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  • Interpretation
  • No.315
  • Date
  • 1993/03/12
  • Issue
    • Are the ordinances of the Executive Yuan and the Ministry of Finance contrary to the constitutional principle of taxation per legislation in denying tax exemption to non-productive enterprises for premium on stocks issued above par value?
  • Holding
    •        Whether the income from the premium received by a corporation through the issuance of stocks above the face value may be exempt from tax and the extent of exemption, if any, are problems subject to reasonable discretion to be made by the legislature under the principle of taxation by law. Article 25 of the Act of Encouragement of Investment provides merely: "Where the premium realized by a productive enterprise through the issuance of stocks above the face value is set aside as surplus under the Company Act, such premium may be excluded from its income amount." As interpreted by the Executive Yuan Ordinance Tai-Ching-Tze No. 9494 (December 7, 1967) and the Ministry of Finance Ordinance Tai-Tsai- Shui-Fa-Tze No. 13055 (December 10, 1967), there being no law granting businesses other than productive enterprises tax exemption on such premium, it is not tax exempt. And we do not find such ordinances contrary to the principle of taxation by law.
  • Reasoning
    •        All business enterprises operating inside the territory of the Republic of China are liable under the Income Tax Act to payment of business income tax for all categories of income earned thereby with the exception of income for which tax is exempted by law. Inasmuch as the income from the premium received by a corporation through the issuance of stocks above the face value, when viewed by taking into account the provisions of the Income Tax Act, Article 24, Paragraph 1, and the Company Act, Article 239, Paragraph 1, proviso, and Article 241 as a whole, is what has exceeded the registered capital of the corporation and may accumulate to form the capital surplus, which in turn may be applied to the issuance of new stocks, it should be categorized as income of the corporation, and the legislature is certainly entitled to exercise reasonable discretion with respect to the issue of whether it should be tax exempt and, if yes, the extent of such exemption. Article 25 of the Act of Encouragement of Investment provides merely: " Where the premium obtained by a productive enterprise through the issuance of stocks above the face value is set aside as surplus under the Company Act, such premium may be excluded from its income amount." As interpreted by the Executive Yuan Ordinance Tai-Ching-Tze No. 9494 (December 7, 1967) and the Ministry of Finance Ordinance Tai-Tsai-Shui-Fa-Tze No. 13055 (December 10, 1967), "Article 238 of the Company Act being silent with respect to tax exemption for capital surplus, it may be tax exempt only if there is a clause in any other law such as the Act of Encouragement of Investment allowing tax exemption to a specific type of business for a specific category of income." And we hold that said ordinances are consistent with what we have just stated above and are not contrary to the principle of taxation by law as embodied in Article 19 of the Constitution. As to the subsequent broadening of the scope of tax exemption under the Statute for Upgrading Industries to include businesses other than productive enterprises, it is the result of legislative discretion exercised to meet the contemporary situation of economic development, and should not be taken to render the previous legislative discretion unconstitutional. 
      
    • *Translated by Raymond T. Chu.
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