The government has sidelined a plan to lower the business income tax rate from 20 percent to 15 percent for multinational corporations establishing headquarters in Taiwan, the Ministry of Economic Affairs said yesterday.
Tax fairness advocates had criticized the tax-break plan, saying it would only benefit big corporations, while larger domestic companies, which had already enjoyed R&D-based tax breaks, threatened to pull out of Taiwan if they could not enjoy the planned lower rates.
To placate both sides, the government is working on a scheme to offer tax credits to local companies targeting brand-building and global marketing, Vice Minister of Economic Affairs Hwang Jung-chiou (黃重球) told a press conference.
“Unlike manufacturing, it’s more difficult to evaluate what constitutes R&D in the service sector. In view of changes in the mode of business, we needed to draw up clear regulations in this regard,” Hwang said.
Early this month, President Ma Ying-jeou (馬英九), Premier Wu Den-yih (吳敦義) and economic officials decided after a meeting at the Presidential Office to withdraw support for a controversial article in a draft statute on promoting innovative industries (產業創新條例).
The article, proposed by a group of Chinese Nationalist Party (KMT) lawmakers led by Ting Shou-chung (丁守中), stated that multinational corporations establishing corporate headquarters in Taiwan and meeting certain requirements could receive a flat business income tax of 15 percent — 5 percentage points lower than the recently adopted rate for businesses.
The ministry said the article could have been applicable to some Fortune 500 companies, which would include four local enterprises — Hon Hai Precision Industry Co (鴻海), Acer Inc (宏碁), Asustek Computer Inc (華碩) and Quanta Computer Inc (廣達).
The article was of particular concern to Acer, which has shifted is core business away from manufacturing to focus on global brand building.
Lawmakers proposed that the article be included in the draft statute, which was initiated by the government to continue some of the tax breaks stipulated in the Statute for Industrial Upgrading (促進產業升級條例) that expired at the end of last year.
However, the draft statute was stalled in the legislative session that ended last month because activists expressed strong concern over possible tax inequity, saying it would only favor major companies.
Huang said removing the article would reduce the estimated annual tax loss to an estimated NT$30 billion (US$934.8 million). Activists had said that the original version could cost the national treasury about NT$50 billion in annual tax revenue.
Acer chairman Wang Jeng-tang (王振堂) has voiced opposition on several occasions to removal of the article.
Acer is the world’s second-largest PC maker after the US’ Hewlett-Packard Co. The company reportedly said it had received invitations to relocate its headquarters elsewhere.
Minister of Economic Affairs Shih Yen-hsiang (施顏祥) said yesterday he had spoken to Wang over the phone and Wang urged the government to offer more preferential incentives to both local and foreign quality enterprises to increase their willingness to invest in Taiwan.
Calls to Quanta, the world’s second-largest contract notebook maker, went unanswered yesterday, while the public relations department at Asustek, the pioneer of netbook computers, refused to comment.
The Chinese-language United Evening News reported yesterday that both Quanta and Asustek would set up internal committees to evaluate the impact of the decision.
ADDITIONAL REPORTING BY JASON TAN
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