The National Taxation Bureau of Taipei, Ministry of Finance, stated that the Controlled Foreign Corporation (hereinafter referred to as CFC) system has been in effect since 2023. Profit-seeking enterprises reporting CFC's losses must provide the CFC's financial statements within the income tax filing deadline to be eligible for deduction of assessed losses incurred in the preceding 10 years.

The Bureau explained that, in accordance with Paragraph 3 of Article 8 and Paragraph 1 of Article 10 of the Regulations Governing Application of Recognizing Income from Controlled Foreign Company for Profit-Seeking Enterprise, when reporting CFC's losses for each year incurred, the profit-seeking enterprise shall provide the CFC's financial statements and other required supporting documents within the income tax filing deadline, calculate the CFC's losses in accordance with the relevant regulations, and file them in the required format; in addition, such losses should have been assessed by the tax authority of the enterprise's location. Thereafter, the profit-seeking enterprise may sequentially deduct assessed losses of previous years from the CFC's current-year earnings for up to 10 years, starting from the year following the one in which the loss occurred. If the profit-seeking enterprise is unable to provide the CFC's financial statements before the prescribed deadline, it shall apply to the tax authority for an extension before the filing deadline of the annual income tax return. Alternatively, when filing the profit-seeking enterprise income tax return, they may tick the box (A9) on Page B7 for “Extension to provide CPA-audited financial statements or other required supporting documents.” The maximum extension period is 6 months and can be granted only once.

The Bureau provided the following example: Company A adopts the calendar year as its fiscal year and holds 100% of the shares of Company B, in a low-tax country or jurisdiction and Company B meets the definition of a CFC (hereinafter referred to as CFC B). Company A reported CFC B's losses of NTD 8 million for the year 2025. Therefore, Company A shall provide CFC B's financial statements during the period from May 1 to May 31, 2026 (since May 31, 2026 falls on a Sunday, the deadline is extended to June 1, 2026). If Company A is unable to provide CFC B's financial statements within the prescribed deadline, it shall apply for an extension before the expiry of the deadline and provide the documents before December 1, 2026. Alternatively, when filing the 2025 profit-seeking enterprise income tax return, Company A may tick the box (A9) on Page B7 for “Extension to provide CPA-audited financial statements or other required supporting documents;” only then can the CFC B's losses be eligible for the prescribed provision regarding the deduction of assessed losses incurred in the preceding 10 years.

The Bureau would like to remind profit-seeking enterprises that when filing CFC losses, they shall provide the CFC financial statements and other required supporting documents within the income tax filing deadline to be eligible for the deduction of assessed losses incurred in the preceding 10 years. Otherwise, they shall apply for an extension in order to protect their rights and interests. Relevant CFC rules and FAQs for profit-seeking enterprises can be found on the Bureau's website (https://www.ntbt.gov.tw) by clicking on “Themes/Type of Website Visitor/Enterprises/Anti-Tax Avoidance Rules/CFC Rules for Enterprises.”

(Contact: Mr. Chen, Head of Profit-Seeking Enterprise Income Tax Division; Tel: 02-23113711 ext. 1308)