Profit-seeking enterprises may suffer bad debts from business activities in the event that the account receivable, note receivable or any other item of uncollected credit is unlikely to be collected. Not only the account receivable from the sale of goods but also the trading of securities could incur bad debt losses. The National Taxation Bureau of the Southern Area (hereinafter “NTBSA”), Ministry of Finance indicated that, if the securities transactions occurred during the period when income tax on gains derived from the securities transactions ceased to be imposed, and the outstanding amount is wholly or partially uncollectible, the bad debt losses shall be attributed to the loss of tax-exempt income in accordance with Article 49 of the Income Tax Act.
For example, Investment Company A agreed to sell the shares of its subsidiaries to Company B for NT$80 million in total in year 2019. After paying NT$50 million, Company B got a mismanagement and defaulted payment. Investment Company A filed a lawsuit in court for the compulsory enforcement, but the remaining NT$30 million was still unable to be recovered. Finally, in year 2021, Investment Company A obtained a certificate of the obligatory claim issued by the local court. Although this amount of uncollectible money meets all requirements of bad debt losses stipulated in Article 94 of the Regulations Governing Assessment of Profit-Seeking Enterprise, it shall be declared and categorized as the item not included in taxable income and furthermore the losses on securities transactions can not be deducted from taxable income due to the payment derived from the securities transactions.
The NTBSA would like to remind profit-seeking enterprises that if they have unrecovered bad debt losses from securities transactions, they should pay attention to the relevant provisions of the tax law, so as to avoid being levied additional tax by the tax authorities for filing incorrectly.
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