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June 4, 2021

Taiwan proposes amendments to domestic regulations governing application of tax treaties

Executive summary

The Ministry of Finance (MOF) of Taiwan publicly announced Tai Cai Ji Zi No. 11024504800 (the draft Amendment) on 14 April 2021, proposing to amend the Regulations Governing Application of Agreements for the Avoidance of Double Taxation with Respect to Taxes on Income (the Regulations). The draft Amendment is now open for public comment and will be finalized by mid-June 2021.

The draft Amendment clarifies the application of tax treaties in accordance with the principles of the OECDModel Convention. It has not created or added new regulations, nor has it changed the procedures for taxpayers to submit tax treaty applications. The Amendment will take effect from the date of official issuance. Consequently, taxpayers should monitor the official release date and the final version of the Amendment.

This Tax Alert summarizes the key implications of the proposed Regulations.

Detailed discussion

Inclusion of a Principal Purpose Test

An anti-treaty shopping clause is not currently included in all Taiwan tax treaties. Taiwan has followed the guidance of the Model Tax Convention on Income and Capital (Model Convention) published by OECD and is proposing to add an article granting the tax authority the right to exercise anti-avoidance treatment in accordance with the relevant provision of tax treaties or domestic tax law. The draft Amendment states that, if the tax authority conducts a tax investigation, and it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining a benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, the tax authority is permitted to deny the benefit provided by the tax treaty.

Inclusion of a tie-breaker rule

Tie-breaker rules are proposed to be added to the Regulations by the draft Amendment. If a body corporate is considered as a resident of both contracting countries for the purposes of the relevant tax treaty, the following factors should be considered when determining the residency of the taxpayer:

  1. The location of the individual residency of the decision maker; the location of the company’s head office; or the location where significant decisions are made.
  2. The location where financial statements, accounting records, minutes of meetings of the Board of Directors or minutes of meetings of the shareholders are prepared or stored.
  3. The location where major business activities are carried out.

Guidance on the determination of the permanent establishment threshold

According to the current Regulations, if a foreign company carries on supervisory activities in the territory of Taiwan in connection with a building site, construction, installation, or assembly project, or furnishes services in Taiwan where activities of that nature continue, for the same or a related project, through employees or other personnel or persons engaged by the enterprise (including individuals and body corporate) for such purpose for a period (or periods of time in aggregate) exceeding a certain duration, then the enterprise is deemed to have a permanent establishment (PE) in Taiwan.

The draft Amendment provides the following definitions.

  1. The “same project” refers to the same projects of the foreign company.
  2. A “related project” refers to the projects provided by the foreign company which are “commercially relevant.” Such “commercially relevant” projects will be comprehensively identified based on the following factors:
    • Whether different projects are covered under a single master contract, or whether the conclusion of additional contracts is a logical consequence of a previous contract.
    • Whether the nature of the work involved under the different contracts is the same.
    • Whether the same individuals are performing the activities under the different contracts.
    • Other situations proving commercially relevancy of the projects.

The draft Amendment also specifies that the “certain duration” refers to an aggregate 183 days in any 12-month period commencing or ending in the relevant fiscal year. Further guidance has been provided that the 12-month period will be any consecutive 12 months period starting from 12 months before the first day of the year and ending 12 months after the last day of the same year.

Guidance on the definition of a “property rich” entity

Pursuant to Taiwan’s domestic tax law, the tax authority may impose income tax on gains derived by a foreign company from the alienation of shares of a company if, at any time during the 365 days preceding the alienation, such shares derived more than 50% of their value directly or indirectly from immovable property in Taiwan (a “property rich” entity).

The amendment draft specifies that the portion of the value derived from immovable property in Taiwan should be calculated as the market value of the immovable property in Taiwan at the time of the alienation in proportion to the market value of the total assets of the company being alienated. If the market value is unknown or difficult to identify, the market value can be calculated based on the amount disclosed in the balance sheet of the income tax return for the most recent year.


For additional information with respect to this Alert, please contact:

Ernst & Young (Taiwan), Taipei

Ernst & Young LLP (United States), Asia Pacific Business Group, New York



  1. Organisation for Economic Co-operation and Development.