in accordance with the Regulations Gov-erning Assessment of Profit-Seeking En-terprise Income Tax on Non-Arm's Length Transfer Pricing. But if the foreign enter-prise attributes all of its profit from the sale of goods or services within Taiwan to the permanent establishment, then the Regula-tions' provisions on the production of documents evidencing transfer pricing do not apply.
2.If, pursuant to DTA provisions regarding business profits, the foreign enterprise as-serts the right to deduct costs incurred for business purposes by its permanent estab-lishment, such deduction should be made in accordance with the Income Tax Act, the Guidelines for Examination of Profit-seeking Enterprise Income Tax, the Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's Length Transfer Pricing, and other relevant regulations.
‧Tax assessment methods:
1.If the permanent establishment is a fixed place of business within the meaning of Article 10 of the Income Tax Act, it should file a final income tax return in accordance with Article 71 of the Act. If it is a business agent within the meaning of Article 10, it should file a tax return and pay taxes in accordance with Article 73 Paragraph 2. In either case, the permanent establishment may deduct its costs incurred for business purposes, in accordance with the provisions of the relevant DTA.
2.If the permanent establishment is not a permanent place of business or business agent within the meaning of Article 10 of the Income Tax Act:a.If the remuneration obtained by the foreign enterprise falls within any of the income categories subject to tax withholding at source under Article 88 of the Income Tax Act, and a tax withholder has withheld tax at the pre-scribed withholding rates in accordance with Article 73 Paragraph 1 of the Act (e.g. as "other income"), then if the enterprise wishes to deduct its domestic and overseas business costs in accor-dance with the relevant DTA, after obtaining the approval of the tax col-lection authority, it should engage an individual resident in the ROC, or a for-profit enterprise having a fixed place of business in the ROC, as its tax agent, to be responsible for filing and paying taxes on its behalf, and it may deduct from its tax liability the amount of tax already withheld at source.
b.If the remuneration obtained by the foreign enterprise does not fall within any of the categories of income subject to tax withholding under Article 88 of the Income Tax Act (e.g. income from the sale of assets), the enterprise should similarly engage a tax agent, to be re-sponsible for filing and paying tax on its behalf, and it may deduct its do-mestic and overseas business costs in accordance with the provisions of the relevant DTA.