Newsletter
ENFORCEMENT RULES OF AL-TERNATIVE MINIMUM TAX ACT ANNOUNCED
On 5 June 2006, the Ministry of Finance (MOF) announced the Enforcement Rules for the Al-ternative Minimum Tax Act. The main provi-sions are summarized below:
Formulae for calculating basic income and alternative minimum tax (AMT)
Basic income = taxable income
+ (income from securities and futures transac-tions – losses from securities and futures trans-actions over the preceding five years)
+ (income exempt from tax under the Act for Upgrading Industries, the Act for Promotion of Private Participation in Infrastructure Projects, the Act for Establishment and Administration of Science Parks, or the Enterprises Mergers and Acquisitions Act)
+ (income exempt from tax under the Offshore Banking Act – losses incurred over the preceding five years from tax-exempt transactions under the Offshore Banking Act)
+ (any other income exempt from tax at the time of filing the AMT return – losses incurred over the five-year period prior to any such tax ex-emption provisions)
AMT = (basic income – NT$2 million) × 10%
The calculation of cost of securities transac-tions should be on an actual cost basis, or be calculated in the first-in-first-out method (FIFO), last-in-first-out method (LIFO), weighted average method, moving average method, simple average method, retail method or another method prescribed by the MOF; provided, that the method used should be the same as that used in the income tax return.
The cost of futures transactions should be calculated in the FIFO method, but the spe-cific identifying method may be used in cal-culating the cost of options or futures transac-tions under contracts that permit settlement before maturity.
A business enterprise may offset against its AMT liability any income tax paid overseas, tax credit, provisional tax paid but not yet offset against income tax payable, and tax withheld, but not the income on which the total tax payable had already been withheld at source and not required to be further declared in any tax return.
Where a business enterprise is found to have failed to report or under-reported its basic in-come, if its income tax liability pursuant to the Income Tax Act as assessed by the tax collec-tion authorities is greater than or equivalent to the AMT liability assessed by the tax authori-ties, and it has under-reported income tax li-ability, an administrative fine of up to twice the amount of income tax not paid will be imposed pursuant to Article 110 of the Income Tax Act. Where its assessed income tax li-ability is less than its AMT liability, the business enterprise will be subject to a fine of up to twice the AMT not paid.
The Alternative Minimum Tax Act applies to business enterprises from fiscal year 2006 onwards.