Ministry of Finance warns companies that using offshore CFCs without substantive operations to hide employee salary income will result in adjusted tax assessments, penalties, and individual income tax liabilities.
Taiwan’s Ministry of Finance (MoF) has released a notice 16 March 2026, outlining penalties for cases where employee salary income in Taiwan is concealed through Controlled Foreign Corporations (CFCs) that have no substantive operations.
To align with international anti-tax avoidance trends and uphold tax fairness, starting from the 2023 income tax settlement filing for profit-seeking enterprises, entities must recognise CFC investment income in accordance with Article 43-3 of the Income Tax Act.
This income is calculated based on the proportion of shares or capital held in a CFC located in a low-tax jurisdiction or region, as well as the holding period. This amount must be included in the taxable income for the current year and supported by financial statements audited and certified by a qualified accountant in the CFC’s jurisdiction or in Taiwan, or other substitute documents in lieu of such financial statements for verification.
The National Taxation Bureau of Kaohsiung, Ministry of Finance, stated that during a recent audit of Company A’s 2023 income tax return for profit-seeking enterprises, it was discovered that Company A reported substantial losses for its offshore CFC with no substantive operations. Upon reviewing the CFC’s financial statements and other submitted materials, it was found that the CFC’s losses were attributed to reported salary expenses paid to Company A’s chairperson and multiple employees.
However, investigation revealed that the actual location of service provision for these personnel was within the territory of the Republic of China. Company A is suspected of using the offshore CFC without substantive operations to conceal the salary income of employees in Taiwan and artificially inflate the CFC’s losses for that year. In addition to adjusting the CFC’s loss calculation to reflect accurate figures, regarding the concealment of salary income for employees in Taiwan, the authority ordered Company A to pay the withholding tax that should have been withheld but was not, and to file the withholding tax certificates within a specified period, in accordance with the first part of Paragraph 1, Article 114 of the Income Tax Act. A penalty was also imposed. Furthermore, individual income tax was levied on the salary income of these personnel.
The Bureau would like to remind enterprises that, to ensure the implementation of the CFC income taxation system for profit-seeking enterprises, the National Taxation Bureau conducts case selection audits on CFC matters. If enterprises have used CFCs to evade domestic tax obligations or have underreported or omitted CFC investment income, they should voluntarily file supplementary returns and pay the underpaid tax as soon as possible to avoid penalties.
