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  • Interpretation
  • No.424
  • Date
  • 1997/03/21
  • Issue
    • An MOF letter states that the entire farmland possessed by the person giving it to one of his heirs, who is capable of self-tilling and plans to utilize it as such, is exempt from gift tax, but gift tax shall still be assessed if only a parcel of the land is given. Does the said proviso violate the legal principle of taxation by law as provided in Article 19 of the Constitution?
  • Holding
    •        The February 26, 1994, Interpretative Letter Tai-Tsai-Hsu No. 822304850 from the Ministry of Finance, which states " The entire farmland possessed by the person giving it away as a gift is exempt from gift tax, if the land has been given away in separate parcels at different times to the same person who has the right to inherit the land and has the ability to cultivate the farmland himself/herself and continues to operate the agricultural production business. However, a gift tax shall still be assessed for each gift of a separate parcel of the land prior to a gift of the last parcel of the land, and upon giving away the last parcel of the land, a tax refund may be applied for provided that the entire farmland is given to the same person," is an interpretation given by the authority in charge to its subordinate agency relating to the gift tax exemption procedure for the agricultural land of a family farm in order to enforce Article 20 of the Estate and Gift Taxes Act and Article 31 of the Agricultural Development Act. The interpretation is in compliance with the principle of the aforementioned laws and is not inconsistent with Article 19 of the Constitution.
  • Reasoning
    •        Article 20, Subparagraph 5, of the Estate and Gift Taxes Act expressly stipulates that the agricultural land of a family farm, given away to a spouse or one of the heirs, as specified in Article 1138 of the Civil Code, who has the ability to cultivate the farmland himself/ herself and continues to operate the agricultural production business, is not included in calculating the gift amount. Furthermore, the first sentence of Article 31 of the Agricultural Development Act also stipulates that "The agricultural land of a family farm that is passed to or inherited by a single heir who has the ability to cultivate the land himself/herself and continues to operate the agricultural business is exempt from estate and gift tax." The gift tax exemption allowed for agricultural land of a family farm is applicable not only when the heir has the ability to cultivate the land himself/herself and continues to operate the agricultural business, but also when the land is to be inherited by or given away to a single heir. The February 26, 1994 Interpretative Letter titled Tai-Tsai-Hsu No. 822304850 from the Ministry of Finance, which states " The entire farmland possessed by the person giving it away as a gift is exempt from gift tax, if the entire land has been given away in separate parcels at different times to the same person who has the right to inherit the land and has the ability to cultivate the farmland himself/herself and continues to operate the agricultural production business. However, a gift tax shall still be assessed for each gift of a separate parcel of the land prior to a gift of the last parcel of the land, and upon giving away the last parcel of the land, a tax refund may be applied for provided that the entire farmland is given to the same person," is the interpretation provided by the authority in charge to its subordinate agency, necessary as a basis of enforcement, on the applicability of the aforementioned laws and assessment of gift tax with respect to an entire piece of agricultural land given away in separate parcels at different times. The interpretation is in compliance with the gift tax exemption requirement of the various laws and meets the policy goal of the Agricultural Development Act of preventing the severance and transfer of cultivated land, which results in common ownership by several parties. It is also not inconsistent with Article 19 of the Constitution.  
      
    • *Translated by BAKER & McKENZIE.
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