INVOICING FOR TRIANGULAR TRANSACTIONS

01/01/2009

---

In a triangular transaction in which a Taiwan-based Company A receives an order for goods from another Taiwan-based Purchaser B, and orders the goods from an overseas Vendor C, with all the customs clearance to be handled by the Purchaser B in its own name, how should the Company A issue government uniform invoices (GUIs)?

On 29 October 2008 the Ministry of Finance (MOF) issued a new ruling revoking its previous ruling issued on 20 September 2001.  Under the new ruling, the Company A in the scenario above should issue the Vendor C a duplicate-form GUI for the difference (which should be treated as commission) between the payment it receives from the Purchaser B and its payment to the Vendor C, or for the commission that it charges for the transaction.

Under the 20 September 2001 ruling, before the Company A issued an GUI for a triangular transaction such as the one described above, it should first decide whether its role in the transaction was a seller or an agent in order to decide what content of a GUI it had to issue.  However, this approach has often led to disputes between the tax collection authorities and taxpayers over whether the Company A acted as a seller or merely as an agent.

If the Company A acted as the seller in the transaction, then it had to issue a GUI to the Purchaser B in the amount of the sale, but when the imported goods were cleared through customs Purchaser B also had to pay business tax on them.  As a result, the Purchaser B would be taxed twice for the same transaction and had to apply for tax refund from the tax collection authorities.  This would place extra administrative burdens on both the tax collection authorities and taxpayers.  In order to resolve the disputes encountered in practice, on 29 October 2008 the MOF issued its above new ruling, and revoked its ruling of 20 September 2001.

Because of the new ruling, Taiwan-based companies conducting triangular transactions described above will from now on have to pay business tax for only the commission received.  However, the new ruling did not clearly state whether refunds of taxes and fines for the cases already assessed are possible, and thus this will be subject to the MOF's further confirmation.