Enforcement Rules of the Income Tax Act Article 48-10

The measure “to make up the losses incurred in past years” as set forth in Subparagraph 1, Paragraph 2, Article 66-9 of the Act shall mean an action taken by a profit-seeking enterprise to use the undistributed surplus earnings available in the current year to make up the losses to be offset as calculated up to the final settlement date of the previous year in accordance with the Business Entity Accounting Act, Securities and Exchange Act, or other laws used in preparing financial reports; and the term “the losses incurred in the following year as audited and certified by a certified public accountant” shall mean the total amount of after-tax net income (or loss) for the period, adding the amount of other profit items adjusted to the current year’s undistributed earnings other than after-tax net income (or loss) for the period, and deducting the amount of other loss items adjusted to the current year’s undistributed earnings other than after-tax net income (or loss) for the period of a profit-seeking enterprise as audited and certified by a certified public accountant after having audited the financial statements made for that current year by the said profit-seeking enterprise.The term “dividends or earnings which have been distributed from the earnings gained in the current year” as set forth in Subparagraph 2, Paragraph 2, Article 66-9 of the Act shall be limited to the amount of dividends or earnings distributed of the date of distribution in the fiscal year in which the relevant incomes are derived as defined before the end of the next fiscal year. The term “date of distribution” stated in this Paragraph refers to the base date for profit-seeking enterprises to distribute dividends and bonuses; where the base date for distribution of dividends and bonuses is not decided or the base date for distribution of dividends and bonuses is unclear, the date when the profit-seeking enterprise's shareholder's meeting adopts distribution of dividends and bonuses shall apply.The terms “legal reserve of surplus earnings,” “legal reserve,” and “public welfare reserve” as set forth in Subparagraph 3, Paragraph 2, Article 66-9 of the Act shall refer to the amount thereof actually set aside in the current year from the operating profits by a profit-seeking enterprise.In the case the amount of after-tax net income for the period and the amount of other profit and loss items adjusted to the current year’s undistributed earnings other than after-tax net income for the period of a profit-seeking enterprise as audited and certified by a certified public accountant after having audited, prepared, and submitted the annual financial statements by that profit-seeking enterprise is subsequently adjusted by the competent authority per its notice given to the said profit-seeking enterprise, then a correction of the amount of undistributed surplus earnings originally declared in the above-said annual financial statements shall be made by the said profit-seeking enterprise in accordance with the provisions set out in Paragraph 4, Article 66-9 of the Act.Beginning from 2005 and in each year thereafter, if a profit-seeking enterprise holds any of the mandatory or restricted surplus earnings as specified in Subparagraphs 4 and/or 5, Paragraph 2, Article 66-9 of the Act remaining undistributed prior to the end of the fiscal year following the year such cause of restricted surplus earnings ceases, such part of the undistributed surplus earnings shall be levied on profit-seeking enterprise income tax in accordance with the provisions set out in Paragraph 5, Article 66-9 of the Act.