The National Taxation Bureau of the Central Area (NTBCA), Ministry of Finance (MOF) stated that according to Paragraph 1, Article 25 of the Income Tax Act, any profit-seeking enterprise having its head office outside the territory of the Republic of China (ROC), and which is engaged in international transport, construction contracting, providing technical services, machinery and equipment leasing, etc. in the territory of the ROC, and whose cost and expenses are difficult to calculate may apply for approval from the MOF to consider 10% of its total business revenue for an enterprise engaged in international transport business, or 15% of its total business revenue for one engaged in any other businesses as its income derived within the territory of the ROC.

The NTBCA indicates that cross-border transactions have become more and more frequent, and the number of cases in which foreign profit-seeking enterprises apply for the provisions of Paragraph 1, Article 25 of the Income Tax Act has been increasing year by year. Recently, a case was found that a foreign profit-seeking enterprise A (Company A) signed a consulting service agreement with its domestic-related enterprise B (Company B). The content of the contract was to provide consulting services for accounting systems and warehouse management. The two parties agreed on the billing method of consulting service income, which was based on the percentage of the net sales of Company B's total goods produced in the month. The result of the NTBCA's review showed that the service income collected by Company A from Company B was derived from providing general administrative affairs management services, not providing technical services, and involved the transfer of the earnings of domestic affiliates to foreign countries, so the regulation in Paragraph 1, Article 25 of the Income Tax Act cannot be applied in this case.

The NTBCA reminds taxpayers that according to Item 2, Subparagraph 4, Point 7 of the Directions for Reviewing the Cases of Applying for the Calculation of Business Revenue for Foreign Profit-seeking Enterprises in Accordance with the Provisions of Paragraph 1, Article 25 of the Income Tax Act, the income derived from providing general administrative affairs management services by signing service contracts to transfer the earnings of domestic affiliates to foreign countries is not considered remuneration of technical services, and therefore shall not be applicable for the calculation of business revenue in accordance with the provisions of Paragraph 1, Article 25 of the Income Tax Act.

For questions or concerns, you are welcome to call our toll-free phone number 0800-000-321. The NTBCA will serve you with all sincerity.

(Contact: Mr. Pan, First Examination Division; Tel: 04-23051111 ext. 7120)