"The economy is running into headwinds, and investments into Taiwan and activity of foreign companies have both slowed down," said Michael Wong from Baker & McKenzie. It comes as no surprise that as tax authorities try to maximise the tax revenue ...
[more]
"The economy is running into headwinds, and investments into Taiwan and activity of foreign companies have both slowed down," said Michael Wong from Baker & McKenzie. It comes as no surprise that as tax authorities try to maximise the tax revenue from the transactions that are taking place, practitioners have noticed more disputes as a result of more aggressive investigation and audit activity by officials. "There has been an increase in transfer pricing investigations," said Al Chang of Deloitte, giving one example of the trend.
In April 2012, the Taiwan Supreme Administrative Court issued its first court ruling in a transfer pricing case since Taiwan's transfer pricing regulations were announced in 2004, the court deciding in the tax authority's favour. The tax authorities' contention was focused on adjustments: they felt the sales allowances booked by the taxpayer's subsidiary were for the purpose of reducing the company's tax bill and thus they rejected the company's claim for a tax deduction.
"Given the complexity of transfer pricing regulations, it is more time and cost efficient to settle the case with tax authorities instead of bringing it to the court unless the tax payer has solid evidence to support its claims," said Josephine Peng from Lee & Li.
The Taiwan Legislative Yuan passed the proposed introduction of capital gains tax arising from trades of Taiwanese securities on July 25 2012.
The proposed amendments have attracted some controversy. "Since 1990, trading in securities issued by Taiwan companies is only subject to a 0.3% securities transaction tax, and any capital gains generated there from are not taxed," said Peng.
"However, in response to growing the public's discontent over widening income disparities and demand for taxation justice and in order to uphold the income tax principle of 'Where there is income, there should be income tax', the Legislative Yuan of the Republic of China (ROC) amended the Income Tax Act and the Alternative Minimum Tax (AMT) Act in July 2012," Peng added. "From January 1 2013, capital gains generated from sale of Taiwan securities will be subject to a securities gains tax (for individual ROC and foreign investors) and AMT (for ROC corporate investors and foreign corporate investors with a fixed place of business or business agent in Taiwan)."
Under the amended rules, capital gains from securities and future trading will be within the scope of AMT. The AMT rate will increase from 10% to 12%, and the deductible amount for calculating AMT is reduced from NT$66,700 ($2,250) to NT$16,700. A nonresident enterprise that is not a 'permanent establishment' will be exempted from paying AMT on such gains.
[hide]