Businesses that waive part of a claim in a settlement may report the uncollectible amount as a bad debt loss in the year the court approves the settlement, provided they hold a mediation certificate, the National Taxation Bureau of Taipei has said.
Taiwan’s National Taxation Bureau of Taipei, under the Ministry of Finance, has clarified that an enterprise may report a bad debt loss in the year a court approves a settlement with a debtor who is unable to repay, not in the year the mediation is reached.
The Bureau said the treatment applies when the two parties settle and the enterprise waives part of its claim. The enterprise must have obtained a mediation certificate, and the court must have approved the settlement.
Under Article 94, Subparagraph 7 of the Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax, a claim that becomes uncollectible through a settlement may be recognised as a bad debt loss only if the enterprise obtains the relevant supporting documents.
For settlements reached through the courts, including pre-bankruptcy court settlements and settlements reached in litigation, a court settlement record or ruling is required.
The Bureau also pointed to Article 27 of the Township and County-Administered City Mediation Act. Under that provision, a mediation settlement reached through a township, city or district mediation committee and later approved by the court has the same legal effect as a final civil judgment.
Therefore, if an enterprise settles through a mediation committee and the court subsequently approves the settlement, making part or all of a claim uncollectible, the enterprise may treat the resulting loss as a bad debt loss actually incurred.
The Bureau stressed that the loss must be reported in the year the court approves the settlement. If any portion of a previously reported bad debt loss is later recovered, the recovered amount must be reported as other income subject to tax in the year of recovery.
The Bureau reminded enterprises to prepare the supporting documents and to confirm the year of court approval before filing. Reporting the loss in the wrong year could lead the tax authority to disallow the deduction and assess additional tax.
This announcement was made on 30 September 2026.
