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PAYOUTS FROM CAPITAL RE-DUCTION AFTER CAPITALIZA-TION OF GAINS FROM LAND SALE ARE SHAREHOLDERS’ BUSINESS INCOME
In a judgment dated 17 April 2002 on adminis-trative appeal, the Taipei High Administrative Court stated that if a company increases its capital by converting capital reserve derived from the sale of land, but subsequently registers a reduction in capital and redeems for cash the new shares that it allotted to existing shareholders due to the conversion of capital reserve, then both the new shares originally issued and the cash re-ceived due to the reduction in capital fall outside the scope of shareholders’ original investment and they represent newly acquired wealth dis-tributed to shareholders after the creation by the company, and as such should be regarded as shareholders’ business income.
The court further stated that whether this income should be ascribed to the tax year in which the increase in capital and issuance of new shares occurred, or to the year in which the capital re-duction and cash redemption of shares occurred is a matter for the tax authorities’ discretion in accordance with legislative policy; however, the amount cannot be included in shareholders’ in-come at both time points, for this would result in the same income being taxed twice.