Recently, southern Taiwan was struck by torrential rains. Some profit-seeking enterprises located in low-lying areas suffered from flooding that resulted in the premature destruction or scrapping of machinery and equipment within their factories, even though the assets had not yet reached their prescribed service life. The National Taxation Bureau of the Southern Area, Ministry of Finance, stated that in accordance with Article 57 of the Income Tax Act, enterprises may provide supporting documents to claim the undepreciated book value of the fixed assets as a loss for the year.

The Bureau further explained that, pursuant to Subparagraph 10, Article 95 of the Regulations Governing Assessment of Profit-seeking Enterprise Income Tax, acceptable documentation for the scrapping of fixed assets before the end of their prescribed service life includes either an audit report issued by a certified public accountant regarding disaster losses or an annual income tax return audited and certified by a certified public accountant, together with relevant supporting documents (e.g., photos taken before and after the scrapping, receipts for the sale of scrap materials, etc.); or documents issued by the competent authority confirming the supervised destruction of the fixed assets, listing the names, quantities, and values of the assets destroyed. If such documents cannot be obtained, the enterprise must file for prior approval from the tax authority before scrapping the assets, and the undepreciated book value may then be recognized as a loss for the fiscal year.

The Bureau provides the following example: In its 2022 annual income tax return, Company A reported a fixed asset disposal loss exceeding NT$10 million for factory buildings and machinery. Upon investigation, the loss resulted from the relocation of its business premises, which led to the dismantling and disposal of factory buildings and machinery that had not yet reached their prescribed service life. However, because Company A neither applied to the tax authority for prior approval before scrapping the assets nor provided supporting documents such as before-and-after photos, records of the clearing process, and receipts for the sale of scrap materials, the tax authority disallowed the claimed loss in accordance with Subparagraph 10, Article 95 of the Regulations Governing Assessment of Profit-seeking Enterprise Income Tax.

The Bureau would like to remind profit-seeking enterprises that if fixed assets are destroyed before reaching their prescribed service life as stipulated in the Table of Service Life of Fixed Assets due to specific incidents, proper supporting documents must be retained. Furthermore, if any income is derived from the disposal of such materials, it must be duly reported as revenue to avoid penalties for omitting or underreporting income.

Press Release Contact: Mr. Chen
Profit-seeking Enterprise Income Tax Division
TEL: 06-2223111 ext.8046