When a profit-seeking enterprise exports products, losses may arise due to changes in contractual terms resulting from international economic conditions, shipment delays, damage during transportation, or other factors. In such cases, the enterprise should retain relevant supporting documents and evidence to facilitate the tax authority’s examination and determination of the losses.
The National Taxation Bureau of Kaohsiung, Ministry of Finance (hereinafter referred to as the Bureau) explained that, pursuant to Article 94-1 of the Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax, where a profit-seeking enterprise engaged in export business suffers losses or reduced revenue due to the cancellation or changes of a sales contract, incurs compensation liabilities as a result of a breach of contract, sustains accidental losses caused by force majeure, or suffers losses during transportation, such losses shall be recognized upon verification, provided that they are substantiated.
With respect to the recognition of export losses, the enterprise shall submit, in addition to the sales contract (which should specify the purchase terms and conditions and the allocation of losses), documents relating to claims made by foreign importers, and supporting documents issued by a foreign notary public or inspection agency sufficient to substantiate the losses. Depending on the method of compensation, the enterprise shall also provide the following documents, as applicable:
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Where compensation is paid in foreign currency, enterprises that have settled the foreign exchange through a bank shall provide supporting documents evidencing the foreign exchange settlement. Where no foreign exchange settlement has been made, supporting documents evidencing the bank remittance or transfer shall be provided.
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Where there is supplementary shipment or exchange of exported goods, a copy of the export declaration issued by Customs or a copy of the international parcel receipt issued by the postal authority shall be submitted.
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Where compensation is paid in New Taiwan Dollars (NT$), a receipt issued by the foreign importer shall be provided in advance.
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Where compensation is made by way of foreign exchange reduction, supporting documentation shall be provided.
However, where the amount of export loss per case is less than NT$900,000, the requirement for documentation issued by a foreign notary or inspection agency may be waived.
The Bureau provides the following example: Company A reported NT$6,000,000 in export sales discounts in its 2023 profit-seeking enterprise income tax final return. However, upon audit, it was found that Company A agreed with the buyer to reduce the price due to delayed shipment, which falls within the scope of foreign sales losses. Pursuant to the aforementioned provisions, Company A is required to submit the sales contract, settlement agreement, foreign importer’s claim and compensation documentation, and other supporting evidence, all of which must be verified by a foreign notary public or inspection agency. Since the company was unable to provide the required documents, the claimed foreign sales loss was disallowed and not recognized.
The Bureau would like to remind profit-seeking enterprises engaging in foreign sales business to attach supporting documents prescribed by law when reporting foreign sales losses, so as to avoid disallowance of such losses and the resulting assessment of additional taxes. If you have any questions, please call the toll-free service hotline at 0800-000-321 for assistance, or visit the Bureau’s website (https://www.ntbk.gov.tw) to make an online inquiry using the National Tax Administration’s smart customer service tool, “National Tax Assistant”.
Provided by: Profit-Seeking Enterprise Income Tax Section
Contact person: Section Chief Kuo Ming-yueh Telephone: (07)725-6600 Ext.7170
Written by: Su Yi-hua Telephone: (07)725-6600 Ext.7135