Profit-seeking enterprises should include income from the sale of securities in their basic income declaration

The Northern District National Taxation Bureau of the Ministry of Finance stated that the income from the sale of domestic listed (OTC) and unlisted (OTC) stocks by profit-seeking enterprises is considered securities trading income and is not subject to income tax in accordance with Article 4-1 of the Income Tax Act. However, in accordance with Article 7, Paragraph 1 of the Basic Income Tax Act, the aforementioned income should be added when calculating the basic income. In addition, pursuant to Article 7, Paragraph 2 of the same Act, securities trading losses verified by the tax authorities may be deducted from securities trading income in the current year within five years starting from the year following the year in which they occurred.

The bureau further explained that in order to encourage long-term investment, in accordance with Article 7, Paragraph 3 of the same regulations, when calculating the above-mentioned securities trading income, if there is a sale of stocks held for more than three years, when calculating the securities trading income for the current year, after deducting the trading losses from the sale of the long-term held stocks in the current year, if the balance is a positive number, half of the balance will be included in the basic income.

The bureau gave an example, saying that the taxable income of Company A in its jurisdiction in the 2011 business income tax settlement declaration was NT$600,000 (the same below), but it omitted to include the NT$7.8 million in income from the sale of domestic listed stocks in that year in the basic income for calculating the basic tax in accordance with Article 7, Paragraph 1 of the Basic Tax Amount Regulations. The bureau discovered that the transaction income did not include any stocks that had been held for more than three years and that trading losses could be deducted, so it assessed the basic tax on the transaction income and imposed penalties in accordance with Article 15, Paragraph 1 of the same regulations.

The Bureau specifically reminds profit-making enterprises that the losses verified by the tax authorities in the previous five years should be deducted from their income in the order of the years in which the losses occurred. For stock transaction income that is subject to half-taxation of long-term holding income, the holding period of the stocks shall be calculated using the first-in, first-out principle. Profit-seeking enterprises are urged to review the amount of income that should be included in the basic income. If there is any stock transaction income that has not been included in the income tax suspension, any case that has not been reported or investigated by the tax collection agency or the investigators designated by the Ministry of Finance shall be reported and paid automatically in accordance with Article 48-1 of the Tax Collection Act as soon as possible to avoid being taxed and punished for negligence. If profit-making businesses have any questions, they can call the toll-free service number 0800-000321 or consult the nearest branch, tax collection office or service center of the National Tax Bureau, and the bureau will serve you wholeheartedly.

Contact person for press release: Mr. Jiang, Legal Affairs Division Contact number: (03) 3396789 ext. 1640