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According to Paragraph 1, Article 10 of the Statute for Industrial Innovation (the "SII"), to stimulate industrial innovation, a company can credit up to 15% of its expenditure invested in research and development against profit-seeking income tax of the current taxable year, but only up to 30% of its income tax payable for the current taxable year. The Ministry of Economic Affairs and the Ministry of Finance announced the Guidelines Governing Corporate Research and Development Expenditure Qualifying for Investment Tax Credit (the "Guidelines") on 8 November 2010, and which became effective on 1 January 2010.
To minimize disputes between corporate taxpayers and the tax authorities over whether the companies' activities are to promote research and development, and whether the activities meet the definition of research and development under the SII, Article 12 of the Guidelines provides the methods for confirmation. Beginning three months before the day profit-seeking income tax returns for the current taxable year can be submitted until one month after the deadline for submission, taxpayers should file the documents specified in Paragraph 1 of Article 12 with the central government authorities in charge of reviewing the research and development activities in the current taxable year to determine incentive qualification under Articles 2 and 3 of the Guidelines. The professional opinions of the central government authorities are expected to help minimize disputes.
When preparing profit-seeking income tax returns for the current taxable year, companies should declare the research and development expenditure on the official form and attach the documents required by Paragraph 1 of Article 12, and submit the entire set of documents to the local tax collection authorities having jurisdiction where the companies are located for determining the investment tax credit amount.
