Cablegate: Foreign Portfolio Investment Exempt From Amt

VZCZCXRO2335
RR RUEHGH
DE RUEHIN #2817 2282214
ZNR UUUUU ZZH
R 162214Z AUG 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 1656
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3380
RUEHBJ/AMEMBASSY BEIJING 5542
RUEHUL/AMEMBASSY SEOUL 8020
RUEHGP/AMEMBASSY SINGAPORE 6575
RUEHKO/AMEMBASSY TOKYO 7939
RUEHML/AMEMBASSY MANILA 9779
RUEHJA/AMEMBASSY JAKARTA 3909
RUEHKL/AMEMBASSY KUALA LUMPUR 3546
RUEHHI/AMEMBASSY HANOI 3115
RUEHBY/AMEMBASSY CANBERRA 4285
RUEHWL/AMEMBASSY WELLINGTON 1543
RUEHHK/AMCONSUL HONG KONG 6756
RUEHGH/AMCONSUL SHANGHAI 0315
RUEHGZ/AMCONSUL GUANGZHOU 9495

UNCLAS TAIPEI 002817

SIPDIS

SIPDIS

STATE PLEASE PASS USTR

STATE FOR EAP/RSP/TC, EAP/EP

USTR FOR ALTBACH

USDOC FOR 3132/USFCS/OIO/EAP/WZARIT
TREASURY FOR OASIA/LMOGHTADER
TREASURY PLEASE PASS TO OCC/AMCMAHON
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN

E.O. 12958: N/A
TAGS: EINV EFIN ECON PINR TW
SUBJECT: Foreign Portfolio Investment Exempt from AMT

1. Summary. The Ministry of Finance (MOF) recently announced it
will exempt foreign institutional investors (FIIs) from Taiwan's 10%
alternative minimum tax (AMT) if the investment capital comes from
offshore. The MOF decision is designed to attract foreign portfolio
investment and has interagency endorsement. End Summary.

2. On August 14, the MOF issued an administrative order to exempt
almost all of foreign portfolio investment from Taiwan's new 10%
AMT. The exemption is retroactive to January 1 of this year when
the AMT was implemented. According to the order, FIIs without fixed
offices or agents in Taiwan are not required to pay the 10% AMT for
capital gains earned from securities trading in Taiwan, even if the
investment capital is the FIIs' own funds. Taiwan securities firms
or other entities contracted by qualifying FIIs to do securities
trading are also not required to pay nor withhold the 10% AMT.

3. FIIs having fixed offices or agents in Taiwan are not required
to pay or withhold the 10% AMT for capital gains from securities
trading in Taiwan, if the investment capital comes from offshore and
is not their own funds. According to the MOF, mutual funds
organized by these FIIs' offshore headquarters are not subject to
the 10% AMT because the owners are the offshore fund holders, rather
than the FIIs which only serve as fund managers. Funds that
offshore customers contract FIIs to trade in Taiwan are also not
subject to the 10% AMT.

4. However, FIIs having permanent offices or agents in Taiwan are
required to pay the 10% AMT on capital gains from securities trading
in Taiwan when they use their own funds, even if those funds come
from offshore.

Results
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5. An MOF Department of Taxation official told AIT/T that the
administrative order is retroactive to January 1, 2006 when the AMT
was implemented. He also estimated that as a result of the order,
99% of foreign portfolio investment in Taiwan will be exempt from
the 10% AMT. A Financial Supervisory Commission (FSC) official told
us that the MOF order is designed to attract FIIs to Taiwan's
securities markets, and that the FSC and Taiwan's Central Bank of
China have both endorsed the MOF move.

YOUNG

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