Profit-seeking enterprises reporting a business loss in its annual income tax return will still be penalized if found to have omitted or underreported income, even if there is no tax payable after adding the omitted or underreported income. Therefore, profit-seeking enterprises must file their annual income tax returns honestly.
The National Taxation Bureau of the Southern Area, Ministry of Finance (hereinafter “the Bureau”), indicated that some profit-seeking enterprises misunderstand that if they report a business loss on their income tax return and the inclusion of omitted or underreported income still results in a loss, they shall not be penalized. In accordance with Paragraph 3, Article 110 of the Income Tax Act, where a profit-seeking enterprise, due to business deficit, does not have a taxable income even though the amount of income omitted or underreported is added to it, it shall be subject to a fine of no more than two or three times the amount of the taxable omission and underreporting of income calculated at the profit-seeking enterprise income tax rate applicable in the current year, depending on whether a tax return was filed. The amount of the fine, however, shall not exceed NT$90,000 or be less than NT$4,500.
For example, Company A filed its profit-seeking enterprise income tax return for 2021, reporting a loss of NT$3 million. Later, the Bureau found that the company had omitted or underreported income of NT$400,000 for that year. Although adding the omitted or underreported income still resulted in a loss with no tax payable, Company A was still subject to a fine of no more than twice the amount of omitted or underreported income, NT$400,000, calculated at the applicable tax rate of 20%, namely NT$80,000 (NT$400,000 × 20%). Since Company A acknowledged the violation in writing before the tax authority finalized the penalty, agreed to pay the fine, and had no similar violations been found in the past 5 years, the penalty was reduced to 0.3 times the calculated amount, resulting in a fine of NT$24,000 (NT$80,000 × 0.3).
The Bureau urges profit-seeking enterprises to file their income tax returns honestly. If there is negligence resulting in omitted or underreported income, they should promptly and voluntarily file a supplementary tax declaration with the tax authorities and make supplementary payment covering the tax amount which it has failed to declare in accordance with Article 48-1 of the Tax Collection Act, to avoid penalties for omitting or underreporting income when discovered by the tax authorities.
Article cited from: Ministry of Finance, R.O.C.