Executive summary

Following the enactment of Tax Ruling No. 10600549520 on 1 May 2017,¹ Taiwan's Ministry of Finance (the MOF) issued a new tax ruling, No.10604704390 (the Tax Ruling) on 2 January 2018, announcing the relevant income tax regulations on the income tax implications to foreign enterprises, institutions, groups or organizations without a fixed place of business in Taiwan that provide e-commerce services to domestic purchasers (FECOs).²

Detailed discussion

The Tax Ruling defines e-commerce services as:

• Services that are rendered via internet download or transfer to computer equipment or other electronic devices.
• Services that do not need to be downloaded and can be used online.
• Services rendered via internet or other electronic means.

The Tax Ruling also sets forth the various e-commerce operating models, including:

• E-commerce services conducted with digital platform intermediation: digital platforms are available where onshore and offshore parties may conduct transactions.
• E-commerce services conducted without digital platform intermediation:
  • Services are rendered via FECOs' own websites. FECOs will collect service charges from domestic purchasers.
  • Services are rendered via digital platforms. FECOs will collect service charges from domestic purchasers, and domestic purchasers and/or FECOs will pay usage fees to digital platform providers.
  • Services are rendered through digital platforms. FECOs will not collect service charges directly. The digital platform's provider will collect service fees on behalf of FECOs and subsequently transfer the service fees (net of platform usage fee) to FECOs.

Determination of Taiwan source income

Whether the income generated is deemed as Taiwan source income depends on the services' economic nexus to Taiwan.

The services rendered will be deemed as Taiwan source income if one of the following criteria is met:

• The FECOs supply goods offshore and use the internet or other means to transfer the goods for domestic purchasers to download and store into electronic devices, and the e-commerce services are required to be carried out with the assistance from domestic individuals or enterprises.
• E-commerce services are deemed as "immediate," "interactive," "convenient" and "continuous" to domestic purchasers.
• E-commerce services use the internet or other electronic means to sell services used by a physical place of business within Taiwan.
• Services are with a FECO's digital platform (for seller and purchaser to conduct transactions).

Payment of income tax

Where a foreign enterprise does not have a fixed place of business in Taiwan but has a business agent, the business agent should file income tax on behalf of the foreign enterprise.

Where a foreign enterprise has neither a fixed place of business in Taiwan nor a business agent:

• The withholding tax agent should withhold tax based on the remuneration amount paid to the FECOs.
• If the income is not subject to withholding tax, a refund claim can be made by either the FECOs or an appointed business agent within the filing period of the income tax return.

For e-commerce services conducted with digital platform intermediation: The total gross income received by FECOs is generally subject to income tax unless evidence shows some amounts are already taxed.

Implications

A different tax basis is used to calculate the income tax from value added tax.

To obtain preferential treatment for income taxes under the respective tax treaty, the FECOs must provide relevant documents to substantiate treaty eligibility.

If the FECOs have provided business to business transactions, the revenue generated is subject to withholding tax. The FECOs can apply for preferential treatment based on the applicable contribution rate and profit margin rate prior to calculating the income tax basis.

Given that there are various types of e-commerce businesses, whether the revenue generated is considered as Taiwan source income is still subject to the tax authority's assessment. To obtain clarification, the FECOs may consider submitting a private tax ruling request to the MOF.

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ENDNOTES

¹ See EY Global Tax Alert, Taiwan issues ruling on new tax guidelines on cross-border e-commerce transactions, dated 4 May 2017.

² Includes individuals, business entities and institutions or similar organizations.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Taiwan), Taipei

• Sophie Chou
  sophie.chou@tw.ey.com
• Anna Tsai
  anna.tsai@tw.ey.com
• ChienHua Yang
  chienhua.yang@tw.ey.com
• Vivian Wu
  vivian.wu@tw.ey.com

Ernst & Young LLP, Asia Pacific Business Group, New York

• Chris Finnerty
  chris.finnerty@ey.com
• Kaz Parsch
  kazuyo.parsch@ey.com
• Bee-Khun Yap
  bee-khun.yap@ey.com

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ATTACHMENT

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