Josephine Peng
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On 9 August 2012, the Ministry of Finance (MOF) issued a directive (Reference No. Tai-Cai-Shiu-Zi-10100515180) to explain whether a payment for using an online database provided by a foreign company should be deemed income sourced from the Republic of China (ROC). The key points of the directive are as follows:
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1.
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A payment made by an ROC user to a foreign online data company falls into the category of "business profits" under Paragraph 9, Article 8 of the Income Tax Act, provided that:
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(i) |
the foreign company's core business is the provision of online database containing periodicals, books, theses, indexes, catalogs, summaries and statistical data for users to search and retrieve specific data/information therefrom;
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(ii) |
users are allowed to, within a reasonable scope, download, store, and print out information from the online database for personal usage only; and
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(iii) |
users are not allowed to use the online database for any commercial usage which may violate copyright, including reproducing, distributing, editing, or revising the data/information contained in the on-line database.
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2.
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If the aforementioned foreign company has no fixed place of business or business agent in the ROC and conducts all its businesses/transactions outside of the ROC, the payments that it receives from users in the ROC are not considered ROC-sourced income, pursuant to Paragraph 2, Article 10 of the "Guidelines for Determining ROC-sourced Income Under Article 8 of the Income Tax Act" ("Guidelines").
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3.
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If some of the aforementioned foreign company's business activities are conducted in the ROC, or require the participation and assistance of any individual or business entity within the ROC, the payments that this foreign company receives from users in the ROC shall be deemed ROC-sourced income. Accordingly, the ROC users, being the statutory tax withholder, should withhold income tax upon making payments to the foreign company. In addition, if the foreign company provides the tax authorities with documentation clearly separating the services provided in the ROC from those provided outside of the ROC, the tax authorities will determine and calculate the amount of ROC-sourced income (i.e., business profits attributable to the activities conducted within the ROC) in due course.
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4.
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For any ROC user who failed to withhold income tax upon making a payment to a foreign company even though the payment is deemed ROC-sourced income, the ROC user should voluntarily pay the tax owed and interest payable and file a withholding tax statement with the tax authorities on or before 31 December 2012. By doing so, the fine for failing to withhold income tax upon making the payment will be remitted.
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