Executive summary

Taiwan's Legislative Yuan passed several amendments to the Tax Collection Act on 30 November 2021, which became effective by a Presidential Decree on 17 December 2021. The key amendments include an extension to the statute of limitations on filing tax refund claims and an increase in criminal charges in the case of tax evasion.

In addition, to promote the development of the biotech and new pharmaceuticals industry as well as the digital transformation among various industries, the Ministry of Finance has implemented and extended several tax incentives effective 1 January 2022.

This Alert summarizes the key features of these amendments.

Detailed discussion

Amendments to the Tax Collection Act

The period for claiming a tax refund¹ with respect to overpaid tax is revised as follows:

• Extended from 5 years to 10 years in the case of an overpayment due to taxpayer's error.
• Revised from an indefinite period to 15 years in the case of an overpayment due to a mistake by the government authorities.

The criminal charge for tax evasion by fraud or any other unrighteous means² is revised as follows:

• Imprisonment³ of up to five years plus a maximum fine that has been significantly increased from TWD60,000 (approx. US$2,150) to TWD10 million (approx. US$360,000).
• If a business enterprise has a tax shortfall exceeding TWD50 million (approx. US$1.8 million), the criminal charge increases and becomes imprisonment ranging from one year to seven years, plus a fine ranging from TWD10 million to TWD100 million (approx. US$3.6 million).

Contrary to the previous legislation, the amendment no longer allows companies to avoid the imprisonment by paying the fine.

Amendments to the Act for Development of Biotech and New Pharmaceuticals Industries

The tax incentives under the Act for Development of Biotech and New Pharmaceuticals Industries are extended for another 10 years, i.e., from 1 January 2022 to 31 December 2031.

Qualified tax credit in respect of research and development expenditure against corporate income tax (CIT) due is reduced from 35% to 25% with a cap at 50% of the CIT due in the tax year concerned. The said credit should be used within five years starting from the year in which the company begins to make profit.

The scope of the tax credit is also extended to include contract research and manufacture organizations, subject to prescribed conditions.

For biotechnological and new pharmaceutical companies making capital investment on new machines, devices, or systems used for manufacturing, the related expenditure incurred (within the amount of TWD10 million to TWD1 billion ) can be utilized to deduct the CIT due by adopting one of the following approaches:

• 5% of such expenditure against the amount of CIT due in current tax year.
• 3% of such expenditure against the amount of CIT due within the next three years.

The creditable amount shall not exceed 30% of CIT due in the relevant tax year.

Extension for tax incentives under Statute for Industrial Innovation

The investment tax credit for the qualified purchase of smart machinery and 5G mobile communication systems under the Statute for Industrial Innovation is extended until 31 December 2024. The applicable scope of a qualified purchase is also extended to include information and communication security products or services, effective 1 January 2022. The relevant dates in this regard are summarized below:

The expenditure of qualified purchase (within the amount of TWD10 million to TWD1 billion ) can be utilized to deduct the CIT due by adopting one of the following approaches:

• 5% of the expenditure against the amount of CIT due in current tax year
• 3% of the expenditure against the amount of CIT due within the next three years

The creditable amount shall not exceed 30% of CIT due in the relevant tax year.

Implications

It is recommended that multinational enterprises (MNEs) with subsidiaries in Taiwan assess the impact of the above-mentioned amendments on their business activities in Taiwan. Such MNEs should assess whether there would be an additional tax refund available in Taiwan due to the extension of the period for claiming a tax refund. Qualified businesses may consider reassessing the benefits available under the revised and extended incentives under the amended legislations.

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

Ernst & Young (Taiwan), Taipei

• Yishian Lin | yishian.lin@tw.ey.com
• Sophie Chou | sophie.chou@tw.ey.com

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

• Chris Finnerty | chris.finnerty1@ey.com
• Gagan Malik | gagan.malik2@ey.com
• Bee-Khun Yap | bee-khun.yap@ey.com
• Dhara Sampat | dhara.sampat2@ey.com

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

• Pongpat Kitsanayothin | pongpat.kitsanayothin@ey.com

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ENDNOTES

¹ Article 28 of Tax Collection Act.

² Article 41 of Tax Collection Act.

³ For a company limited by shares, people subject to imprisonment for tax evasion primarily include the principal officer of the company in accordance with the Company Act.