Several legislators have again raised the idea of tax breaks for companies and individuals who repatriate money. Although government agencies have never reached a consensus on the issue and people sense that they vacillate on the topic, whether the government agrees to levy a low, one-time tax on overseas funds to encourage fund inflows is something the nation will continue to discuss after Asia/Pacific Group on Money Laundering members wrap up the third round of mutual evaluations this week.
Lawmakers attending the Oct. 22 meeting of the Legislative Yuan’s Finance Committee asked officials from the central bank, the Financial Supervisory Commission (FSC) and the Ministry of Finance whether the government favors capital inflows to boost local investment and improve the economy; whether it would establish a special law to regulate the repatriation of offshore capital; and whether it would provide a tax break or exemption on investment categories such as the “five plus two” industries — seven development projects proposed by the government to transform the nation’s economic and industrial structure.
While lawmakers reiterated that capital inflows help boost domestic economic activity, employment and wages, FSC Chairman Wellington Koo (顧立雄) said the government is still deliberating policy directions and legislation to address repatriation of overseas funds by Taiwanese businesses.
Koo said that before the government can proceed with a policy that would induce capital inflows, certain structures must be in place: Policies must be consistent with international money laundering control measures; financial institutions would need to offer special accounts through which repatriated money would be regulated; and funds would need to be directed into specific industries to prevent them flowing into the real-estate market.
Taiwanese investors have increasingly opted to repatriate earnings from overseas operations after many countries implemented the Common Reporting Standard, a global framework for excanges of tax data. As Taiwan has not yet adopted the standard, lawmakers and interest groups are likely to step up pressure on the government regarding legislation on fund inflows.
However, as overseas funds might not be repatriated purely based on business considerations — fund flows include the risk of money laundering and financial fraud — encouraging fund repatriation with tax breaks is not an easy decision for the government.
A fundamental issue is that Taiwan is not short of funds. Repatriated funds could contribute to currency fluctuations and increase speculative investment in the local stock and real-estate markets.
Another issue is that the proposed legislation and tax breaks, if enacted, would create an unfair tax environment for those who had repatriated funds earlier and those who have always held their funds in Taiwan, which means they paid local taxes on them.
Even so, as more countries over the past one to two years have worked hard to increase corporate transparency and combat tax evasion, and as rising trade protectionism has reshaped global economic and trade structures, the government must see the repatriation of overseas funds as not solely a taxation or investment issue, but rather as an opportunity to help fine-tune economic and financial policies from the perspective of long-term national development.
The question remains whether the government, in regulating repatriated funds, can effectively control money laundering, introduce fair taxation and safeguard the soundness of capital markets.
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