Income Tax Act Article 37

Direct expenses incurred in the course of business for social entertainment for which positive evidence of payment has been received may be considered as expense or loss to the extent as provided hereunder:1. If the value of yearly purchases of an enterprise is less than NT$30,000,000, direct expenses for social entertainment incurred at the time and for the purpose of purchase shall not exceed 0.15% of the value of purchases for the whole year, and such expenses for an enterprise approved to use Blue Returns shall not exceed 0.2% of the value of purchases for the whole year. If the value of yearly purchases is between NT$30,000,000 and NT$150,000,000, the expenses for social entertainment corresponding to the portion of purchases in excess of NT$30,000,000 shall not exceed 0.1% of that portion, and such expense for an enterprise approved to use the Blue Returns shall not exceed 0.15%. If the value of yearly purchases is between NT$150,000,000 and NT$600,000,000, the expenses for social entertainment corresponding to the portion of purchases in excess of NT$150,000,000 shall not exceed 0.05% of that portion, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.1%. If the value of yearly purchases exceeds NT$600,000,000, the expenses for social entertainment corresponding to the portion of purchases in excess of NT$600,000,000 shall not exceed 0.025% of that portion, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.05%;2. If the value of yearly sales of an enterprise is less than NT$30,000,000, direct expenses for social entertainment incurred at the time and for the purpose of sales shall not exceed 0.45% of the value of sales for the whole year, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.6% of the value of sales for the whole year. If the value of yearly sales is between NT$30,000,000 and NT$ 150,000,000, the expenses for social entertainment corresponding to the portion of sales in excess of NT$30,000,000 shall not exceed 0.3% of that portion, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.4%. If the value of yearly sales is between NT$150,000,000 and NT$600,000,000, the expenses for social entertainment corresponding to the portion of sales in excess of NT$150,000,000 shall not exceed 0.2% of that portion, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.3%. If the value of yearly sales exceeds NT$600,000,000, the expenses for social entertainment that correspond to the portion of sales in excess of NT$600,000,00 shall not exceed 0.1% of that portion, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.15%.3. If the amount of yearly freight charges of an enterprise is less than NT$30,000,000, direct expenses for social entertainment incurred at the time and for the purpose of transportation of goods shall not exceed 0.6% of the freight charge for the whole year , and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.7% of the freight charges for the whole year. If the amount of yearly freight charges is between NT$30,000,000 and NT$150,000,000, the expenses for social entertainment corresponding to the portion of freight charges in excess of NT$30,000,000 shall not exceed 0.5% of that portion, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.6%. If the amount of yearly freight charges exceeds NT$150,000,000, the expenses for social entertainment corresponding to the portion of freight charges in excess of NT$150,000,000 shall not exceed 0.4% of that portion, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.5%.4. If the yearly business income of those businesses engaged in providing services or credit is less than NT$9,000,000, direct expenses for social entertainment incurred at the time and for the purpose of consummating business transactions for the supply of services or credit shall not exceed 1% of the business income for the whole year, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 1. 2% of the business income for the whole year. If the yearly business income is between NT$9,000,000 and NT$45,000,000, the expenses for social entertainment corresponding to the portion of business income in excess of NT$9,000,000 shall not exceed 0.6% of that portion, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.8%. If the yearly business income exceeds NT$45,000,000, the expenses for social entertainment corresponding to the portion of business income in excess of NT$45,000,000 shall not exceed 0.4% of that portion, and such expenses for an enterprise approved to use the Blue Returns shall not exceed 0.6%.The limits of various entertainment expenses allowed for disbursement by state-owned enterprises shall be determined by the competent authority and set out in their budgets. For a profit-seeking enterprise that engages in export trade and earns foreign exchange receipts, besides considering as expense the payment of social entertainment expenses as prescribed in the Subparagraphs of the preceding Paragraph, a special social entertainment expense may also be considered as expense, not exceeding 2% of its total foreign exchange receipt settlements of the current year.