Audit by Reviewing Enterprise Income Tax Returns

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In Taiwan, here are 3 most common ways for profit-seeking enterprises to proceed tax returns: Expanding to the cases, audit by reviewing accounting books and tax compliance audit. To promote the convenience for small and medium-sized enterprises to proceed tax return, enterprises which total amount of net income and non-net income is under TWD30,000,000 within a whole year and are willing to rise the lower profit margin after settlement in the declaration of the end of fiscal year up to the standard of expanding to the cases promulgated by the government to calculate the income tax and settle down the payment of tax by the deadline are able to adopt the audit by reviewing papers to lower the risk of tax investigation by Taxation Bureau in accordance with “Regulations Governing Assessment of Profit-seeking Enterprise Income Tax” (Called as “Paper Reviewing Regulations”).

 

For profit-seeking enterprises adopting the audit by reviewing papers to proceed profit-seeking enterprise income tax return, the amount of tax payables shall be (The net income within a whole year + Non-net income) * the profit margin of audit by reviewing papers. The profit margin among each industry is between 6%-10% and special industry between 2% or 4%, such as Growing of Crops, Livestock, Forestry, Wholesale of Tobacco and Alcohol, Wholesale of Prepared Animal Feeds, and Rice Crops.

 

Among the illegal declared cases recently, it is prevalent to establish multiple enterprises to even the income, transfer the obtained uniform invoices to other related enterprises to enlist as expenditures, or the industry which is not suitable for the audit by reviewing papers expanding to the cases conceals its nature and plans to adapt the lower profit margin to become qualified.

 

According to the item 9th in Paper Reviewing Regulations, the industry which intends to be applied to the audit by reviewing papers expanding to the cases shall confirm its total amount of net amount and non-net amount within a whole year shall be under TWD 10,000,000 (instead of TWD30,000,000), including Multilevel Marketing, Real Estate, Insurance Broker, Consultancy, or Instruction Service.

 

For instance, Company A mainly engaged in “Real Estate Agent”. The amount of net income in 2019 is more than TWD 10,000,000 but declared as “Other Advertising Services” to apply to the audit by reviewing profit-seeking income tax returns expanding to the cases. After the investigation and clarification of its business nature by Taxation Bureau, Company A is verified as “Real Estate Agent” as its business nature and augmented its income up to TWD 1,950,000 or above.

 

Despite of the lower risk of tax investigation by audit by reviewing papers expanding to the cases, the accounting books shall still be stated clearly and legally. Once the enterprise is picked up to investigate by Taxation bureau but fails to present the accounting evidence, it is possible to be imposed on the income tax rate among the basis of profit among other same industries and recover the tax payables (The basis of profit among other same industries may be 2-3 times higher than the rate of reviewing papers. If the original rate is 6%, the basis of profit among other same industry may be 14%, with the discrepancy in 8%.)

In the circumstance that the enterprise applied to the audit by reviewing papers expanding to cases in false, it is better to report this error to Taxation Bureau, amend the declaration and recover the amount of tax evasion with interest immediately so as to exempt from the punishment by “Tax Collection Act”.

 

In conclusion, if your company is applied to the audit by reviewing papers, the following items shall be aware:

 

  1. It is not allowed to establish multiple companies to even the income, given that the facts can be found in the database of Taxation Bureau.
  2. It is not allowed to issue a forged uniform invoice to the related enterprises as expenditures.
  3. The standard of application to audit by reviewing papers expanding to cases for some industries is quite strict (The amount of revenue within a whole year shall be under TWD 10,000,000.).
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