According to the Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax Article 99 Subparagraph 2 “Investment loss should provide prove on capital reduction to cover losses, merger and acquisition, bankruptcy or liquidation. However, if the invested business located in a foreign country and did not participate in any actual operating activities, company should provide related documents on the business, which engaged in actual operating activities and caused losses to the invested enterprise due to business losses, that the enterprise shifted its investment to. The mentioned documents should be verified or certified by Taiwan Embassy, Commercial Representative Office or Foreign Trade Organization. For those in Mainland China, documents should be verified or certified by the organization managing issues on people’s relations between Taiwan and Mainland China, which was appointed by the Mainland Affairs Council ROC (Taiwan) of Executive Yuen.”
For example, “Taiwan Company One” reported a more than 739 million New Taiwan dollar (TWD) realized investment loss in the 2018 Profit-Seeking Enterprise Income Tax settlement declaration. In fact, “Taiwan Company One” shifted its investment 100% to “Company A”, registered in Cayman Islands. Then “Company A” shifted its investment 100% to “Company B”, registered in Samoa Islands, which “Company B” invested in “Company C”, established in Dongguan, China. “Taiwan Company One” attached the notarized meeting minutes of “Company A & B” by Taiwan, regarding the resolution by single shareholder on capital reduction to cover losses, as a prove for investment loss report.
However, as mentioned above, “Company A & B” did not engage in actual operating business activities, therefore, “Taiwan Company One” should have provided the evidence showing the losses of “Company A & B” were caused by business losses of “Company C”, which “Company B” shifted its investment to. In view of “Company C” was based in Mainland China, the mentioned record should be verified by the organizations handling issues related to people’s relations between Taiwan and Mainland China, appointed by the Mainland Affairs Council ROC (Taiwan) of Executive Yuen. Since “Taiwan Company One” failed to show the prove, the investment losses therefore were denied, and the Profit-Seeking Enterprise Income Tax was levied. Profit-Seeking Enterprise should be aware of it.
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