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On 31 July 2013, the Ministry of Finance issued a directive (Ref. No.: Tai-Cai-Shui-Zi-10100238630), stipulating certain provisions regarding the taxation of a company upon its receipt of trust proceeds in the case of an individual establishing a trust, in which he has named himself as the beneficiary of the trust property and the company as the beneficiary of the trust proceeds.
In order to reduce the double taxation at the company level, the Income Tax Act stipulates that the net dividends or net surplus earnings received by a company from its investment in another domestic profit-seeking enterprise shall not be included in the company's taxable income, and the amount of tax credit attributable to such income shall be included in the balance of the company's Imputation Credit Account ("ICA"), in compliance with the Imputation Credit Method under the Integrated Income Tax System in Taiwan.
The aforementioned directive stipulates that, when a company receives net dividends or net surplus earnings as a trust beneficiary, such receipts shall be included in the company's taxable income and be subject to income tax; the amount of tax credit attributable to such income shall not be included in the company's ICA. The underlying rationale of the directive is that such income is not derived from the re-investment of the company funded by its shareholders' capital contribution, and so there are no double taxation issues at the company level. Hence, the amount of the said tax credit attributable to such income shall not be included in the balance of the company's ICA.
