The Executive Yuan passed the draft Amendments to Some of the Income Tax Act

03/01/2013

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On 6 December 2012, the Executive Yuan passed the draft amendments to some provisions of the Income Tax Act and submitted the amendments to the Legislative Yuan for its deliberation. There are two significant aspects of the draft amendments which may affect the taxpayer which we set forth as follows:
1.	The amendments were passed in order to avoid profit-seeking enterprises reserving the surplus realized in other profit-seeking enterprises located in foreign tax shelters and not distributing it in an attempt to evade their Taiwan income tax liability. The Ministry of Finance (MOF) refers to internationally accepted CFC rules, updates the amendment of the Act and set the terms under which the amendments would apply, so that the profit-seeking enterprises will have to adjust its investment structure. Starting from the year 2015, the profit-seeking enterprises holding shares of foreign affiliates which meet the specified conditions, should be recognized as having investment income under the equity method. When the foreign affiliates distribute their earnings to the profit-seeking enterprises afterwards; the profit-seeking enterprises do not need to recognize the income and pay income tax as well so as to avoid double taxation.
2.	The amendments were passed in order to facilitate practical management within the territory of Taiwan in relation to the applicability of the tax treaties, and to prevent the use of a paper company as a the tax shelter to evade the taxing of the tax residents of the profit-seeking enterprises (i.e., onshore income and offshore income are required to pay income tax) and maintain Taiwan's tax revenue. The MOF refers to the national legislation cases and updates the amendment of Income Tax Act. Starting from the year 2015, the profit-seeking enterprises' management located within the territory of Taiwan should be regarded as Taiwan tax's residents and their profit-seeking enterprise income tax would be levied in accordance with the provisions of the Act.
If the Legislative Yuan passes the amendment of the Income Tax Act, there will be significant impact on the profit seeking enterprises in relation to their taxable income after the amendment of the Act. It is therefore advisable for the profit-seeking enterprises to plan their structure at their earliest convenience.