The unrealized interest compensation of convertible bonds can't be recognized as taxable expenses
The National Taxation Bureau of Northern Area (NTBNA), M.O.F. indicated that in accordance with the Regulation Governing Assessment of Profit-seeking Enterprise Income Tax, unrealized expenses and losses are not recognized except those which have been regulated in the Income Tax Act, the aforementioned regulation, and other laws or those approved by projects of the M.O.F.
NTBNA indicated that company A was found declaring interest expenses
which included convertible bond interest compensation amounting to 40
million NTD when NTBNA reviewed its Profit-seeking Enterprise Annual
Income Tax declaration of 2015.
of company A were
adjusted by NTBNA,
and the company shall compensate for tax amounting to 7 million
NTD.The NTBNA further explained that when a company issues
convertible bonds, investors will be granted the right to convert the
bonds into stocks. In addition to paying principal and coupon
interest, the company shall also give interest compensation to its
investors when investors exercise the put option or the company
the bonds. However, the interest compensation recognized by the
interest rate during the period from the date of issue to expiration
option is classified as an
expense, which is not allowed to be recognized as taxable expenses.
If you have any questions, visit our website (https://www.ntbna.gov.tw) to refer to related regulations, or dial our toll-free number 0800-000321. We are pleased to answer your questions.