A Study on Cost Allocated to Taxable and Exempt Income in Integrated Securities Firms
Date Issued
2008
Date
2008
Author(s)
Chen, Hsin-Yi
Abstract
In response to provisions of exempt income in Income Tax Act, tax authorities maintain a fundamental principle that in situations where a profit-seeking enterprise has both taxable income and exempt income, cost and expenditures shall be allocted to their related income items so that exempt-income-related cost and expenditures shall not be used to reduce taxable income. Accordingly, several tax rulings are promulgated to embody and demonstrate the allocation rules. owever, when taxpayers apply the allocation tax rulings, they frequently have different interpretations from tax authorities’. Numerous disputes have arisen and have gone to courts for judicial decisions. In view of a lacking of a comprehensive research of cost allocation issue to date, the thesis takes the first step and selects as the focus of research cost allocation cases related to integrated securities firms, in that cases regarding integrated securities firms occur most frequently. isputes over cost allocation generally involve three issues. The first issue is whether tax rulings governing the allocation of cost between taxable and exempt income, are in conformity with the Constitution, both in form and substance. In this thesis, relevant tax rulings are tested by constitutional provisions of principle of taxation by law, the principle of equality in taxation and the principle of proportionality.econd, as regards the cost directly attributable to the respective income, considering its importance in affecting the amount of cost to be allocated to the respective income, the thesis tries to interpret its definition in a manner that is in most accordance with the Constitution. Finally, though it is well acknowleged that cost not directly attributable to the respective income shall be reasonably allocated to taxable and exempt income, many taxpayers believe that the allocation methods set out in current tax rulings quite too often produce unacceptable outcomes and therefore challenge their legality, which shows that the stipulated methods are not convincing enough. Considering this, the thesis, standing on the point of view that allocation methods is by its nature an assessment by imputation and shall be reasonable to meet legality requirement, proposes its own method of cost allocation for future refernce.
Subjects
cost allocation
integrated securities firms
cost directly attributable to the respective income
assessment by imputation
interest
operating expense
tax exemption
Type
thesis
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