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  • Interpretation
  • No.505
  • Date
  • 2000/05/05
  • Issue
    • Does the directive of the Ministry of Finance violate the principle of legal reservation (Rechtsvorbehaltprinzip) embodied under Article 23 of the Constitution by demanding that a corporation complete its recapitalization registration filing prior to the operation of its newly acquired equipment or provided services, when the Enforcement Rules state that the corporation has to submit all pertinent documents to the Ministry of Finance for its review within one year from the day after its newly acquired equipment is put into operation or new services are provided?
  • Holding
    •        Revised and promulgated as of January 26, 1987, Article 6, Paragraph 2, of the Act of Encouragement of Investment (hereinafter the “Act”, having expired on December 31, 1990) provides an option of incentive election to an enterprise that falls into any one of the categories and meets with all the criteria and standards set forth under Article 3 of the Act (“Article 3 Enterprise”). Once having raised more capital to acquire new equipment for production capacity or service scope expansion, an Article 3 Enterprise may elect one of the enumerated incentives afforded under Article 6, Paragraph 2, of the Act. The Act further delegates the Executive Yuan the power to issue enforcement rules for the administration of the incentive program. Article 11, Paragraph 1, Subparagraph 2, of the Enforcement Rules of the Act (hereinafter the “Enforcement Rules”) prescribes that an Article 3 Enterprise that elects a four-year income tax exemption must submit all pertaining documents for the review of the Ministry of Finance within one year from the day after newly acquired equipment is put into operation or new services are rendered. This filing requirement is distinct from a prerequisite filing to be done by a company for a capital increase. Failing to differentiate these two filing requirements, the Ministry of Finance, through a directive of March 5, 1975, Tai-Tsai-Shui No.31613, ordered that an Article 3 Enterprise, to be entitled to the election, shall complete its filing for recapitalization before its newly acquired equipment is put into operation or new services are rendered. This directive not only fails to comply with the Enforcement Rules, but also infringes upon the right to which the people are entitled under law through its power to issue interpretative administrative rules. As such, the directive as applied violates the principle of legal reservation (Rechtsvorbehaltprinzip) embodied under Article 23 of the Constitution, and shall no longer be applied.
  • Reasoning
    •        In administering a particular set of laws, a governing administrative agency may issue directives within the scope of its delegated power for the purpose of necessary supplementary interpretation. Nevertheless, the directives issued can by no means conflict with the laws they are meant to interpret, a principle that has been espoused and elaborated many times in our previous Interpretations. As prescribed and afforded under Article 6, Paragraph 2, of the Act, an Article 3 Enterprise may elect one of the enumerated incentives, once having raised more capital to acquire new equipment for production capacity or service scope expansion. The Act further delegates the Executive Yuan to issue enforcement rules for the administration of the incentive program. As promulgated by the Executive Yuan pursuant to its delegated power, Article 11, Paragraph 1, Subparagraph 2, of the Enforcement Rules of the Act merely prescribes that an Article 3 Enterprise that elects a four-year income tax exemption must submit all pertaining documents for the review of the Ministry of Finance within one year from the day after newly acquired equipment is put into operation or new services are rendered. Under a different regulatory regime, as Article 129, Subparagraph 3, of the Company Act prescribes, a corporation must have the amount of its capitalization and the par value of its issued shares stipulated in its articles of incorporation. Article 277, Paragraph 1, of the Company Act further prescribes that once stipulated, any subsequent changes to raise the capital amount would require that a resolution be adopted at a shareholders’ meeting to amend the bylaws. The capital increase and the amount of increase are further subject to Article 278 of the Company Act. Once the shareholders’ meeting adopts a resolution to increase the capitalization amount, the directors must then issue new shares by following the procedures set forth under Articles 266, et seq., of the Company Act. In pursuance of Article 418 of the Company Act, at least half of the members of the board directors and at least one supervisor on behalf of the company must file an application for registration. The filing process, as explicitly stated under Article 389 of the Company Act, will not be complete until the central competent authorities issue a new certificate of incorporation. As stated above, a corporation after having obtained the requisite shareholders’ approval may raise its capitalization amount by issuing new shares for subscription. After payments for the subscription are collected, the corporation may apply the new capital as it sees fit. The law does not dictate any particular use of the funds, be it for the purpose of new equipment acquisition or new services provision. A distinction must be made between the filing requirements for recapitalizaiton and for equipment acquisition or service provision. An applicant’s completion of the process of registration is by no means a condition precedent to the incident of installing new equipment or providing new services. Thus, the directive of the Ministry of Finance, Tai-Tsai- Shui No. 31613, does more than conflict with the Enforcement Rules by demanding that a corporation complete its filing process of recapitalizaton before its newly acquired equipment is put into operation or new services are rendered so as to be entitled to incentives granted under Article 6, Paragraph 2, of the Act. It also imposes new restrictions on the people’s rights through its power to issue interpretative administrative rules. Accordingly, the directive violates the principle of legal reservation (Rechtsvorbehaltprinzip) espoused and embodied under Article 23 of the Constitution, and therefore, shall no longer be applied. 
      
    • *Translated by Joe Y.C.Wu.
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