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  • Interpretation
  • No.210
  • Date
  • 1986/10/17
  • Issue
    • Does Article 23, Paragraph 3, of the Act of Encouragement of Investment amended on December 30, 1984, regarding certain types of interest exempted from income tax include interest on loans raised among private persons?
  • Holding
    •        Article 23, Paragraph 3, Subparagraph 1 of the Act of Encouragement of Investment, as amended and promulgated on December 30, 1980, regarding certain types of interests exempt from income tax refers to a variety of interests other than those of postal service savings accounts and short-term securities.  It does not exclude the interests on non-investment loans raised among private persons. However, Article 27 of the Enforcement Rules of the Act of Encouragement of Investment promulgated on August 31, 1981, describes the above subparagraph as “the so-called variety of interests include the interests on government bonds, incorporation debts, financial debentures, savings in financial institutions and loans raised by industrial and commercial enterprises.”  Ordinance T.C.S.T. No. 37930 issued by the Ministry of Finance in 1981 also considers that “the interests on loans raised among private persons are not included.”  Although the above observation is in accordance with the purpose of the encouragement of investment, it is decreed only by an administrative regulation and is in contradiction to the then-valid provision regarding “a variety of interests” mentioned above, and therefore violates the basic intention of the principle of taxation by law under Article 19 of the Constitution.
  • Reasoning
    •        Article 19 of the Constitution clearly states that the people have the duty by law to pay tax.  The so-called “paying tax by law” means that paying tax and being exempt from tax as well shall be in accordance with the terms prescribed by law.  The enforcement rule enacted by a competent supervising authority can only regulate the matters regarding the implementation of their mother law.  To comply with the basic intention of the principle of taxation by law mentioned above under the Constitution, the enforcement rules should still be in accordance with the provisions of law if matters of paying tax and being exempt from tax are involved. 
      
    •        Article 23, Paragraph 3, Subparagraph 1 of the Act of Encouragement of Investment, as amended and promulgated on December 30, 1980, regarding certain types of interests exempt from income tax refers to a variety of interests other than those of postal service saving accounts and short-term securities.  It does not exclude the interests on non-investment loans raised among private persons. However, Article 27 of the Enforcement Rules of the Act of Encouragement of Investment promulgated on August 31, 1981, describes the above subparagraph as “the so-called variety of interests that include the interests on government bonds, incorporation debts, financial debentures, savings in financial institutions and loans raised by industrial and commercial enterprises.”  Ordinance T.C.S.T. No. 37930 issued by the Ministry of Finance in 1981 also considers that “the interests on loans raised among private persons are not included.”  Although the above observation is in accordance with the purpose of encouragement of investment, it is decreed only by an administrative regulation and is in contradiction to the then-valid provision regarding “a variety of interests” mentioned above, and therefore violates the basic intention of the principle of taxation by law under Article 19 of the Constitution.  After Article 23, Paragraph 3, of the Act of Encouragement of Investment amended on December 30, 1984, regarding certain types of interests exempt from income tax adopted the type of enumerative provision, the interests on loans raised among private persons were not included in its terms.  Article 27 of the Enforcement Rules mentioned above regarding the scope of interests exempt from tax has also been eliminated.  Thus, the Ordinance issued by the Ministry of Finance shall no longer be applicable.  In addition, since the Holding of Interpretation No. 177 promulgated by this Yuan clearly states that “The Interpretation decided by this Yuan based on a petition of the people is effective in the case for which the petition is made by the petitioner,” the regulation applied by the final judgment in the administrative proceeding for which the petition is made by the petitioner has already been invalidated, though it still needs to be interpreted.
      
    • *Translated by Ching P. Shih  
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