Taiwan’s National Taxation Bureau of the Northern Area (NTBNA), under the Ministry of Finance,stated that, if a company borrows money to pay interest on the one hand, but does not charge interest on the loan money on the other hand, or the interest charged is lower than the interest paid, according to the provisions of Article 97 of the Regulations Governing Assessment of Profit-seeking Enterprise Income Tax, the interest equivalent to the loan payment or the difference thereof shall not be recognised.
This guidance was published in a notice yesterday, 14 October 2024.
The Bureau explained using an example: Company A borrowed TWD 280 million from financial institutions in 2021, with a borrowing interest rate of 2％, and reported interest expenses of TWD 5.6 million in the profit-seeking enterprises income tax settlement declaration. After investigation, Company A loaned TWD 7.9 million to Shareholder A in the same year without charging interest. According to regulations, the interest payment equivalent to the loan amount of TWD 7.9 million should be reduced by TWD 158,000（TWD 7.9 million * 2％）.
The Bureau would like to specifically remind companies that if they borrow funds to pay interest and then lend the funds to others without charging interest or charging low interest, when handling the income tax settlement declaration for profit-seeking enterprises, they should reduce the interest expenses on their own in accordance with the law to avoid adjustment and tax repayment.
