The Supreme Administrative Court rendered the 108-Pan-317 Decision of June 27, 2019 (hereinafter, the “Decision”), holding that for a foreign insurance company whose head office is not located in the Republic of China (ROC), interest and property transaction gains earned by their affiliates from their investment in the ROC are business profits generated in the ROC within the scope of “operation” under Article 8, Subparagraph 9 of the Income Tax Law and should be regarded as income generated from sources in the ROC.
According to the facts underlying this Decision, the Appellant filed its profit-seeking income tax return for 2011, which included its interest income. A correction was subsequently filed on the ground that since it is a Taiwan branch office whose head office is located outside of the ROC, its income generated from outside of the ROC should not be regarded as an income generated from sources in Taiwan, and income generated in the form of interest from the Appellant’s investment in foreign government bonds, corporate bonds and financial debentures outside of the ROC was deducted from the category of interest income and property transaction gains. The Appellee previously made an assessment based on the corrected amount before reassessing the interest income on the ground that the interest income and gains from the Appellant’s investment in overseas bonds and disposal of overseas bonds are earnings from its business operation in Taiwan and are thus income generated from sources in the ROC. Dissatisfied, the Appellant applied for reconsideration, and after the application was rejected by the Appellee via its reconsideration decision of June 13, 2016 and the Appellant’s subsequent administrative appeal was also rejected, the Appellant brought an administrative action.
According to this Decision, Article 8, Subparagraphs 4 and 7 of the Income Tax Law are general provisions on interest income and property transaction gains, while Subparagraph 9 of the same article provides for business profits generated by an entity which is a profit-seeking enterprise from the operation its core business. If the business profits of a profit-seeking enterprise include interest and investment gains generated from the operation of its core business, or in other words, if the above income is generated by such profit-seeking enterprise from the operation of its core business in the ROC to the extent that they fall within the scope of “operation” under Subparagraph 9 of the article, Article 8, Subparagraph 9 of the Income Tax Law shall apply and they shall be regarded as earnings from the operation of industry or commerce, agriculture or forestry, fishing or stock-raising or mining in the ROC and be treated as income generated from sources in the ROC.
It was further mentioned in this Decision that the Appellant is an affiliate of a foreign profit-seeking enterprise whose head office is not located in the ROC and has a fixed business location in the ROC to operate insurance business. In addition, an insurance company is a business that obtains capital by collecting premiums from its insured to conduct investment activities to generate profits. Therefore, the interest and property transaction gains at issue which were obtained by the Appellant from its investment in overseas bonds via its capital should be earnings from the operation of its core business in the ROC. Since such earnings are generated from the operation of industry or commerce in the ROC, they are income derived from sources in the ROC under Article 8, Subparagraph 9 of the Income Tax Law, and the ROC has tax authority over the Appellant.