Ministry of Finance Indicated that Tax Exemption Cannot Be Granted to Foreign-Invested Enterprises Becoming Shareholders through Techniques.

According the Vice Chairperson of the Council for Economic Planning and Development, He Mei-Yue (何美玥), “Ministry of Finance and Ministry of Economic Affairs have agreed to amend the examination principles to grant tax exemption to the enterprises which become shareholders through their techniques.” Ministry of Finance’s press release on March 17 stated that in the case of foreign profit-seeking enterprises’ use of intangible assets as share capital, since such intangible assets “are used as share capital as agreed upon”, such situation does not comply with the conditions of tax exemption and such enterprises cannot enjoy the privilege of tax exemption of technical remuneration as defined Income Tax Act. Moreover, for the sake of equal taxation, Ministry of Finance agrees with necessary reconsideration of the privilege of tax exemption granted to the enterprises which pay the royalties for the introduction of foreign techniques.

 

Shareholders’ use of intangible assets, such as techniques, as share capital, is categorized into two circumstances: 1. property trading income: shareholders actually transfer the title of their intangible assets to the company invested; 2. royalty income: shareholders only license the right of using the intangible assets to the company invested.

 

According to the cases of tax exemption as defined in Item 21, Paragraph 1, Article 4 of the Income Tax Act, and point 2 of the examination principles reported to the Executive Yuan by Ministry of Finance and Ministry of Economic Affairs, foreign profit-seeking enterprises which provide enterprises with exclusive techniques or patents “not used as share capital as agreed upon” and thus obtain royalties or remunerations shall be granted tax exemption. (2004.03)

CYJ/CCS