. /.  WORLD TRADE  
ORGANIZATION   
G/SCM/Q2/TPKM/15 
10 April 2012 
 (12-1858) 
Committee on Subsidies and 
Countervailing Measures Original:   English 
 
 
 
SUBSIDIES  
 
Replies to Questions from the EUROPEAN UNION1 Regarding the New and  
Full Notification of the SEPARATE CUSTOMS TERRITORY OF  
TAIWAN, PENGHU, KINMEN AND MATSU2 
 
 
 The following communication, dated 2 April 2012, is being circulated at the request of the 
Delegation of the Separate Customs Territo ry of Taiwan, Penghu, Kinmen and Matsu. 
 
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1. Under the section III "INDUSTRY", (C) Duty and tax exemptions granted to 
enterprises located within a designated zone, (1 ) Duty and tax exemptions for high-technology 
industries 
  The programme concerns Duty and tax exemptions for high-technology industries.    Question 1  
 As tax exemptions related to exported goods are among the subsidies illustrated in 
Annex I and thus come under the prohibited subsidies (article 3 of the Agreement on SCM), please explain how the specific measure canno t be considered a prohibited subsidy.  
 
Reply 
  The tax exemption granted to companies for their use of machines operating within the area 
of the science park is designed to attract high-tech enterprises to physically invest and operate within 
the Science Park, and consequently to create a cluster effect and economies of scale.  The tax 
exemption is neither for the purpose of encouragi ng exports, nor of directly subsidizing exports. 
 
 In accordance with the " Statute for the Establishment and Administration of a Science-Based 
Industrial Park " ('the Statute'), Article 20, tax exemption on machines for self use is offered to any 
company operating inside a Science Park, regardless of the destination of the goods produced by the 
qualifying company. 
 
 In other words, preferential tax treatment is  not offered on the basis of export performance; 
companies selling their products on the domestic market also qualify for the exemption.  In addition, 
when imported machinery and equipment that is exem pt from duty and tax is subsequently shipped to 
leviable areas, the import duty, commodity ta x and business tax payable on like machinery and 
equipment when sold domestically must be collected .  As such, the tax pref erence conferred under the 
Statute does not constitute an export subsidy as illust rated in Annex I of the SCM Agreement, or a 
prohibited subsidy under Article 3 of the SCM Agreement. 
                                                      
1 G/SCM/Q2/TPKM/13. 
2 G/SCM/N/220/TPKM/Rev.1.   G/SCM/Q2/TPKM/15 
Page 2  
 
   With respect to the duty and tax exemptions on imported raw materials, commodities, fuels, 
and semi-finished products used in the Park, paragr aph (h) of Annex I to the SCM Agreement already 
provides that the non-excessive exemption or remission of indirect taxes on "inputs that are consumed in the production of the exported product (maki ng normal allowance for waste) is not an export 
subsidy".  The amount of exemption or remission of indirect taxes is not in excess of the amount of 
such taxes actually levied on inputs that are c onsumed in the production of the exported product, 
therefore the tax preference conferred on such inputs does not constitute an export subsidy as 
illustrated in Annex I of the SCM Agreement, or  a prohibited subsidy under Article 3 of the 
SCM Agreement. 
2. Under the section III "INDUSTRY", (C) Duty and tax exemptions granted to 
enterprises located within a designated zone , (2) Duty and tax exemptions for in-zone 
enterprises 
 The programme concerns Duty and tax exemptions for in-zone enterprises.   Question 2 
 Although there is a provision concerning the exports to leviable areas from EPZ 
("products manufactured by in-zone enterprises shall be subject to customs duties, commodity 
taxes and business taxes when they are shipped to  leviable areas"), please explain the methods 
used to eliminate the effect on export prices of  the exemption not directly related to production 
(such as exemptions on imported machinery  and equipment and deed taxes on building 
acquisitions). 
Reply 
 The establishment of the Export Processing Zone (EPZ) is aimed at the objectives of 
attracting foreign direct investment and enhanci ng international trade activities.  The duty and tax 
exemptions on the machinery and e quipments utilized in the Zone are aimed at inviting enterprises to 
invest within the EPZ, thus promoting the developmen t of the EPZ.  They also help to generate the 
clustering effect and economies of scale in the EPZ. 
 Pursuant to Article 13 of the " Statute for the Establishment and Administration of Export 
Processing Zone " ('The Statute'), duties and taxes exemp tions granted for the self-use machines and 
equipment are offered to any company operating insi de the EPZ regardless of the destination of the 
products produced by the qualified company.  In ot her words, no favourable tax treatment is provided 
contingent on the export performance of the product s.  In addition, when imported machinery and 
equipment with duty and tax exemptions is subsequent ly shipped to leviable areas, it is subject to the 
import duties, commodity taxes, and business taxes collected on like machinery and equipment when 
sold domestically within five years of importation.  Therefore, the relevant tax preference conferred 
under the EPZ scheme does not constitute an expor t subsidy as illustrated in Annex I of the 
SCM Agreement or a prohibited subsidy u nder Article 3 of the SCM Agreement. 
 Regarding exemptions on deed taxes on buildin g acquisitions, in accordance with Article 13 
of the Statute, a newly-built standard factory obta ined from the EPZ, or a building obtained from the 
Export Processing Zone Administration (EPZA) by law shall be exempted from deed tax.  Due to limited land supply and over 95 percent occupancy rate  within EPZs, the current  investment policy is 
that in-zone enterprises must build their own f actories, and the EPZA no longer offers standard 
factories.  Thus, the exemption on deed tax has no effect on export prices. 
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