The reason for a company to reduce capital will affect whether the investment company can recognize the investment losses. If the reason is for compensating cumulative losses, the investment company can recognize the investment losses. If it is for capital reduction by cash, the investment company cannot report the investment losses.

National Taxation Bureau of the Southern Area, Ministry of Finance (Taiwan) expresses that there are two main reasons as follows for companies to reduce capital:

1. Capital Reduction for Compensating Cumulative Losses

When a company loses money year after year, the company can reduce capital for compensating cumulative losses, so that the share capital can be written off to eliminate cumulative losses and to enhance the net asset value of each share. In this case, as long as the investment company can provide certified documents of capital reduction of the investee, the investment losses can be reported. In addition, the investment company can calculate with face value the stock dividends previously received from the capital-reduced company into the actual investment costs. And, after multiplying the result by the capital reduction ratio, it can be reported together with investment losses.

2. Capital Reduction by Cash

The reason a company adopts capital reduction by cash is usually due to a period of operation, after an assessment of sufficient funds,