The Directive T.T.S. T. No. 38452 of the Ministry of Finance dated December 14, 1977, states: “Except for the income generated from the products produced by a productive enterprise itself, the trading income and non-operating income, if any, of such enterprise from dealing in the products other than those produced by it shall not be eligible for the tax ceiling under the Act of Encouragement of Investment.”The said directive was made by the competent authority ex officio, in implementing Article 15 of the Act of Encouragement of Investment (hereinafter the “Act”) and the Categories and Criteria of Productive Industries Eligible for Encouragement promulgated in accordance with Article 3 of the Act, in connection with the computation of the annual taxable amount on the operating income and other income of the encouraged productive enterprise. Such directive conforms to the intent of the Act which provides that the tax deduction/exemption only applies to the income derived from the products in the category eligible for encouragement produced by the encouraged productive enterprise. It neither alters the tax benefit set by law nor increases the taxation of the productive enterprise, and it is not in conflict with the principle of taxation by law under the Constitution.

       The Act of Encouragement of Investment (revoked on January 30, 1991) was enacted to encourage investment activities and accelerate the nation’s economic development. The privilege of tax deduction/exemption is a major encouragement to realize the legislative intent. However, the national economic development may have different needs at different stages, and the categories and criteria of productive enterprises eligible for encouragement should also be changed to cope with economic development strategies and objective environments. Article 3, Paragraph 3, and Article 15 (Article 10 of the amended Statute promulgated on July 26, 1977) of the Act therefore authorize that, in connection with the categories and criteria of encouragement for the productive enterprises as specified by the Executive Yuan in accordance with Paragraph 1 of the said Articles, only those that meet such categories and criteria of encouragement can enjoy the privilege of a 20% (for important technology-based enterprises) or 25% (for productive enterprises) income tax (including surcharge) ceiling of the annual taxable income under Article 15, Paragraph 1, of the Statute. The Directive T.T.S.T. No. 38452 of the Ministry of Finance dated December 14, 1977, states: “Except for the income generated from the products produced by a productive enterprise itself, the trading income and non-operating income, if any, of such enterprise from dealing in the products other than those produced by it shall not be eligible for the tax ceiling under the Act of Encouragement of Investment.”The said directive was made by the competent authority ex officio, in implementing Article 15 of the Act and the Categories and Criteria of Productive Industries Eligible for Encouragement promulgated in accordance with Article 3 of the Act, in connection with the computation of the annual taxable amount on the operating income and other income of the encouraged productive enterprise. Such directive conforms to the intent of the Act which provides that the tax deduction/exemption only applies to the income derived from the products in the category eligible for encouragement produced by the encouraged productive enterprise. It neither alters the tax benefit set by law nor increases the taxation of the productive enterprise, and it is not in conflict with the principle of taxation by law under the Constitution.  

*Translated by Dr.C.Y.Huang of Tsar & Tsai Law Firm.