Investment Loss Recognition Limited to Realized Loss
Based on the regulation, investment loss is limited to those realized and, if the invested enterprise encounters losses but the original capital contribution has not been reduced, it will not be recognized. If investment losses have been recognized in previous years, they shall be deducted from the original capital contribution. Following is an example.
Company A invested NTD 75 million in 2016 on Company B, capital and accumulated loss of which are NTD 100 million and NTD 25 million respectively.
Company B’s accumulated losses in the year 2021 was NTD 60 million, and performed capital reduction NTD 20 million to cover the losses in the year 2022. Since NTD 25 million of the accumulated losses of 60 million were losses incurred before Company A invested in Company B, when Company A filed the 2022 income tax , it should report the investment losses based on the investment cost as NTD 8.75 million
[Original capital contribution of 75 million × capital reduction ratio (20 million /100 million) × post-investment loss ratio (35 million /60 million)].
