Enforcement Rules of the Income Basic Tax Act Article 5

The term “the taxable income as calculated in accordance with the provisions of the Income Tax Act” referred to in Paragraph 1, Article 7 of the Act shall mean the aggregate amount of the taxable income as calculated in accordance with Article 24 or Article41 of the Income Tax Act and the taxable income as calculated separately in accordance with Paragraphs 1 to 3 and 5, Article 24-5 of the Income Tax Act, minus the amount of income in respect of which assessment or payment of the profit-seeking enterpriseincome tax is suspended or exempted, the amount of additional or double costs or expenses in accordance with the Income Tax Act and other laws, and the amount of business operation losses incurred in the preceding years as specified in Article 39 of the IncomeTax Act.When calculating the amount of taxable income as set forth in the preceding paragraph, except for the amount of the income suspended or exempted from assessment or payment of profit-seeking enterprise income tax under the Income Tax Act and the Offshore BankingAct that is required to be subtracted first, the sequential order and amounts for subtraction of income exemptible from assessment or payment of profit-seeking enterprises income tax, the additional or double costs or expenses under other laws, and the amountof business operation losses incurred in preceding years which are deductible under Article 39 of the Income Tax Act shall be prioritized by the said profit-seeking enterprise at its own discretion when filing its annual income tax return.The term “the amount of income that is entitled to reduction or exemption from profit-seeking enterprise income tax or that is excluded from the income tax base as may be provided for in such laws as may be promulgated” referred to in Subparagraph 10, Paragraph1, Article 7 of the Act shall mean the amount of income which is exemptible from assessment or payment of profit-seeking enterprises income tax, the amount of additional or double costs or expenses, and the amount of income which is excluded from the incometax base as newly added by laws.The formula for use by a profit-seeking enterprise to calculate the amount of its basic income in accordance with the provisions as set out in Article 7 of the Act is hereby given as follows:Basic Income Amount = Taxable Income + (the Income Amount as set forth in Subparagraph 1, Paragraph 1, Article 7 of the Act – the Loss as set forth in Paragraph 2, Article 7 of the Act) + the Income Amounts as set forth in Subparagraphs 2 to 8, Paragraph 1,Article 7 of the Act ＋ (the Income Amount as set forth in Subparagraph 9, Paragraph 1, Article 7 of the Act – the Loss as set forth in Paragraph 2, Article 7 of the Act) + (the Income Amount as set forth in Subparagraph 10, Paragraph 1, Article 7 of the Act – the Loss as set forth in Paragraph 4, Article 7 of the Act).The amounts of income as set forth in Subparagraphs 1, 9, or 10, the latter of which may be announced by the MOF, including a specific additional item, in Paragraph 1, Article 7 of the Act, which shall be added into the calculation formula in the precedingparagraph shall be the amounts of the balance after correspondingly subtracting losses mentioned in Subparagraphs 1, 9, or 10, which is an specific addition item that incurred in the current year respectively if the balance is positive; in the case that thebalance is negative, such amount shall be excluded from the above calculation, and Paragraphs 2 and 4, Article 7 of the Act shall apply.If the balance of the preceding paragraph is positive but turned out to be negative after subtracting the losses of the previous years as set forth in Paragraphs 2 to 4, Article 7 of the Act, respectively, such negative figure shall be excluded from the amountof income; the subtraction of losses of the previous years shall be prioritized in sequential order from corresponding income of Subparagraphs 1, 9, or 10 which is a specific addition item year by year. If there is no the amount of income of Subparagraphs1, 9, or 10, which is an specific addition item to subtract the losses, nor is there a subtraction balance after the subtraction in the current year, it shall defer to subtract in later years in accordance with Paragraphs 2 to 4, Article 7 of the Act.Profit-seeking enterprises shall calculate the amount of the income as set forth in Subparagraph 1, Paragraph 1, Article 7 of the Act according to the following provisions if there is income derived from stock transactions as set forth in Paragraph 3, Article7 of the Act:1. The balance of income derived from stock transactions as set forth in Paragraph 3, Article 7 of the Act after subtracting losses derived from stock transactions of the same Paragraph and Article in the current year should be aggregated with the balance ofincome or loss derived from other securities transactions as set forth in Article 4-1 of the Income Tax Act, and the balance of income or loss derived from futures transactions as set forth in Article 4-2 of the same Act.2. In the case that the aggregated balance of the preceding Subparagraph is negative, such amount shall be excluded from the calculation of the basic income amount; instead, in accordance with Paragraph 2, Article 7 of the Act, such negative amount may be subtractedfrom any positive amount calculated according to the preceding Subparagraph in the ensuing year.3. In the case that the aggregated balance of Subparagraph 1 is positive, the profit-seeking enterprise may, in accordance with Paragraph 2, Article 7 of the Act, subtract the negative balance of the previous years as calculated according to the preceding subparagraph.If the balance is positive after such subtraction, that part of the balance, to the maximum amount (a negative balance shall be counted as zero) of the balance of income minus losses from stock transactions in the current year as calculated in accordance withParagraph 3, Article 7 of the Act, shall be added in half into the calculation of the basic income amount, and the part which exceeds the maximum amount shall be added in full. The aggregation of these two parts shall be added into the calculation of the basicincome amount. However, if the balance is negative after such subtraction, such negative amount shall be excluded from the calculation.Paragraph 3, Article 7 of the Act provides that the calculation of the holding period shall be made according to the first-in first-out method.In case any income added to the taxable income in the formula as set forth in Paragraph 4 of this Article is derived from a source outside the territory of the ROC and in respect of which the income tax had been paid under the tax law of the country where theincome is derived, the taxpayer may, after having obtained a tax payment certificate issued for the same tax year by the tax authority of the country where the income was derived, and having the certificate duly authenticated by the ROC embassy or consulate,or other authenticating institution acceptable to the ROC Government located there, subtract such offshore income tax from the amount of difference as calculated in accordance with Paragraph 1, Article 4 of the Act.The maximum amount of the offshore income tax deductibles under the preceding paragraph shall be calculated in accordance with the following formula: Maximum Amount of the Deductible Offshore Income Tax = (the Amount of Basic Income Tax as set forth in Paragraph1 of Article 12 – the Amount of Income Tax as calculated in accordance with the Income Tax Act) × the Amount of the exempted offshore income that should be added into the amount of the Basic Income in accordance with Paragraph 1, Article 7 of the Act ÷ (theamount of exempted onshore and offshore income that should be added into the Basic Income in accordance with Paragraph 1, Article 7 of the Act.