Newsletter
NEW RULES ON TAX TREATY IMPLEMENTATION
On 26 April 2007, the Ministry of Finance (MOF) issued a ruling to clarify two issues. The first is whether a Taiwan trust fund may apply with the National Tax Administration (NTA) for a Cer-tificate of Residency which is required for the trust fund to apply with the tax authorities of a country with which Taiwan has executed a treaty for the avoidance of double taxation (Tax Treaty) for the entrustment to the treatment prescribed under the Tax Treaty. The second issues is the process and criteria for a foreign institutional investor (FINI) incorporated in a country which has executed a Tax Treaty with Taiwan (Treaty Country) to apply with the Taiwan tax authorities for applying the reduced tax rates provided under that Tax Treaty with respect to the dividends and interest received.
With regard to the issuance of a Certificate of Residency to a Taiwan trust fund, the MOF stated in its ruling that the beneficiary of the trust is liable for the tax for the income received from the trust. A trust enterprise or securities in-vestment trust enterprise acting on behalf of its trust fund beneficiaries, may therefore submit the registrations of its fund beneficiaries to the NTA in applying for a Certificate of Residency for each fund.
With regard to the process and criteria for a FINI to enjoy the reduced tax rates provided under Tax Treaty, the MOF stated in its ruling that where a FINI, which was incorporated in a Treaty Country, invests in Taiwan securities in accordance with the Regulations Governing Securities Investments by Overseas Chinese and Foreign Nationals, whether the FINI is registered as a fund or is a party to a consignment trading contract, discretionary trading contract, or a trust agreement with a resident of a Treaty Country, because it is not the beneficiary of dividends or interest generated from the securities invest-ments that it made on behalf of the principal or from managing trust funds for others, unless the relevant Tax Treaty expressly provides that a fund, trust, or trustee is to be treated as the beneficiary of said dividend or interest, the FINI is not entitled to enjoy the reduced tax rates. Instead, the reduced tax rates are applicable only to the dividends or interest distributed to a bene-ficiary with resident status in a Treaty Country.
If tax was withheld at the regular rate upon such dividends or interest, and the tax collection au-thorities subsequently approve the application of the reduced tax rates provided under a Tax Treaty, then the FINI's fixed place of business, or designated agent or representative within Taiwan, may apply with the local office of the NTA, for the refund of the over-withhold tax paid within that region. The amount refundable would be the total amount of tax withheld, less the amount equivalent to the tax calculated at the reduced tax rates provided under the Tax Treaty. An appli-cation for said tax refund should be filed within five years after the date of withholding income tax.