Supreme Court limits tax breaks for foreign investors to approved projects

The Supreme Court ruled that corporate tax exemptions for foreign investors apply strictly to projects and shares formally approved through a tax reduction decision. The court emphasized that without such a specific designation, investors cannot claim benefits.

Tax regulations must be interpreted according to their literal text unless exceptional circumstances justify a purpose-oriented reading, the high court stated. Applying exemptions beyond the scope of an official approval would undermine legal stability and predictability.

The case centered on whether a foreign-invested company could receive tax breaks on dividends paid from income generated by capital increases not covered by an original exemption grant. The justices determined that reductions under the Restriction of Special Taxation Act require a direct link between the tax benefit and the specific foreign investment recognized by authorities.

The requirement for a formal tax reduction decision is a substantive prerequisite for calculating the portion of income attributable to the foreign investor, judges noted. This procedural step ensures that tax relief is limited to the income actually contributed by the foreign entity.

Dividends derived from business activities outside the scope of the approved investment remain subject to standard corporate taxation. The court specified that when a company increases its capital, any applicable tax breaks must be applied with necessary changes to match the new investment structure.

Consequently, tax reductions on dividends are restricted solely to the portion received from shares acquired through the specific capital increase project that obtained the formal reduction decision.