The National Taxation Bureau of Taipei, Ministry of Finance stated that, although the profit-seeking enterprise controlled foreign company (hereinafter referred to as the CFC) system was implemented in 2023, profit-seeking enterprises filing a declaration on provisional payment for the 2023 profit-seeking enterprise income tax shall not be affected by the CFC system.
The Bureau explained that there are two methods for calculating provisional tax payments for profit-seeking enterprises. First, they can calculate the provisional payment by taking one-half of the tax payable amount declared in their profit-seeking enterprise income tax return from the preceding year, as stipulated in Paragraph 1 of Article 67 of the Income Tax Act. Alternatively, in accordance with Paragraph 3 of Article 67 of the Income Tax Act, companies, cooperatives, and medical care corporations that keep a complete set of account books and evidential documents, use the Blue Return, or entrust a certified public accountant to examine and certify their provisional tax return, and file the return within the specified period, may compute the amount of provisional tax payment, which is based on the operating income incurred for the first six months of the current year under the relevant provisions of the Income Tax Act and applied with the tax rates.
The Bureau said that, for profit-seeking enterprises taking one-half of the amount of tax payable as declared in its profit-seeking enterprise income tax return filed in the preceding year as the amount of provisional payment according to Paragraph 1 of Article 67 of the Income Tax Act, their provisional payment of tax should include the tax payables of the previous year calculated based on the CFC system. However, as the CFC system was launched in 2023, there was no investment income from CFC to be recognized. Therefore, profit-seeking enterprises shall calculate their provisional payment of tax as one-half of the tax payable amount declared in their profit-seeking enterprise income tax return from the preceding year and shall not bear tax for the launch of the CFC system in 2023.
The Bureau further explained that, if a profit-seeking enterprise decides to calculate the provisional tax payment based on the operating income incurred for the first six months of the current year in accordance with Paragraph 3 of Article 67 of the Income Tax Act, the consideration of various applicable criteria and income calculations under the CFC system is based on annual data (e.g., equity control ratio, exemption conditions, and CFC’s current-year earnings). Therefore, it is challenging not only to determine whether a foreign affiliated enterprise is a CFC controlled by a domestic profit-seeking enterprise, but also to calculate the CFC’s investment income that should be recognized during the year. To simplify administrative processes and reduce legal compliance costs for taxpayers, on May 18, 2023, the Ministry of Finance issued Directive Tai-Cai-Shui No. 11204543460. This directive clarifies that profit-seeking enterprises deciding to calculate the provisional tax payment based on the operating income incurred for the first six months of the current year are exempt from the requirement to calculate recognized investment income as stipulated in Article 43-3 of the Income Tax Act.
The Bureau reminds profit-seeking enterprises that the CFC system was launched this year. If there are any uncertainties regarding the applicability of relevant regulations, profit-seeking enterprises may refer to the Bureau’s official website at https://www.ntbt.gov.tw and click on “Front Page/Themes/Taxation/Profit-seeking Enterprise Income Tax/Anti-tax Avoidance Rules” for further information. Alternatively, profit-seeking enterprises can subscribe to the Bureau’s e-newsletter to receive timely updates on tax-related matters.
(Contact person: Head Mr. Chen from Profit-seeking Enterprise Income Tax Division; Tel: 2311-3711 Ext. 1308)