GUIDELINES FOR INSPECTION AND ASSESSMENT OF EARTHQUAKE DAMAGE

11/01/1999

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In order to standardize tax authorities' handling of the inspection and valuation of damage caused by the 21 September earthquake, on 1 October 1999 the Ministry of Finance issued certain operational guidelines. The points relevant to relief from corporate income tax are outlined below:

When local offices of the National Tax Administration perform inspections, they should on their own initiative take photographs to retain as evidence, and advise enterprises to file a report of disaster losses to the tax authority within three months from the date of the disaster, with a list of losses and documentary evidence.

Damage of fixed assets (e.g. buildings, machinery and equipment) which are completely destroyed or damaged beyond repair and without residual value should be assessed at net book value; those partially damaged but still repairable should be assessed at a proportion of net book value according to the extent of the damage.

Raw materials, merchandise inventory, etc. spoiled, damaged, destroyed or discarded due to the disaster should be assessed according to bookkeeping records, as verified by on-the-spot checking of damaged items or by reviewing relevant documentary evidence, and taking into consideration the overall level of disaster damage.

Where an enterprise's books were lost or destroyed due to damage to or destruction of buildings, assessment should be made in accordance with following principles:

1.Quantities of losses to fixed assets, raw materials and merchandise inventory: the quantities reported by the applicant should be determined by considering such information as the size of the premises, property list, operating revenue for the current year, inventory quantities held at the beginning of the accounting period, or invoice copies provided by original suppliers.

2.Value of losses to fixed assets, raw materials and merchandise inventory: fixed assets should be valued at their net book value as per the property list for the previous accounting period, less depreciation for the portion of the current accounting period prior to the disaster; assets acquired in the current period should be valued according to invoice copies produced by the original suppliers, or with reference to market prices. Raw materials and merchandise inventory should be valued according to invoice copies produced by original suppliers, or with reference to such information as market prices published in the press, weighted average prices of identical goods in the books of other companies in the same sector, or the value of inventory held by the enterprise at the end of the previous accounting period. When no information is available on the price of identical goods, assessment may be estimated according to the price of similar goods.

Where the value of disaster-related losses reported by an enterprise is less than NT$750,000, or where the subject matter of the loss is insured (regardless of value), assessment should be made by examination of documents.