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  • Interpretation
  • No.247
  • Date
  • 1989/10/27
  • Issue
    • The Measures Governing the Cases of Tax Returns of Profit-Making Enterprises Randomly Selected for Review ("the Measures"), the Guidelines Governing the Assessment of Income Tax Returns of Profit-making Enterprises("the Guidelines"), and Tai Tsai Suei Tze Ordinance No. 23798 ("the Ordinance ") were published and enacted to execute Article 80 of the Income Tax Law. Are the Measures, the Guidelines, and the Ordinance unconstitutional?
  • Holding
    •        When the taxation agency determines the income standard of each trade  according to Section 2, Article 80, of the Income Tax Law, and the taxpayer*s reported amount is above such standard, the reported income shall be taken as the basis for taxation pursuant to Section 3 of the same Article.  The purpose of this rule is to simplify the taxation procedures for the conveniences of both the taxation agency and the taxpayer. However, it does not mean that the taxpayer is exempt from the honest filing of income taxes. The taxation agency may investigate taxation records and documentation, collect evaded taxes, and render a fine in cases of evasion, omission, or under-reporting of taxable income, pursuant to Articles 103 and 110 of the Income Tax Law and Articles 21 and 30 of the Law Governing the Levy of Tax. The Measures Governing the Cases of Tax Returns of Profit-making Enterprises Randomly Selected for Review, the Guidelines Governing the Assessment of Income Tax Returns of Profit-making Enterprises, and Tai Tsai Suei Tze Ordinance No. 23798 published by the Ministry of Finance on May 18, 1970, were enacted to implement the provisions of the Laws mentioned above. Therefore, they are not unconstitutional. Nevertheless, the wordings of Articles 3 and 4 of the Measures, Article 2 of the Guidelines, of the Ordinance, and Section 2, Article 80, of the Income Tax Law are often misleading and should be amended accordingly.  
      
  • Reasoning
    •        Article 80 of the Income Tax Law provides that the taxation agency shall, after receiving income tax returns, dispatch an agent to verify the amounts of taxable income and taxes due. Where there is great number of taxpayers in the vicinity, the taxation agency may conduct random checks by trade and set the income standard of each trade. If the taxpayer’s reported income tax amount is above the standard amount, then the amount reported shall be taken as the basis for taxation. The reported amount, if lower than the standard amount, shall be determined after an individual check. The purpose of such provision is to alleviate the taxation agency’s administrative burden of investigating every case, enabling it to assess the taxable income of taxpayers on their tax return, as well as to simplify the taxation procedure. It does not mean that a taxpayer whose reported income tax is higher than the standard amount is exempt from the obligation of honest filing of income taxes. According to Articles 103 and 110 of the Income Tax Law and Articles 21 and 30 of the Law Governing the Levy of Tax, if there is tax evasion, omission, or under-reporting, the taxation agency must still examine documentation and investigate, collect evaded taxes and render a fine. The Measures Governing the Cases of Tax Returns of Profit-making Enterprises Randomly Selected for Review, the Guidelines Governing the Assessment of Income Tax Returns of Profit-making Enterprises, and the directive of May 18, 1970, Tai-Tsai-Suei Tze Ordinance No. 23798 were published and enacted by the Ministry of Finance to implement the provisions of the Laws discussed above. Therefore, they are not unconstitutional.
      
    •        Articles 3 and 4 of the Measures Governing the Cases of Tax Returns of Profit-making Enterprises Randomly Selected for Review, and Article 2 of the Guidelines Governing the Assessment of Income Tax Returns of Profit-making Enterprises provide the wordings regarding random selection. In addition, the Ministry of Finance’s May 18, 1970, Tai-Tsai-Suei Tze Ordinance No. 23798 stipulates that the taxation agency should verify the amounts of income tax reported by taxpayers whose reported amounts are higher than or equal to their standard amounts; if the amounts and items reported are not correct, they should be adjusted accordingly. The rule attempts to prevent dishonesty in tax reporting, yet is misleading. The third Paragraph of Article 80 of the Income Tax Law provides that "if the taxpayer’s reported income tax amount is above the standard amount, then the amount reported shall be taken as the basis for taxation," causing this rule to be misinterpreted as the taxation agency may adjust or change the taxpayer’s reported income through speculation. Therefore, the rule should be amended. 
      
    • *Translated by Chi-chang Yu 
      
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