The National Taxation Bureau of the Northern Area (NTBNA), Ministry of Finance, stated that in accordance with the Provisions of Paragraph 2, Article 99 of the Income Tax Review Standards for Profit-seeking Enterprises, profit-seeking enterprises should present their documents of evidence when reporting investment losses which result from capital reduction to make up for the loss, merger, bankruptcy, or liquidation of the invested enterprise. If the foreign invested enterprise has no substantial operating activities in its country or jurisdiction, it is nonetheless required to present the documents of evidence proving that the losses are operating losses derived from reinvested enterprise with substantial operating activities, and shall be attested by an overseas embassy / consulate or commercial representatives or foreign trade agencies of the R.O.C. If the invested enterprise is in mainland China, profit-seeking enterprises should present the documents of evidence certified by an institution or organization entrusted by the Mainland Affairs Council of the Executive Yuan, of dealing with the bilateral contacts between people of the Taiwan area and the mainland area.
For instance, Company A reported an investment loss of 17 million NTD when filing the income tax return of profit-seeking enterprises in 2020. It claimed that the loss originated from the liquidation of Company B in the Samoan Islands. Company A held 100% of Company B’s shares. Company B reported losses over the years, having neither operating income nor operating cost, and having only the operating expenses of general administration. Company A could neither present the documents of evidence of losses arising from Company B having substantial operating activities, nor present evidence that the reinvested enterprise with substantial operating activities had operating losses which resulted in Company B’s loss, although Company B had no substantial operating activities. Because the documents of evidence of Company A’s losses are inconsistent with the above-mentioned regulations, the reported investment losses could not be recognized, and the additional tax amount of 3.4 million NTD could be levied.
Besides any investment loss should have been realized, the NTBNA reminds the public that it is also necessary for profit-seeking enterprises to present the documents of evidence to the NTBNA to review and confirm the reinvested enterprise’s operating loss with substantial operating activities, when profit-seeking enterprises report foreign investment loss without substantial operating activities of their invested enterprise. If anything is still unclear, 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.