Dealing with Unusable Stock After the Zhong-Lian Oil Incident? Here Is the MOF’s Official Tax Relief Blueprint

At a Glance: Businesses stuck with unsalable or contaminated inventory from the Zhong-Lian Oil incident can write off these losses under Article 101-1 of Taiwan’s Income Tax Assessment Rules. The Ministry of Finance allows three deduction pathways: CPA certification, government supervision, or tax bureau inspection (must apply within 30 days; claims under NTD 10,000,000 qualify for paper-only review).

If your business has been caught in the fallout of the recent Zhong-Lian Oil (中聯油脂) incident, dealing with damaged or unsalable inventory is likely top of mind. Beyond the operational headache, there is a silver lining on the fiscal side: the Taxation Administration, Ministry of Finance (MOF) has clarified that affected enterprises can recognize these inventory write-offs as statutory scrap losses (損壞報廢損失) to reduce their Corporate Income Tax (CIT) exposure.

Whether you are dealing with raw ingredients, finished goods, or work-in-process stock, here is a practical walkthrough of how to claim these tax deductions legally and avoid common compliance traps.

1. What Are the 3 Ways to Legally Claim Inventory Scrap Losses?

Under Article 101-1 of the Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax, you cannot simply toss out damaged stock and claim a tax break. The tax authorities require clear third-party verification.

Depending on your operational preference and timing, you can choose one of three recognized pathways:

2. How Does the National Taxation Bureau Review Applications?

If you opt for Pathway 3 (applying directly to the tax bureau), the review process depends entirely on the financial scale of the scrapped batch:

• For Claims of NTD 10,000,000 or Less:

You qualify for a streamlined Paper Audit (書面審核). You don't need tax officers on-site. Simply upload your Scrapped Goods & Materials Report, chain-of-custody logs, and proof of contamination to the MOF eTax Portal.

• For Claims Exceeding NTD 10,000,000:

Your application triggers a Mandatory On-Site Field Inspection (派員勘查監毀). The tax bureau will schedule a team of officers to physically inspect and witness the destruction process before you dispose of the inventory.

3. Three Costly Mistakes You Should Avoid

Tax audits around scrap losses can be rigid. To ensure your claim isn't disallowed during an audit, keep these practical rules in mind:

1. Don't Destroy Anything Too Early: The single biggest mistake companies make is discarding or incinerating stock before a CPA witnesses it, a government official certifies it, or the tax bureau approves it. Unverified destruction equals an automatic disallowance of your tax write-off.
2. Watch the 30-Day Clock: If you choose Pathway 3, the 30-calendar-day deadline starts the moment the loss or contamination occurs or is identified. Missing this window forfeits your ability to use the direct tax bureau route.
3. Remember to Account for Recoveries: If you receive insurance payouts, vendor compensation, or legal settlements related to the contaminated stock, these funds must be netted against your gross scrap loss or reported as taxable non-operating income.

Need Help Navigating the Filing Process?

If you aren't sure which pathway offers the best balance of speed and documentation for your business, reach out to your accounting team or call the MOF Toll-Free Tax Service Hotline at 0800-000-321 for guidance.

Official Source: Taxation Administration, Ministry of Finance (MOF)

Reviewed by: Good Earth CPA

Drafted with AI assistance and verified by certified tax professionals for technical accuracy.