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       The National Taxation Bureau of the Northern Area (NTBNA), Ministry of Finance, indicates that according to Article 7 of the Income Basic Tax Act, the basic income of a profit-seeking enterprise is the amount of taxable income plus tax exemption income. Tax exemption items included in the basic income mainly include securities and futures transaction income, 5-year tax exemption income and tax exemption income from Offshore Banking Branches. Where any profit-seeking enterprise sells, starting from the fiscal year 2013, the stocks held for a period of three years or more, such enterprise, when calculating the amount of income derived from such transactions in the current year, should deduct the losses on the such securities transactions in the same year, and if the previous amount of balance is positive, only one-half of the balance should be added into the current year’s income derived from securities transactions.
       The Bureau further explained, if the profit-seeking enterprise gets stock dividends from sale of investment in other domestic profit-seeking enterprises, in calculating the profit and loss of securities transactions, the cost shall be calculated in denomination according to Decree Tai-Cai-Shui-Zi No. 09900179790 in August 6, 2010 of Ministry of Finance.
       As a hypothetical example, if Company A's 2017 annual profit-seeking enterprise income tax settlement report states about NTD 420 million in proceeds from the sale of securities, when calculating the basic amount of income, the company declares that all securities which had been traded had been held for more than 3 years. Therefore, only 50% of the entire income derived from securities transactions, or NTD 210 million in this case, should be added into the calculation of the profit-seeking enterprise’s basic income. In this example, after checking the company's securities transaction statement, it is found that only some of the abovementioned traded securities have been held for over 3 years, which is applicable to inclusion in the basic income by half. Furthermore, some of the stocks sold are stock dividends distributed by domestic companies, and without knowing that the cost can be recognized at a denomination of NTD 10, the company only notes an increase in the total number of shares calculated at the cost of 0, resulting in inflated profit of securities transactions.   
       In this case, the Bureau recalculated the cost of the sale on the company's stock transaction statement, and determined that there was no loss from securities transaction. According to the first-in, first-out method, the income from transactions of securities held over 3 years is NTD 160 million, half of which (NTD 80 million) is added to the basic income; the income from transactions of securities held for less than three years is NTD 180 million, which should be wholly included in the basic income; in total, the amount calculated into basic income from securities transactions is NTD 260 million. As a result, the company under-reported their basic income by NTD 50 million, and is required to pay an additional NTD 6 million in tax and is liable to be punished for tax evasion. 
       The NTBNA would like to remind profit-seeking enterprises that the proceeds of selling securities in the current year should be included in the basic income, and that the rule allowing for half of the proceeds from securities transactions to be added into basic income only applies to securities held for a period of 3 years or more. For stocks sold which are stock dividends distributed by domestic companies, the denomination can be used to calculate the cost. If you have any questions, please visit the Bureau’s website at https://www.ntbna.gov.tw/ or call the toll-free number 0800-000321 for more information on the relevant aspects of the subject. The Bureau is pleased to provide further consultation services.