On 12 August 2021, Taiwan’s Ministry of Finance has announced the amendments to the “Regulations Governing Application of Agreements for the Avoidance of Double Taxation with Respect to Taxes on Income”. The amended regulations have come into effect since the date of the announcement. The amendments are prescribed below:

Principal purpose test (PPT)

Clarify applying the Principal Purpose Test (PPT) as a general rule when dealing with a treaty-abuse case. A tax collection authority in charge may collect relevant facts and circumstances of tax cases applying for benefits provided by Taiwan’s Income Tax Agreements. In the case that such authority-in-charge reasonably concludes, having regard to all relevant facts and circumstances, that one of the principal purposes of the related transaction or arrangement is to obtain a treaty benefit directly or indirectly, and that the granting of that treaty benefit in that situation is not in line with the intended purpose provided by the applicable provisions of the Income Tax Agreement, the PPT provision under the applicable Income Tax Agreement or relevant provisions under the Taxpayer Rights Protection Act shall be applied.  The inclusion of this rule ensures that Taiwan will fulfill its commitments on implementing the minimum standard of the BEPS Action 6 for preventing the granting of treaty benefits in inappropriate circumstances.

Tax residents for treaty purposes

Taiwan’s “organization or institution, which is established for educational, cultural, public welfare or charitable purposes,” “government agency,” and “entity that is held or controlled by the government and meets the relevant requirements,” etc. are Taiwan’s tax residents for treaty purposes.  They are eligible to apply for benefits provided by an Income Tax Agreement.

Permanent establishment (PE)

When determining whether there is a fixed place of business under the concept of a PE, the Regulations denotes that a particular location within which the activities are moved would be required to be identified as constituting a coherent whole commercially and geographically with respect to its associated business activity.  This inclusion in the Regulations reduces relevant disputes from being raised.