Profit-seeking enterprises should recognize the investment income for long-term equity investments using the equity method in the annual tax return of undistributed surplus earnings, based on the owne
The National Taxation Bureau of the Northern Area（NTBNA）, MOF, stated that, for profit-seeking enterprises, if they have control or significant influence over the investee company, the accounting treatment of the long-term equity investments should adopt the equity method according to Article 44 of the Business Entity Accounting Act. This means that investment income and losses should be recognized annually based on the ownership proportion and included in the current period’s after-tax net income to calculate undistributed earnings and an additional 5% corporate income tax on the undistributed earnings is levied. Failure to account for this investment income may lead to under-reporting of undistributed earnings, resulting in additional tax liabilities and penalties under Article 110-2 of the Income Tax Act.
The Bureau explained using an example: Company A reported an after-tax net income of NT$3.6 million in year 2020. Upon investigation, it was found that Company A held 99％of Company B’s shares in year 2020, constituting a controlling interest in a long-term equity investment. According to regulations, Company A should have recognized investment income from Company B under the equity method. However, Company A failed to do so. After calculation, the amount of investment income from Company B that should have been included in Company A’s after-tax net income for year 2020 was NT$3 million, based on the ownership proportion and net income of Company B. This resulted in an under-reporting of NT$3 million in undistributed earnings. Therefore, Company A was levied an additional corporate income tax on undistributed earnings of NT$150,000 and was penalized accordingly.
The Bureau would like to especially remind profit-seeking enterprises to pay attention to relevant laws and regulations when reporting the undistributed earnings to correctly calculate the after-tax net income for the period to avoid penalties for tax evasion. If you have any questions, please visit the website of NTBNA （https://www.ntbna.gov.tw）to inquire about the relevant laws or call the toll-free service number 0800-000321 for detailed consultation services.
【News Contact: Ms. Liu, Head, Profit-Seeking Enterprise Income Tax Division.
Tel. No. （03）3396789, Ext. 1330】
Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=8434ee3d517546f6a6fbe23efc6a842f