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  • Interpretation
  • No.500
  • Date
  • 2000/04/07
  • Issue
    • Is it unconstitutional to levy business tax and entertainment tax on membership fees or guarantee deposits?
  • Holding
    •        According to Article 1 of the Business Tax Act, business tax shall be levied in accordance with the Business Tax Act on the sale of goods or services within the territory of the Republic of China. The laws involving taxation shall be interpreted in accordance with the legislative purpose of each of such laws based on the spirit of the principle of taxation by law, and take into consideration the economic meaning and the principle of equality in connection with substantive taxation. The above has been interpreted per J. Y. Interpretation No. 420. The Letter Ref. No. TTST-790661303 dated June 4, 1990, issued by the Ministry of Finance states: “For the membership fee or guarantee deposit paid to a golf course (club) by its members, if it is agreed in a contract that such fee/deposit is refundable upon withdrawal of membership after expiration of a specific period of time, and that such fee/deposit is not refundable upon withdrawal of membership before the expiration of a specific period of time, a uniform invoice shall be issued upon payment of the said fee/deposit on which business tax and entertainment tax shall be levied. When membership is actually withdrawn upon expiration of a specific period of time and membership fee or guarantee deposit is refunded, the golf course (club) is permitted to submit relevant documents to the authority in charge of tax levy to apply for return of the tax paid.” The said directive is an interpretation with respect to how the tax on a “membership fee” or “guarantee deposit,” which is a consideration for sale of goods or services in nature, should be imposed. This is within the taxation scope prescribed in Article 1 of the Business Tax Act, meets the principle of fair taxation, conforms to the Interpretation mentioned above, and does not contradict the equal rights under Article 7 and the principle of taxation by law under Article 19 of the Constitution.
  • Reasoning
    •        Article 1 of the Business Tax Act stipulates: “Business tax shall be levied in accordance with this Law on the sale of goods or services within the territory of the Republic of China and the import of goods.” According to Article 3, Paragraphs 1 and 2, of the same Act, the term “sale of goods”refers to the transfer of ownership of goods to others for a consideration, and the term “sale of services” refers to the supply of services to others or the provision of goods for the use or collection of proceeds by others for a consideration. The business revenue of a payer of business tax refers to the total consideration received by the taxpayer from counterparties for transferring goods or provision of services, including prices and other membership fees or guarantee deposits equivalent to consideration. For the membership fee or guarantee deposit already received, if it is agreed that such fee/deposit should be refunded upon the expiration of a period of time, when the said fee/deposit is actually refunded, the business tax included in the business revenue from membership fees and guarantee deposit formerly received by the tax levying authority shall be refunded. Based on the principle of taxation by law and the principle of taxation fairness, if the payment is made in the name of a “guarantee deposit” and if it is actually a consideration for sale of goods or services, the business tax shall still be levied in accordance with the abovementioned Business Tax Act.     
      
    •        As interpreted in J.Y. No. 420, the laws involving taxation shall be interpreted in accordance with the legislative purpose of each of such laws based on the spirit of the principle of taxation by law, and take into consideration the economic meaning and the principle of equality in connection with substantive taxation. The Letter Ref. No. TTST- 790661303 dated June 4, 1990, issued by the Ministry of Finance states: “For the membership fee or guarantee deposit paid to a golf course (club) by its members, if it is agreed in a contract that such fee/deposit is refundable upon withdrawal of membership after expiration of a specific period of time, and that such fee/deposit is not refundable upon withdrawal of membership before the expiration of a specific period of time, a uniform invoice shall be issued upon payment of the said fee/deposit on which business tax and entertainment tax shall be levied. When membership is actually withdrawn upon expiration of a specific period of time and membership fee or guarantee deposit is refunded, the golf course (club) is permitted to submit relevant documents to the authority in charge of tax levy to apply for return of the tax paid.” The purpose of levying business tax on a membership fee or guarantee deposit and allowing refund of the tax levied on the amount which is guarantee deposit in substance is to enforce the Business Tax Act, to audit the taxation method, and to prevent the act of circumventing tax under all sorts of guises. Based on the principle of fair taxation, payments collected by a business entity for business transaction, if falling under the consideration of sale of goods or services, shall be subject to tax in accordance with law. The said directive of the Ministry of Finance is an interpretation with respect to how the tax on a “membership fee” or “guarantee deposit,” which is a consideration for sale of goods or services in nature, should be imposed. This is within the taxation scope prescribed in Article 1 of the Business Tax Act, meets the principle of fair taxation, conforms to the Interpretation mentioned above, and does not contradict the equal rights under Article 7 and the principle of taxation by law under Article 19 of the Constitution.  
      
    • *Translated by Dr. C.Y. Huang of Tsar & Tsai Law Firm.
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