The tax office puts insurance agents at a financial disadvantage by treating them as employees, not independent practitioners.
What qualifies someone to be considered a "practitioner of a profession?" The question may sound philosophical, but how it is answered has some direct practical consequences. In Taiwan, the labor and tax authorities have very different opinions on what constitutes a "practitioner of a profession" -- with the result that many sales agents in the insurance industry wind up with the hardship of a considerably larger tax bills than they would otherwise.
After long discussion about the difficulties entailed in treating insurance agents as "employees" under the terms of the Labor Standards Law, the Council on Labor Affairs and the insurers recently concurred that agents may be defined as "independent contractors" in the agreements signed between the insurance companies and the agents. The rationale was that the main income for insurance agents is commission, not fixed salary, and that the basic expenses incurred in conducting their business are not reimbursed by the insurance companies.
But that same logic has not been accepted by the tax authority, which has declined to allow insurance agents to deduct expenses from their taxable income as is permitted for "practitioners of a profession" under Article 14 of the Income Tax Law. That narrow interpretation has been based on the fact that insurance agents represent a single company, unlike other independent contractors who may serve multiple clients.
In response, the insurance companies argue that similar to lawyers, accountants, and other practitioners, insurance agents provide clients with advice based on their professional knowledge -- in their case, financial-management and tax-management know-how. And the agents in fact serve multiple clients -- their policy holders -- the same as for other professionals.
For the past two years, the AmCham insurance committee's position paper in the chamber's annual Taiwan White Paper has called for the provisions of Article 14 to be extended to insurance agents. But to date, the tax office, unlike the labor council, has continued to regard agents as employees rather than as independent contractors.
"It comes down to an issue of fairness," says Lee Wood, co-chair of the AmCham insurance committee. "Not being able to deduct expenses puts insurance agents in a disadvantageous position financially." It also drives some "tied agents" to become independent brokers, which "means that insurance companies are losing good agents," he says.
Aligning the tax policy with the position of the labor council would put the problem to rest.