Supporting Documentation Is Required to Recognize Scrap Losses
Inventory must be physically destroyed according to regulations to qualify for scrap loss recognition. Furthermore, supporting evidence—such as “before and after” photos of the destruction process and records of transport or recycling—must be provided. Scrap losses can only be recognized once these facts are verified.
If a company finds that products, raw materials, supplies, or work-in-progress must be scrapped due to expiration, spoilage, or damage, companies must:
- Provide an audit report from a CPA or an annual income tax audit report.
- Otherwise, within 30 days of the incident, submit an inventory list to the National Tax Bureau or a competent authority to request personnel to supervise the destruction and obtain official certification.
Case Example
In its 2023 income tax filing, “Company A” reported a scrap loss of over $3 million TWD for a batch of expired electronic components. The company claimed the items were destroyed by a waste disposal contractor. However, because they failed to provide a CPA audit report or the required documentation from the tax authority, the loss was disallowed, and the company was required to pay back taxes.
