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The Tax Free Dividends or Earnings, Exempted in Article 42 of Income Tax Act in the Loss Occurred Year Should Be Deducted to Get the Tax Loss Carry Forward to Offset the Taxable Income within the Future 10 Years.

(Taoyuan News) The National Taxation Bureau of the Northern Area (NTBNA), M.O.F., indicated that, for a profit-seeking enterprise organized as a company that keeps a complete set of account books, and use the Blue Returns as provided in Article 77 in the years such losses occurred and in the year of declaring such losses, or such losses have been duly certified by a certified public accountant and declared within the prescribed period, taxation may be made on its net income after deduction of losses incurred in the preceding 10 years as verified and determined by the local collection authority-in-charge. However, the tax free dividends or earnings, exempted in Article 42 of Income Tax Act in the loss occurred year, should be deducted to get the tax loss carry forward to offset the taxable income for future 10 years.
For example, in the case that Company A is verified to have a tax loss of NT$500,000 and tax free dividends of NT$300,000, exempted in Article 42 of the Income Tax Act in tax year of 2016; and in tax year of 2017, Company A has a taxable income of NT$1,000,000 and qualified in both years to meet the criteria in Article 39 of Income Tax Act. Before applying the tax loss carry forward of 2016 to reduce the taxable income of year 2017, the tax free dividends (NT$300,000) of year 2016, exempted in Article 42 of Income Tax Act, should be deducted to get the tax loss carry forward of year 2016, NT$200,000 (NT$500,000-NT$300,000), thus resulting in the taxable income of NT$800,000 (NT$1,000,000-NT$200,000) in tax year of 2017 after deduction of the tax loss carry forward (NT$ 200,000) of year 2016.
In this case, if the tax free dividends (NT$300,000) of tax year 2016 is not deducted to get the tax loss carry forward (NT$ 200,000) to offset the taxable income in the Annual Income Tax Return of year 2017, the voluntary tax payment of Company A should fall short, the amount of tax as determined by the collection authority as additionally payable shall be levied and together with the interest to be calculated on a daily basis at the interest rate for the one-year term time deposit of the Postal Savings and Remittance Bureau from the date immediately following the expiry date prescribed for filing annual income tax return until the date of payment. However, the interest to be charged shall be limited to the amount accruable for a period of one year, as specified in Article 100-2.
The Bureau reminds profit-seeking enterprises organized as a company that, tax free dividends or earnings exempted in Article 42 of  Income Tax Act in the loss occurred year should be deducted against the tax loss to get the tax loss carry forward to offset taxable income within the future 10 years according to Article 39 of Income Tax Act, to prevent the issues of supplementary tax and relevant interest accrued. If you have any questions, please visit the website of NTBNA (https://www.ntbna.gov.tw) to inquire the relevant laws or call the toll-free service number 0800-000321, we will provide consulting services wholeheartedly.

Last updated:2021-01-19