Taiwan’s Northern Tax Bureau has clarified that profit-seeking firms cannot deduct CFC gains and losses from low-tax jurisdictions.
Taiwan’s Northern National Taxation Bureau of the Ministry of Finance has reminded profit-seeking enterprises that when calculating Controlled Foreign Corporation (CFC) annual earnings, investment gains or losses originating from “low-tax jurisdictions” cannot be deducted.
This announcement was made on 22 January 2026.
According to Article 6 of the Regulations Governing the Recognition of Income of CFCs by Profit-Seeking Enterprises, the calculation of CFC annual earnings is generally based on after-tax net income determined under Taiwan’s recognised financial accounting standards.
However, to account for reinvestment needs in “non-low-tax jurisdictions,” investment gains or losses recognised under the equity method from reinvested enterprises in such jurisdictions may be deducted, provided they are not retained for tax avoidance purposes. These amounts are only included in CFC annual earnings once the reinvested enterprise actually distributes its profits.
Case Example
The Bureau provided an example: Company A, in its 2023 corporate income tax filing, reported the annual earnings of its wholly owned CFC A as TWD 5 million (calculated as CFC’s after-tax net income of TWD 20 million minus TWD 15 million in investment gains recognised under the equity method from a reinvested enterprise in a non-low-tax jurisdiction).
This met the TWD 7 million de minimis exemption threshold.
Upon review, however, it was found that CFC A had invested through its wholly owned subsidiary B in Samoa (a low-tax jurisdiction), which in turn wholly owned subsidiary C in Mainland China (a non-low-tax jurisdiction).
When Company A reported the investment gains of CFC A, it mistakenly used the after-tax net income of TWD 15 million from subsidiary B in Samoa.
This did not comply with the regulations.
The correct calculation should have been based on subsidiary C in Mainland China, with an after-tax net income of TWD 10 million. Accordingly, Company A’s CFC annual earnings were recalculated as TWD 10 million (TWD 20 million after-tax net income minus TWD 10 million investment gains from the non-low-tax jurisdiction). Since the CFC’s annual earnings exceeded TWD 7 million, the exemption threshold was not met. Therefore, Company A’s CFC investment income was increased by TWD 10 million, and an additional tax of TWD 2 million was levied.
The Bureau reminds businesses that when reporting CFC investment income, they must carefully observe the above rules to avoid errors that could result in tax adjustments and additional assessments, thereby affecting their rights and interests.
