In relation to laws involving taxation, they should be construed in accordance with the principle of taxation by law and the respective purposes of the laws, balancing therewith the economic purposes and the principle of equality in substantive taxation. The en banc Conference of the Administrative Court dated October 14, 1992, resolved that: “ ‘those not in the profession of buying or selling of securities,’ as referred to in Article 27 of the Act of Encouragement of Investment, should be factually determined according to the real operating situation of the enterprise for profit. Where the business scope indicated in the company registration or business registration does not include investment or its registered investment scope does not include buying or selling of securities, but it is in reality engaged in large volumes of buying or selling of securities, with its non-business income far outweighing its business income, then there is sufficient evidence to establish that its main business is in the buying or selling of securities, in which case, it cannot be viewed as one whose profession is not in the buying or selling of securities,” and it does not fall within the parameters in which payment of securities income tax is suspended. The foregoing is consistent with the principle set out in the beginning, is not incongruous with Article 27 of the Act of Encouragement of Investment, and does not contravene the principle of taxation by law provided for in Article 19 of the Constitution.

       The Act of Encouragement of Investment (which became ineffective on December 31, 1990, upon expiration of the implementation period) was formulated with the aims of encouraging investment and accelerating economic development. The main means of encouragement is through the benefit of tax deduction. The Act stipulates various conditions on which a benefit may be enjoyed, to prevent illegitimate receipt of the benefit of tax deduction by means of tax evasion activities, with a view to benefit fairly every manufacturing enterprise and enterprise for profit.     

       A company is a kind of enterprise for profit. To ensure its legal and normal operations, Article 12 and Article 15, Paragraph 1, of the Company Act stipulate: "where a duly established and registered company has not registered some item required to be registered, or has not registered an amendment to some registered item, the company may not cite that item to defend against third parties," and "a company may not operate in business activities beyond its registered business scope." Where a company operates in certain business activities beyond its registered business scope, therefore falling short of the registration requirement of Article 12 of the Company Act and violating the restrictions of Article 15, Paragraph 1 of the same Act, then, despite the fact that the required items or changes have not been properly registered and are therefore ineffective against third parties and that the responsible person of the company is civilly or criminally liable, the fact of the company*s operation in those businesses is not affected. 

       Article 27 of the Act of Encouragement of Investment amended and promulgated on January 26, 1987, stipulates that: "to facilitate the development of the capital market, the Executive Yuan may, upon consideration of the needs of economic development and capital formation and the situation of the securities market, decide to suspend taxation of part or all of the securities transaction tax, and to suspend taxation of part or all of the capital gain tax for securities from those whose profession is not in the buying or selling of securities." Pursuant to this stipulation, the Executive Yuan approved on December 1, 1987, Tai (76) Tsai No. 27947, under which the taxation of capital gain tax for securities of those whose profession is not in the buying or selling of securities is suspended from January 1, 1988, to December 31 of the same year. In relation to laws involving taxation, they should be construed in accordance with the principle of taxation by law and the respective purposes of the laws, balancing therewith the economic purposes and the principle of substantive fairness of taxation. On the basis of the principle of fair taxation, the reference to "those whose profession is not in the buying or selling of securities" in Article 27 of the Act of Encouragement of Investment should be determined in the light of the real operating situation of the enterprise for profit. Where a company*s registered business scope indicated in its company registration (including business registration) does not include investment or its registered investment scope does not include the buying or selling of securities, but it is in reality engaged in large volumes of buying or selling of securities, and its income generated from the buying or selling [of securities] is well beyond its income generated from its registered business activities, such that it may be said that its main business activities are in the buying or selling of securities, then it may not, through tax evading activities such as falling short of the registration requirement of Article 12 of the Company Act or violating the restrictions of Article 15, Paragraph 1, of the same Act, assert that its profession is not in the buying or selling of securities so as to enjoy the benefits of capital gain tax for securities exemptions. The en banc Conference of the Administrative Court dated October 14, 1992 resolved that: " ‘those not in the profession of buying or selling of securities’ as referred to in Article 27 of the Act of Encouragement of Investment should be determined according to the real operating situation of the enterprise for profit. Where the business scope indicated in the company registration or business registration does not include investment or its registered investment scope does not include buying or selling of securities, but it is in reality engaged in large volumes of buying or selling of securities, with its non-business income far outweighing its business income, then there is sufficient evidence to establish that its main business is in the buying or selling of securities, in which case it cannot be viewed as one whose profession is not in the buying or selling of securities," and it does not fall within the parameters in which payment of securities income tax is suspended. The foregoing is consistent with the principle set out in the beginning, is not incongruous with Article 27 of the Act of Encouragement of Investment, and does not contravene the principle of taxation by law provided for in Article 19 of the Constitution.     

       As to Article 32 of the Enforcement Rules of the Act of Encouragement of Investment, which provides: "the statement ‘those whose profession is in the buying and selling of securities’ in Article 27 of this Act refers to dealers that are in the business of buying and selling of securities and to enterprises for profit whose profession is investment as indicated in their company registrations or business registrations," following the explanations provided above and to the extent it is incongruous with the statutory intention, it is herein expounded that this [Article 32] should not be applicable.  

*Translated by BAKER & McKENZIE.