Newsletter
Overestimated Employee Bonus Resulting from Violation of the Company Act Cannot be Recognized as Expense
Starting from January 1, 2008, the payments of employee bonus and remuneration of directors and supervisors should be treated as expenses in the year that such payments are estimated. According to the Ministry of Finance's ruling dated September 11, 2007, if there is a significant difference between such accrued expenses and the amount of payments resolved at the shareholders meeting of the following year, any difference should be treated as loss or profit of the following year.
With respect to such difference, on March 18, 2010, the Ministry of Finance issued another ruling, which stipulates that if the over-estimation of expense is attributable to the company's failure to fulfill the requirement of applying profit to make up any deficit first thereby resulting in over-estimation of distributable income and hence over-estimated expense, such over-estimation should be deemed a result from having violated Article 232 of the Company Act (i.e., a company should not distribute dividend or bonus until it has made up losses and set aside legal reserve), and thus cannot be treated as expense. Furthermore, the company has to re-calculate the employee bonus and remuneration of directors and supervisors file an amended income tax return and recognize the revised amount as expense.