Penalties for Underreporting Company Income, Even When No Tax is Payable After Reassessment

When a business is found to have underreported income by the ta authorties, it shall still be penalized under the Income Tax Act, even if there is no tax payable after reassessment.

If a business has tax exemptions due to incentives or has operating losses, resulting in no tax payable even after adding the underreported income, Article 110, Paragraph 3 of the Income Tax Act provides that the underreported income shall still be subject to penalty.

The penalty is calculated based on the underreported income multiplied by the corporate income tax rate - 20%, and the amount shall be multiplied according to Paragraph 1 (if the business has duly filed its final return, settlement, or liquidation return) or Paragraph 2 (if the business has failed to file). The multiplier is up to two times and three times, respectively. However, the maximum penalty is NT$90,000 and the minimum penalty is NT$4,500.

Example:

Company A filed its 2023 corporate income tax return reporting a loss of more than 40 million. Later, it was found to have underreported income of more than 10 million. The reassessed taxable income became a loss of more than 30 million, leaving no tax payable. However, according to the provision above, the underreported income of more than 10 million shall be subject to penalty. Based on the 2023 corporate income tax rate of 20%, the underreported tax is 2 million. Since Company A filed its return on time, the penalty is up to twice that amount, but capped at NT$90,000. Therefore, Company A was fined NT$90,000.

Explanation:

• First, multiply the underreported income by the applicable corporate tax rate to calculate the underpaid tax.

• If the enterprise has duly filed its return, the penalty is up to 2 times the underpaid tax.

• If the enterprise failed to file, the penalty is up to 3 times the underpaid tax.

• The penalty has limits: maximum NT$90,000 and minimum NT$4,500.