Profit-making enterprises should be careful of being fined if they fail to report income from the exercise of the right of inclusion

The Northern District National Taxation Bureau of the Ministry of Finance stated that according to the International Financial Reporting Standards (IFRS), the benefits obtained by a company from exercising the right of attribution in accordance with Article 157 of the Securities and Exchange Act are essentially the investment of the equity claim holder in the company and should be recognized as capital reserve. However, when filing tax returns, other income tax should be reported in the year in which the right of attribution is exercised.

The bureau explains that if a director, supervisor, manager or shareholder holding more than 10% of the company's shares sells the company's listed stocks within 6 months of acquisition, or buys them again within 6 months of sale, and thereby gains profits, the company should request that the profits be transferred to the company. When a company exercises the right of attribution, the year of attribution of income shall be determined based on the date of exercising the right of attribution when filing tax returns. However, if the company can provide concrete evidence that it has taken necessary measures to exercise the right of attribution but has not been able to exercise it, it may be temporarily exempted from being included in income and shall report the income based on the actual amount collected when the right of attribution is exercised.

The bureau gave an example, in 2011, Mr. A, a manager of Company A, learned of favorable information about Company A's stock price, so he bought and sold Company A's stocks in a short period of time and made a profit of NT$360,000. Company A exercised the right of attribution in 2012 in accordance with Article 157 of the Securities and Exchange Act. However, due to the capital reserve being listed in the financial accounting books, Company A failed to report this income in its 2012 corporate income tax return. The bureau determined that an additional NT$72,000 should be levied and the company should be fined in accordance with Article 110 of the Income Tax Act.

The bureau specifically reminds that profit-making enterprises that exercise the right of attribution pursuant to Article 157 of the Securities and Exchange Act should list the profits obtained from the right of attribution as income for that year in the year of exercise to avoid being penalized for tax evasion due to underreporting, which would affect their own rights and interests. If you have any questions, please visit the bureau’s website ( https://www.ntbna.gov.tw ) to check relevant laws or use the toll-free service number 0800-000321 and someone will explain it to you.

Contact person for press release: Mr. Li, Section Chief of Business Taxation Group Contact number: (03) 3396789 ext. 1350