Taiwan’s Ministry of Finance issued Ruling No. 10604557490 on 6 June 2017, providing clarification to the proposed controlled foreign company (CFC) regulations which was issued on 9 November 2016.
According to the proposed CFC rules, Taiwanese company will be obliged to include its pro rata share of the income of the CFC in its taxable income if the company and its related parties directly or indirectly hold more than 50% of the shares of a company located in a low tax jurisdiction or control the operations of the CFC.
Jurisdictions with a corporate income tax rate lower than 11.9% are considered as low-tax jurisdictions and the ruling clarifies that 11.9% is the statutory tax rate.
According to the proposed regulation issued last year, Taiwanese companies are required to submit their CFC’s financial statement certified by a CPA of the CFC’s local jurisdiction when filing the Taiwan tax return to clarified its income from the CFC. However, the Ruling would accept uncertified financial statements or the equivalent, if their precisions can be proved by other ways and also approved or acknowledged by the local tax collection offices.
The tax bureau of Gao Xiong of the Ministry of Finance issued a declaration that interest on the recovery of tax payables due to the incorrect declaration of costs, expenses or losses and interest on tax payments due to the rejection in an administrative complaint process are deductible for income tax purposes. Though, the penalties for late tax payments and other violations may not be considered expenses and are non-deductible in determining taxable income.
The draft amendment to the tobacco and alcohol tax law has been passed at a joint meeting of the Finance Committee and the Social Welfare and Environmental Health Committees of the Legislative Yuan on 13th March 2017. The main provisions of the amendment are given below.
- Tobacco tax is planned to be increased from TWD 590 to TWD 1,590 per 1,000 cigarettes or per kg of other tobacco products.
- The increased tax is planned to be allocated to a special fund set up in accordance with the Long-term Care Service Law, which is used for long-term care services, and would not be included in the normal financial revenue and expenditure account.
Tobacco tax currently contains 48% of the tobacco price, deviating widely from the 70% that is recommended by the World Health Organization (WHO).
The National Tax Office of the Central Region issued an announcement on 7 February 2017 regarding withholding tax on interest from short-term commercial papers. According to the announcement, a 10% withholding tax is applies on the gross amount paid on interest to a non-resident enterprise with a permanent place of business in Taiwan. The same rate is applies to the interest payment to a legal entity or an organization of mainland China with a fixed place of business or representative in Taiwan.
Taiwan is scheduling to modify its tax collection law to accommodate the exchange of tax information with other countries or jurisdictions (i.e. United States and China (People’s Rep.). Accordance with a spokesman of the Ministry of Finance (MoF), a proposal to revise the act will be presented by the MoF to the Cabinet for review in 2 weeks. Taiwan has signed 32 tax agreements with other countries and jurisdictions that include a provision on exchange of information but still does not have an applicable tax agreement with China (People’s Rep.) and the United States.
The Income Tax Agreement of 2016 between Poland and Taiwan has been ratified through Law No. 2244 by Poland on 15th December 2016 and published in the Official Journal on 29th December 2016.This treaty applies for avoiding double taxation.
The United States and Taiwan signed a Foreign Account Tax Compliance Act (FATCA) Agreement, on 22 December 2016.
The US-Taiwan intergovernmental agreement (IGA) is based on the Model 2 Agreement which can be implemented where there is no tax information exchange agreement or double tax convention. Accordingly, financial institutions in Taiwan are required to report directly to the US Internal Revenue Service (IRS). This requirement is supplemented by the exchange of information upon request.
Article 11(1) of the US-Taiwan IGA provides that the IGA will enter into force on the date of Taiwan’s written notification to the United States that Taiwan has completed its necessary internal procedures for entry into force of the IGA.