Despite Taiwan tax regulations expressly providing that general and administrative (“G&A”) expenses of a foreign head offi ce may be allocated to its Taiwan branch based on various criteria, the tax offi ce often challenges the adequacy of such allocations if the required supporting documentation is not in place or the foreign parent company is merely a paper company. Where similar G&A expenses are allocated by a foreign parent company to its Taiwan subsidiary, similar challenges in regards to documentation are also often seen.

However, in a recent administrative appeal on January 20, 2011, the Ministry of Finance (“MOF”) ruled that the G&A expenses allocated by a foreign parent company to its Taiwan subsidiary should be tax deductible if:

  • the criteria for allocating the G&A expenses are in accordance with the economic substance of the transaction. In addition, the participants in the G&A expense allocation reasonably anticipate deriving benefi t from the services provided by the foreign parent company, and the G&A expenses allocated are in proportion to the anticipated benefi t derived therefrom;
  • the transaction conforms with regular business practice and is conducted at arm’s length; and
  • the transaction does not involve any payment or receipt of royalties.

In view of this administrative appeal, taxpayers should review their current documentation to determine whether suffi cient documents are in place for necessary tax defence.