The National Taxation Bureau of the Northern Area, MOF, stated that it has strengthened audits of Controlled Foreign Corporation (CFC) cases for the year 2023 on profit-seeking enterprise income tax filings within its jurisdiction. The audits aim to verify whether the reported CFC met the requirement for substantive activities or the de minimis exemption threshold.

The Bureau provides the following example: Company A declared that it held 100% of the shares of a CFC, reporting the CFC’s annual profit of NT$1.5 million (calculated as net profit after tax of NT$60 million - NT$58.5 million in investment income derived from invested enterprise located in non-low-tax jurisdictions recognized under the equity method × 100% ownership). Since the reported profit was below the NT$7 million de minimis threshold, there was no need to calculate the investment income of the CFC. However, upon review of the financial statements of the CFC and its invested enterprise, the Bureau found that Company A had incorrectly reported investment income derived from invested enterprise of NT$58.5 million from the CFC’s financial statements. According to Article 6 of Regulation Governing Application of Recognizing Income from CFC for Profit-Seeking Enterprise, the investment income derived from invested enterprise was NT$10 million, which was the net profit (or losses) after tax and other comprehensive income (or loss) items included in the undistributed surplus earnings of the current year of the invested enterprise from the invested enterprise’s financial statements. Thus, the Bureau recalculated the CFC’s annual profit as NT$50 million (=net profit after tax of NT$60 million − NT$10 million in investment income derived from invested enterprise located in non-low-tax jurisdictions recognized under the equity method × 100% ownership). Because the CFC’s annual profit exceeded the NT$7 million de minimis threshold, the Bureau adjusted Company A’s investment income of CFC upward to NT$50 million.

The Bureau would like to especially remind profit-seeking enterprises that they may calculate a CFC’s investment income derived from invested enterprises located in non-low-tax jurisdictions recognized under the equity method base on the financial statements of those invested enterprises. If there are any questions, please visit the website of NTBNA  to inquire about the relevant laws or call the toll-free service number 0800-000321 for detailed consultation services.
News contact: Ms. Liu, Head, Profit-seeking Enterprise Income Tax Devision.

〔Contact person：Ms. Weng, Profit-seeking Enterprise Income Tax Devision；Tel：（03）3396789, ext. 1350〕