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  • Interpretation
  • No.241
  • Date
  • 1989/05/26
  • Issue
    • Shall the special tax benefit of a 70% land value increment tax reduction be applied to condemned lands that had been designated for public facilities reservation prior to the amendment of the Urban Planning Act on September 6, 1973, and the government published land value was fixed then, but a transfer by inheritance occurred thereafter?
  • Holding
    •        Ordinance T.T.S.No.34819 (Ministry of Finance, July 25, 1977) states that: “For land that had been designated for public facilities reservation prior to the amendment of the Urban Planning Act on September 6, 1973, and because the government published land value was fixed then, but a transfer by inheritance occurred thereafter, the proviso of Article 42, Paragraph 1, of the Equalization of Land Rights Act shall not be applied upon the condemnation of said land.” This is because the transfer by inheritance occurred after the amendment of the Urban Planning Act, and calculation of the capital gain for the condemnation price was based on the government published land value at the commencement of the inheritance which had been fixed beforehand, so generally the burden of land value increment tax has been lessened. Therefore, the provision for 40% land value increment tax reduction contained in the first part of Article 42, Paragraph 1, of the aforementioned Act shall be applied, and the 70% land value increment tax reduction contained in the proviso of the same Act shall not be applicable. The abovementioned Ministry of Finance’s Ordinance is consistent with the legislative intent of said Act, is not in violation of the principle of taxation by law and the principle of fairness, and hence, is not unconstitutional.
      
  • Reasoning
    •        The state may condemn private land for public purpose. However, for fairness, it must compensate the land owner for the land value with complements, as well as tax benefits whenever appropriate. Article 39, Paragraph 1, of the Land Tax Act and Article 42, Paragraph 1, of the Equalization of Land Rights Act prescribe: “The land value increment tax for condemned lands shall be reduced by 40%. But the land value increment tax reduction shall be 70% for land that was designated for public facilities reservation prior to the amendment of the Urban Planning Act on September 6, 1973, and the government published land value was fixed then, but no transfer occurred after said amendment of the Urban Planning Act.” The legislative intent was founded on this principle of fairness. 
      
    •        The capital gain for land that has been condemned usually is calculated on the current government published land value minus the original value or prior land value at the time of transfer. If there was an inheritance of land, the prior land value at the time of transfer was the government published land value at the commencement of inheritance. According to the aforementioned Act, the land value increment tax reduction for condemned lands is generally 40%. For those lands that did not change hands after the amendment of the Urban Planning Act on September 6, 1973, the gap between the current government published land value and the original value has widened because of the time lapse. Therefore, a benefit of 70% land value increment tax reduction shall be given. If an inheritance commenced after the abovementioned date, the land value increment tax had been exempted for transfer by inheritance. Generally, the difference between the current government published land value at condemnation and prior land value at the time of transfer is smaller, and the tax burden has been lessened. Therefore, the ordinary reduction rate for capital gain shall be applicable in lieu of the 70% reduction rate, or unfairness may result. Ordinance T.T.S.No.34819 (Ministry of Finance, July 25, 1977) regards inheritance as one method of land transfer and conforms to the concept that change in the subject of property is equal to transfer of rights. The statement that: “For land that had been designated for public facilities reservation prior to the amendment of the Urban Planning Act on September 6, 1973, and the government published land value was fixed then, but a transfer by inheritance occurred thereafter, the proviso of Article 42, Paragraph 1, of the Equalization of Land Rights Act shall not be applied upon the condemnation of said land” was derived from this viewpoint. It is consistent with the legislative intent of said Act, is not in violation of the principle of tax by law or the principle of fairness, and hence, is not unconstitutional.
      
    • *Translated by Huai-Ching Tsai, Esq.
      
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