The National Taxation Bureau of the Northern Area (NTBNA), MOF, stated that, pursuant to Article 6 of the Regulations Governing Application of Recognizing Income from Controlled Foreign Company (hereinafter referred to as CFC) for Profit-Seeking Enterprise, the calculation of a CFC’s current-year earnings is, in principle, based on the controlled foreign company’s net profit (or loss) after tax of the current year as per the Financial Accounting Standards endorsed by the Republic of China. However, considering that invested enterprises in “non-low-tax jurisdictions” may need to retain part of their operating funds for future investment needs, and that such retention is not motivated by tax avoidance, the regulations allow some flexibility. Specifically, investment income (or loss) recognized under the equity method from invested enterprises in “non-low-tax jurisdictions” may be listed as deductible items from the CFC’s current-year earnings. These amounts will instead be included in the CFC’s current-year earnings when the invested enterprise actually distributes its profits.

For example, Company X reported, in its year 2023 profit-seeking enterprise income tax return, the current-year earnings of its CFC Company A, which it directly holds 100%, in the amount of NT$5 million (New Taiwan Dollars; same below) (= CFC’s current-year after-tax net profit of NT$20 million − investment income (or loss) of NT$15 million recognized under the equity method from invested enterprises in non-low-tax jurisdictions), which met the NT$7 million de minimis exemption threshold. Upon examination, it was found that CFC Company A held 100% of Company B in the low-tax jurisdiction of Samoa, and through Company B further invested 100% in Company C in a non-low-tax jurisdiction in Mainland China. When Company X reported the investment income from invested enterprises in non-low-tax jurisdictions recognized under the equity method, it made a mistake to calculate the amount based on the after-tax net profit of NT$15 million shown in the financial statements of Company B in Samoa (a low-tax jurisdiction), which was inconsistent with the aforementioned regulations. Therefore, the amount was recalculated based on the after-tax net profit of NT$10 million of Company C in Mainland China (a non-low-tax jurisdiction). As a result, Company X’s CFC current-year earnings were reassessed as NT$10 million (= current-year after-tax net profit of NT$20 million − investment income (or loss) of NT$10 million recognized under the equity method from invested enterprises in non-low-tax jurisdictions). Since the CFC’s current-year earnings exceeded NT$7 million, the de minimis exemption threshold was not met. Accordingly, Company X’s CFC investment income was increased by NT$10 million, and additional tax of NT$2 million was assessed.

The Bureau would like to specifically remind profit-seeking enterprises that when reporting CFC investment income, they should pay attention to the above regulations to avoid adjustments and additional tax assessments due to errors in filing the income tax return, which may affect their own rights and interests. Profit-seeking enterprises that still have questions may visit the website of NTBNA to inquire about the relevant laws or call the toll-free service number 0800-000321 for detailed consultation services.

〔Contact person：Ms. Liu, Section Head of Profit-Seeking Enterprise Division.; Tel：(03)3396789, ext. 1350〕