The move to be taken by the MOF's Department of Taxation (DOT) is in response to a request from the American Chamber of Commerce (AmCham) in Taipei.

AmCham said the current practice of levying a 20 percent tax on the foreign firms' aggregate incomes in Taiwan arising from the labor service provided from abroad is unreasonable and makes the tax burden among the highest in the world.

Under the existing policy, a foreign company overseas can receive only NT$8 million after a Taiwan client pays it NT$10 million for a labor service like providing a designing job because the MOF will collect a tax of NT$2 million.

MOF officials are planning to revise the rules to allow a foreign company to first deduct its costs from the income and then collect the tax from the net income.

A foreign company abroad will have to pay only a tax of NT$600,000 based on a net income of NT$3 million after deducting a cost of NT$7 million from the total payment of NT$10 million if the foreign firm is able to provide documents concerning the cost involved.

Some certified public accountants said the DOT presently lumps foreign companies' labor service incomes into the category of “other incomes” which is subject to the 20 percent taxation for aggregate revenues.

Such a practice can easily cause disputes because of the confusion concerning the different categories of “business operation profits,” “labor service payment” and “other incomes,” they said.

The MOF will have to be clear and precise about the definitions for the categories of incomes if it wants to make a more liberal interpretation of the tax rules, they emphasized.

Most experts in the academic community noted that all earnings from operations in Taiwan should be categorized as “business operation profits,” except for royalties, stock dividends or interest earnings.

Officials from the DOT are expected to hold meetings with the AmCham, other international trade organizations like the European Chamber of Commerce in Taipei (ECCT), and accountants associations in Taiwan soon to jointly clarify the definitions.

A new interpretation of the tax regulations will be issued later on to put an end to the prolonged dispute.