Pursuant to Article 24, Paragraph 1, and the first sentence of Article 39 of the Income Tax Act, a company’s business income of the current year is its net profit, calculated by deducting from the gross income of the company in the current year, against its costs, expenditures, losses, taxes and donations incurred in the same year; business losses incurred in previous years shall not be taken into account when calculating the business income of the current year. The intention of the proviso to Article 39 of the Income Tax Act is to set up an honest tax return system and the deductions of losses provided thereunder are applicable only to companies not involved in a merger during the period in which the deductions are claimed. Where a company has been involved in a merger, the post-merger profits and losses of the surviving company shall only be calculated from the cut-off date of the merger, and shall not be retrospectively traced to pre-merger profits and losses of the respective merging companies for deductions. The Tai-Tsai-Shui-Tze-No. 35995 Directive of the Ministry of Finance dated September 6, 1977, is consistent with the statutory intention expounded above, and is not incongruous with the Constitution. As to whether tax benefits should be granted in relation to corporate mergers, this is within the plenary powers of the legislature to resolve

　　　 Pursuant to Article 24, Paragraph 1, and the first sentence of Article 39 of the Income Tax Act, a company’s business income of the current year is its net profit, calculated by deducting from the gross income of the company in the current year, against its costs, expenditures, losses, taxes and donations incurred in the same year; business losses incurred in previous years shall not be taken into account when calculating the business income of the current year. To encourage the honest filing of tax returns, the proviso to Article 39 of the Income Tax Act states that “taxation of a corporate business entity, which keeps complete sets of records and receipts of account, shall be made after deducting from its net profits of the current year, against its tax collection authority-verified losses of the 5 years (which was amended to 3 years on December 30, 1989) immediately preceding the date of examination by the tax collection authority, provided that the annual filings have been timely made with either the blue filing forms referred to in Article 77 or certifications from accountants upon audit.” The intention of this proviso is that, for a corporate business entity to deduct losses incurred in the 5 preceding years, the company must have a net profit in the current year, and must not have been involved in a merger that occurred during the period in which the deductions are claimed. Where a company has been involved in a merger, its profits accrued and losses incurred shall only be calculated from the cut-off date of the merger, and shall not be retrospectively traced to pre-merger profits and losses of the respective merging companies for deductions. The Tai- Tsai-Shui-Tze-No. 35995 Directive of the Ministry of Finance dated September 6, 1977, elaborates that “In line with the intention of the requirements of Article 39 of the Income Tax Act, deductions of losses incurred by corporate business entities in the preceding 3 years are applicable only to companies with net profits. The purpose of the foregoing is for a company to strengthen its financial footings, after the company has turned its position of loss into a profitable one, by applying its retained earnings to make up for business losses incurred in the preceding 3 years. Where a company ceases to exist upon a merger, the surviving company remains separate from the merged company, and, as such, the tax collection authority-verified losses incurred by the merged company in the 3 years preceding the merger shall not be deductible.” This is consistent with the statutory intention expounded above, and is not in contravention with the statutory principles of taxation or incongruous with the Constitution. As an obiter dictum, the issue of whether tax benefits should be granted in relation to corporate mergers is within the plenary powers of the legislature to resolve.