Key Compliance Requirements for Reporting Advertising Expenses on Free Samples
The Taipei National Taxation Bureau has issued a reminder to profit-seeking enterprises regarding the proper reporting of advertising expenses related to free product samples. To qualify as deductible expenses, businesses must comply with the documentation requirements set forth in Article 78 of the Standards of Audit for Profit-Seeking Enterprise Income Tax.
According to Article 78, when a business purchases items or samples for the purpose of distribution, it must obtain official supporting documents such as uniform invoices or general receipts. If the samples or giveaways are products manufactured or sold by the business itself, the company must record the item name, quantity, and cost in its accounting books. Additionally, enterprises are required to collect receipts from recipients specifying the sample name and quantity before such costs can be recognized as advertising expenses.
The Bureau illustrated this with a real case: A company reported NT$2 million in advertising expenses for its 2023 income tax filing, claiming the amount represented product samples provided to customers. However, the company could only present internal shipment records and failed to obtain recipient-issued receipts listing the sample details. Because this did not meet regulatory requirements, the NT$2 million was disallowed, resulting in an additional NT$400,000 in tax.
The Bureau urges businesses to maintain complete and accurate documentation when distributing samples. Proper compliance not only ensures tax deductibility but also minimizes the risk of adjustments, penalties, or supplemental tax assessments.
