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  • Interpretation
  • No.309
  • Date
  • 1992/11/27
  • Issue
    • Is Article 83-1 of the Income Tax Act constitutional in granting the taxing authority the power to investigate the net worth, funds flow and business data of a taxpayer suspected of material tax evasion?
  • Holding
    •        The Income Tax Act as amended on December 30, 1982, provides in Article 83-1: "If an officer appointed by a taxing authority or the Ministry of Finance finds in the course of investigation that the taxpayer is suspected of material tax evasion, he may, subject to approval of the Ministry of Finance, conduct an investigation of the net worth of the assets, funds flow, and the business data relating to any irregular course of business of the taxpayer to the extent necessary under the circumstances of the case." And furthermore:" Where the taxing authority, as a result of the investigation carried out under the preceding paragraph, proves that the taxpayer has committed an act of tax evasion, the taxpayer shall bear the burden of proof to show such facts as he may allege in his favor." These provisions are intended to prescribe by law in explicit words how to conduct the investigation in case of suspicion of material tax evasion and to allow the taxpayer the opportunity to produce rebuttal evidence to protect his right and interest if the result of the investigation makes the taxing authority believe that there is sufficient evidence of tax evasion. We do not find such provisions to be in conflict with the Constitution.
  • Reasoning
    •        The Income Tax Act as amended on December 30, 1982 provides in Article 83-1: "If an officer appointed by a taxing authority or the Ministry of Finance finds in the course of investigation that the taxpayer is suspected of material tax evasion, he may, subject to approval of the Ministry of Finance, conduct an investigation of the net worth of the assets, funds flow, and the business data relating to any irregular course of business of the taxpayer to the extent necessary under the circumstances of the case." And furthermore: "Where the taxing authority, as a result of the investigation carried out under the preceding paragraph, proves that the taxpayer has committed an act of tax evasion, the taxpayer shall bear the burden of proof to show such facts as he may allege in his favor." These provisions are intended to prescribe by law in explicit words that that the taxing authority may, in case of suspicion of material tax evasion, conduct an investigation of such indirect evidence as the net worth of the assets, funds flow, and the business data relating to any irregular course of business of the taxpayer for the purpose of assessing and determining the income thereof, and that, if the result of the investigation, upon reasonable judgment, makes the taxing authority believe that there is sufficient evidence of tax evasion, the taxpayer is allowed the opportunity to produce rebuttal evidence with respect to such facts as he may allege in his favor in order to protect his right and interest. We do not find such provisions to be in conflict with the Constitution. Apropos, the provisions are designed for the purpose of finding the truth, and do not give rise to any problem of retroactive application.  
      
    • *Translated by Raymond T. Chu.
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