萬國法律事務所

The National Taxation Bureau of Taipei recently announced that where parties to a dispute reach a settlement in which a settlement payment is received by one of the parties as compensation for actual damage incurred, the settlement payment will not be included in the gross amount of consolidated income of said recipient party. 

However, if the settlement payment is not given to compensate for an actual loss, such payment will be regarded as “other income” as provided for at Article 14, Section 1 of the Income Tax Act, and as such will be calculated as part of the gross amount of consolidated income of the recipient party. In addition, the fax-free compensation is limited to covering the loss for the injury actually suffered, and excludes lost interest. 

For instance, if the settlement payment is made for the purpose of covering the construction fee for the loss of a destroyed building or for the medical expenses paid to treat an injured party, these settlement payments are deemed to be compensation that will be tax-free. In contrast, if the settlement payment is made for the purpose of compensating for the loss of restaurant income resulted from the repair of a nearby road, such payment will be deemed “other income” as provided for at Article 14 Section 1 of Income Tax Act and be subject to income tax.