Investment losses incurred by profit-seeking enterprises from the bankruptcies of invested businesses should be recognized at the appropriate time
The National Taxation Bureau of Taipei, Ministry of Finance, stated that investment losses incurred by profit-seeking enterprises from the bankruptcies of invested businesses should be recognized on the date of the court’s bankruptcy adjudication.
The Bureau explained that, as prescribed in Subparagraphs 1, 2, and 5 of Article 99 of the “Guidelines for Examination of Profit-Seeking Enterprise Income Tax,” investment losses shall be limited to the realized losses and must be supported by documents certifying the making-up of losses through capital reduction, merger, bankruptcy, or liquidation of the invested business. In the event of investment losses incurred from the bankruptcies of invested businesses, these losses shall be recognized on the date of the court’s bankruptcy adjudication. Furthermore, as prescribed in Articles 89 and 211 of the Company Act and relevant regulations of the Bankruptcy Law, companies that have insufficient assets to offset their debts shall file an application for the declaration of bankruptcy, unless they apply to the court for reorganization according to Article 282 of the Company Act. After the court grants a bankruptcy ruling, an administrator of the bankruptcy estate shall be appointed to carry out the necessary bankruptcy procedures. Upon receiving the final settlement report submitted by the administrator of the bankruptcy estate, the court shall issue a ruling to terminate the bankruptcy. Therefore, investment losses incurred by profit-seeking enterprises from the bankruptcies of invested businesses should be recognized only after the court issues a ruling to terminate the bankruptcy procedures.
The Bureau provides the following example: Company A declared investment losses of NTD 500,000,000 from the bankruptcy of its invested company, Company B, in the 2022 Profit-seeking Enterprise Annual Income Tax Return. Although Company A had already submitted the court’s ruling announcement document, the content of the announcement document is related to the bankruptcy administrator’s first settlement report recognized by the court, rather than the administrator’s final distribution settlement report on which the court has issued a ruling of bankruptcy termination. Therefore, based on the aforementioned regulations, the declared losses should not be recognized as investment losses for 2022. As a result, the Bureau disallowed the said investment losses and required Company A to pay an additional tax amount of NTD 100,000,000.
The Bureau would like to remind profit-seeking enterprises that, when declaring investment losses arising from the bankruptcies of invested businesses, they must pay close attention to tax laws to avoid non-compliance and subsequent tax adjustments.
(Contact person: Section Chief Kuo from the Profit-Seeking Enterprise Income Tax Section, Tel: 2311-3711 Ext. 1320)
Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=ba3c231474c24fdda0a2db936d1e9c28