National Taxation Bureau of the Northern Area, Ministry of Finance stated that, according to the International Financial Reporting Standards （IFRS）, the income obtained by a company exercising the right of disgorgement under Article 157 of Securities and Exchange Act essentially constitutes income attributable to equity claim holders and should be recognized as additional paid-in capital. However, for filing of tax returns and payment of tax, these incomes should be reported as other income in the year when the company exercises the right of disgorgement.

The NTBNA explains that, in the event that any director, supervisor, managerial officer, or shareholder holding more than 10 percent of the shares of a stock issuing company sells listed stock of the company within six months after acquiring it, or repurchases listed stock of the company within six months after selling it, the company shall claim for the disgorgement of any profit realized therefrom. When the company files tax returns and payment of tax, the income from the right of disgorgement attribution year for tax reporting should be determined by the date when the company exercises the right of disgorgement. But, if the company can provide concrete evidence that necessary measures to exercise the right of disgorgement have been take but the realization of such income is still unachievable, it may temporarily defer reporting the income until receiving it.

The NTBNA provides the following example: In 2021, Manager A of Company X, upon learning of positive news regarding Company X’s stock price, engaged in short-term trading of Company X’s stock, earning NT$360,000 in profit. In 2022, Company X exercised its disgorgement right under Article 157 of the Securities and Exchange Act. However, the amount was recorded in its financial accounts as additional paid-in capital, Company X failed to report this income in its 2022 corporate income tax return. As a result, the NTBNA assessed a tax deficiency of NT$72,000 and imposed penalties in accordance with Article 110 of the Income Tax Act.

The NTBNA would like to specifically remind profit-seeking enterprises exercising the right of disgorgement under Article 157 of the Securities and Exchange Act that they must report the benefits obtained as income in the year the right is exercised to avoid tax deficiencies and penalties, which could affect their interests. For more information, please check the relevant laws and regulations on the NTBNA’s website （https://www.ntbna.gov.tw） or dial our toll-free service number 0800-000321. The NTBNA is pleased to provide further consultation services upon inquiry.

〔Contact person: Mr. Chang, Head, Profit-seeking Enterprise Income Tax Division；Tel：（03）3396789, ext.1320〕