Statements of Financial Accounting Standards In Taiwan

Revised by the Financial Accounting Standards Committee In Taiwan on 22 September 2006.

The purpose of this Statement is to establish the accounting standards for income tax, including to recognize income taxes payable or refundable for the current period and to recognize deferred tax assets or liabilities for the items that have future income tax effects and are reported on the financial statements or the income tax return.

Interperiod tax allocation

An enterprise should recognize the deferred tax asset or liability resulting from temporary differences, loss carryforwards, and income tax credits. Income tax expense (benefit) for each period is the sum of income taxes currently payable (refundable) and deferred income tax expense (benefit).

The procedures for determining deferred tax liability or asset are as follows:

(a) identify the types and amounts of existing temporary differences and the nature and amounts of loss carryforwards and income tax credits, and their expiration dates.

(b) calculate the amount of deferred tax liability for taxable temporary differences using the enacted tax rates;

(c) calculate the amount of deferred tax asset for deductible temporary differences and loss carryforwards using the enacted tax rates;

(d) calculate the amount of deferred tax asset for income tax credits; and

(e) if the available evidence indicates that it is more than or equal to 50% probable that a portion or all of the deferred tax asset will not be realized, then that portion or all of the amount should be recognized in total in a valuation allowance account to reduce the deferred tax asset.

When measuring a deferred tax liability or asset, the enacted tax rates for the periods in which the deferred tax liability or asset is expected to be settled or realized should be used. But if the tax rates for the periods of expected settlement or realization are not formally enacted into law, then the enacted tax rate for the nearest period should be used.

Business merger

When a business merger is accounted for under the purchase method, the purchased company should recognize a deferred tax liability or asset for the differences between the fair values of assets and liabilities and their tax bases, loss carryforwards, and income tax credits. If the purchased company established a valuation allowance for deferred tax asset at the date of merger, then, after the merger, when an income tax benefit results from a write-off of the valuation allowance, the tax benefit should first be charged against the goodwill recognized from the business merger, and the remainder reported as a reduction of current income tax expense for income from continuing operations.

This statement also specifies disclosures about treasure stock.

This statement becomes effective for financial statements for the fiscal year ending on and after 31 December 2006.

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