Taiwan's Ministry of Finance reminded enterprises on 4 August 2026 that deferring unrealized FVPL gains and losses from CFC holdings must be applied consistently across all directly held CFCs and backed by a CPA audit report, warning that a lapse locks a company out of the deferral for 10 years, as seen in a case that cost one enterprise TWD 18.2 million. 

RF Report

Taiwan’s Ministry of Finance, in a notice on 4 August 2026, has reminded enterprises that elect to defer the recognition of unrealized gains and losses from fair value through profit or loss (FVPL) financial instruments held by their Controlled Foreign Companies (CFCs) to apply the method consistently across all directly held CFCs and provide the required supporting documentation, including a CPA audit report.

The Bureau explained that, according to Paragraphs 1 and 3 of Article 7 of the Regulations Governing Application of Recognizing Income from Controlled Foreign Company for Profit-Seeking Enterprise, when calculating the current-year earnings of a CFC in which it directly holds shares or capital, a profit-seeking enterprise may choose to defer the recognition of changes in the fair value of FVPL held by the CFC. Once this method is chosen, it cannot be changed.

When the FVPL is actually disposed of or reclassified, the adjustment amount for the disposal or reclassification (namely, the fair value on the transaction date minus the original acquisition cost) will be included in the CFC’s current-year earnings in the year of disposal or reclassification. However, when choosing to defer the recognition of FVPL, a profit-seeking enterprise must disclose this election and provide the necessary documents for verification by the tax authorities during tax filing and investigations, as required.

The Bureau provided the following example: Company C declared two CFCs, Company A and Company B, for the 2023 taxable year. When calculating the current-year earnings of Companies A and B, Company C claimed deductions for unrealized FVPL valuation gains of TWD 28 million and TWD 63 million, respectively.

During the National Taxation Bureau’s tax audit, Company C failed to provide a certified public accountant’s audit report on the holding, measurement, and disposition of the financial instruments of the CFCs, as required. As a result, Company C was disallowed from applying the deferred recognition provisions for FVPL valuation gains and losses and was assessed additional tax of NT$18.2 million.

The Bureau also reminded profit-seeking enterprises that, if they choose to defer the recognition of FVPL valuation gains and losses for their CFCs, they must use the same method for all directly held CFCs, and the method cannot be changed once chosen.

If, in the future, the same calculation method is not used or the required documents are not provided within the prescribed deadline, the enterprise will be disqualified from applying the deferred recognition provisions for FVPL valuation gains and losses for 10 years from that year. In addition, the accumulated gain and loss adjustments must be included in the current-year earnings. While benefiting from tax deferral, companies should ensure compliance with the relevant regulations to protect their rights and interests.