WORLD TRADE
ORGANIZATIONG/SCM/N/2/TPKM
19 June 2002
(02-3419)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
NOTIFICATION PURSUANT TO ARTICLE 28.1(A) OF SUBSIDIES
INCONSISTENT WITH THE AGREEMENT
SEPARATE CUSTOMS TERRITORY OF TAIWAN,
PENGHU, KINMEN AND MATSU
The following communication, dated 10 June 2002, has been received from the Permanent
Mission of the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu.
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TABLE OF CONTENTS
    Programme Page No.
    INDUSTRIAL SUBSIDIES
1. Tax credits for the purchase of automation and environmentally-
friendly equipment2
2. Tax deduction for automobiles and motorcycle using domestic design of
certain automobile and motorcycle components5G/SCM/N/2/TPKM
Page 2
1. Tax credits for the purchase of automation  and environmentally-friendly equipment
1. Title of the Programme
Tax credits for the purchase of automation and environmentally-friendly equipment
2. Policy objective and/or purpose
The primary goal of the tax incentive is to achieve economic growth through industrial
restructuring by encouraging investment in certain desirable areas such as automation, energy
conservation, pollution control, reclamation of resources and reuse of industrial water.
3. The date of establishment of the programme
The programme commenced in 1990.
4. Background and responsible authorities
(a) Law:- Statute for Upgrading Industries (hereinafter   referred to as the "SUI"), Article 6.The SUI was promulgated on 29 December 1990, and amended on 10 January 1995, and re-
amended on 31 December 1999.
(b) Responsible authorities:Companies are required to obtain a certificate from the relevant government agency before
they can apply for the tax credits with the tax collection authorities.  The government agencies
involved for the issuance of such certificates are as follows:
(i) For the manufacturing industry and technical services industry: The Industrial
Development Bureau of the Minist ry of Economic Affairs ("MOEA");
(ii) For energy saving: The Energy Comm ission, Ministry of Economic Affairs;
(iii) For the construction industry: The Construction & Planning Administration, Ministry
of the Interior;
(iv) For the wholesale industry: The Commence Department, MOEA(v) For agricultural industry: The Council of Agriculture, Executive Yuan.(vi) Ministry of Finance
5. Form of Subsidy
Credit against Corporate income tax
6. To whom and how assistance is provided
A firm may gain credits up to 20 per cent of the amount of fund disbursed for any of the
following purposes against the amount of corporate income tax payable for the current year:G/SCM/N/2/TPKM
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(a) investment in equipment for automation of production;
(b) investment in the equipment used for reclamation of resources and/or pollution
control;
(c) investment in the equipment for energy saving and/or recycling of industrial water.(d) Investment in the equipment for the reduction of greenhouse gas emission on the
enhancement of energy efficiency.
In case the amount of corporate income tax levied for the current year is less than the amount
of tax credit, the balance of tax credit may be carried over to the next four years.  The total amount of
investment credit against tax in each year should not exceed fifty per cent (50 per cent) of the amount
of corporate income tax levied in the then curren t year.  However, this limitation should not apply to
the final year.
The scope of application, implementation period and tax credit rate should be prescribed by
the Executive Yuan and is subject to adjustment once every two years.
All firms, regardless of their industry categories, are eligible for the tax credit; therefore, the
support should not be specific within the meaning of Article 2 of the Agreement.
For the manufacturing industries, the rate of investment credit available is 20 per cent for
procurement of domestically manufactured equipment for automation, and 10 per cent for foreign
manufactured equipment, respectively.  The rate of investment credit available for procurement of
domestically manufactured equipment for pollution control is 20 per cent, and 10 per cent for foreignmanufactured equipment. The discrepancy of the ra te of investment credit between domestic and
foreign equipment will be eliminated upon the Separate Customs Territory of Taiwan, Penghu,
Kinmen and Matsu’s accession to the WTO.
The amount of investment credits in the equipment for the reduction of greenhouse gas
emission on the enhancement of energy efficiency is not available since it was a new clause added in
December 1999. The amount of other investment credits for the most recent three years are listed asfollows:G/SCM/N/2/TPKM
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        (Unit:  thousand NT)
FY 1998 FY 1999 FY 2000
No. of Cases Amount of Tax
ReductionNo. of Cases Amount of Tax
ReductionNo. of Cases Amount of Tax
Reduction
Investment credit for procurement offoreign manufactured equipment for
Automation736 1,902,000 7,553 6,489,405 19,161 14,859,619
Investment credit for procurement of
domestically manufactured equipmentfor automation3,098 20,368,023 1,489 3,594,101 3,928 8,137,703
Investment credit for procurement of
domestically manufactured equipment
for pollution control71 121,546 125 201,248 211 347,655
Investment credit for procurement of
foreign manufactured equipment for
pollution control28 39,021 29 22,999 61 204,147G/SCM/N/2/TPKM
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2. Tax deduction for automobiles and motorcycles that use certain automobile and
motorcycle components which are of domestic design.
1. Title of the programme
Tax deduction for automobiles and motorcycles that use certain automobile and motorcycle
components which are of domestic design.
2. Policy objective and/or purpose
The primary goal of the incentive is to encourage domestic design, research and development
capability for  automobiles, motorcycles and their components.
3. The date of establishment of the programme
The programme commenced in 1984.
4. Background and responsible authorities
(a) Law:- Statute for Commodity Tax, Paragraph 2, Article 12
(b) Responsible authorities:
- Ministry of Economic Affairs (MOEA)
- Ministry of Finance (MOF)
5. Form
Automobiles and motorcycles using certain components of domestic design may enjoy
commodity tax deduction.
6. To whom and how assistance is provided
In order to upgrade the automobile and motorcycle design capabilities of the Separate
Customs Territory of Taiwan, Penghu, Kinmen a nd Matsu, upon review and approval by the MOEA
and the MOF, automobiles using domestic designed engi nes, chassis or bodies, for each used item, the
automobiles will, from the date the model rolls out, enjoy a 3 per cent commodity tax deduction for a
period of 4 years. In addition, motorcycles using self-developed brand and domestic designed engines,frames and models certified by the MOEA may enjoy a 3 per cent commodity tax deduction for a
period of 3 years from the date the model rolls out.G/SCM/N/2/TPKM
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7. Amount
   Unit: thousand NT
FY 1998 FY 1999 FY 2000
Components
domesticallydesignedNo. of
casesTotal Amount of
Tax ReductionNo. of
casesTotal Amount of
Tax ReductionNo. of
casesTotal Amount of
Tax Reduction
Body ofAutomobile9 1,427,979 9 1,684,292 10 1,583,531
Chassis and Body
of Automobile1 6,927 1 184,544 4 300,556
The Frame,
Engine and Body
of Motorcycle19 197,433 24 155,942 35 190,376
Total 29 1,632,340 34 2,024,779 49 2,074,463
8. Duration
On 31 Oct. 2001, the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu
repealed the relevant provisions of its law related to the tax incentive provided for automobiles &motorcycles using components of domestic design, specifically, the engine, chassis or frame and
body.  The granting of incentives to cases approved previous to The Separate Customs Territory of
Taiwan, Penghu, Kinmen and Matsu's accession to the WTO would cease no later than three years
after The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu's accession to the WTO.
9. Trade effects or related statistical data
Taking FY 2000 as an example, the total production value of whole automobiles in the
Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu was NT$409.1  billion. The
reduced commodity tax was reached by NT$2,074,463,000 which was 0.49 per cent of the yearly
automobile and motorcycle production value.
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