Article 10, Paragraph 1, of the Estate and Gift Taxes Act provides: "valuation of a decedent*s estate and gifts is based on the value of such property on the date of the decedent*s death or date of gift." For the purpose of proper valuation in accordance with the foregoing provision, Article 28, Paragraph 1, of the Enforcement Rules of the Estate and Gift Taxes Act states: "appraisal of marketable securities which have been listed on the Stock Exchange (hereinafter referred to as "listed securities") or have been traded in the over-the-counter market (hereinafter referred to as "OTC securities") shall be based on the closing price of such securities as of the date of inheritance or gift." Further, in the said Enforcement Rules, Article 29 Paragraph 1, provides: "unless otherwise provided in Paragraph 2 of the preceding Article, appraisal of securities of companies limited by shares which have not been listed on the Stock Exchange nor traded in the OTC market (collectively referred to as "shares not traded in the open market") shall be based on the said company*s net asset value as of the date of inheritance or gift," the reason being that securities of companies not yet traded in the open market usually yield no transaction record as of the date of inheritance or gift. The existence of such a record, if any, cannot be taken as representing the fair market value since it is not an open market sale. When assessing the assets of a company not yet traded in the open market, the company*s net asset value is assessed by taking into consideration the value of listed shares held by the company as adjusted to their closing price (since they are subject to open-market transactions). Letter No. 790201833 of September 6, 1990, issued by the Ministry of Finance explains: "Article 29 of the Enforcement Rules of the Estate and Gift Taxes Act provides that ‘shares of unlisted companies shall be appraised based on the company*s net asset value as of the date of inheritance or gift.’ When assessing the net asset value referred to in the foregoing Article, the tax authority should value the company*s investment in listed shares in accordance with Article 28 of the Enforcement Rules of the Estate and Gift Taxes Act." The foregoing is an attempt by the Ministry of Finance to explain the compliance of Article 29 of the Enforcement Rules of the Estate and Gift Taxes Act with the legislative intention of Article 10, Paragraph 1, of the Estate and Gift Taxes Act. Further, it is consistent with the citizen*s duty to pay tax and the right to property under Articles 15 and 19, respectively, of the Constitution. The appraisal of securities of companies not yet traded in the open market affects the people*s tax liability. It should therefore be governed by law or by enforcement rules ordained by law in order to fulfill the legislative intention set out in the Constitution.

      All citizens have the duty to pay tax under Article 19 of the Constitution. In order to give effect to provisions in the empowering statutes, regulatory authorities must either make enforcement rules as authorized by the empowering statutes, or explain the legislative intention behind the empowering statutes and their rules of enforcement. Article 4, Paragraph 1, of the Estate and Gift Taxes Act states that "property in this Act refers to movable and immovable property and any other interest in the property." Valuation of such property is provided for in Article 10, Paragraph 1, of the aforementioned Act as: "valuation of a decedent*s estate and gifts is based on the value of such property on the date of decedent*s death or date of gift. Where the court has declared the decedent*s death, the date for valuation should be the date so declared in the judgment." For the purpose of proper valuation in accordance with the foregoing provision, Article 28, Paragraph 1, of the Enforcement Rule of the said Act holds: "appraisal of marketable securities being listed securities or OTC securities shall be based on the closing price of such securities as of the date of inheritance or gift. But if there is no price of sale or purchase on such date, valuation shall be based on the last closing price immediately preceding the date of inheritance or gift. Where there is a major price fluctuation, the appraisal shall be based on the average closing price for the one-month period immediately preceding the date of inheritance or gift. The appraisal of securities first offered to the public, for the period between the approval by the securities authority of the contract pertaining to the said offer, and its first offer to the public, shall be based on its consignment price or the recommending stock broker*s acquisition price on the date of inheritance or gift." According to Article 29, Paragraph 1, of the same Enforcement Rules: "unless otherwise provided in Paragraph 2 of the preceding Article, appraisal of securities of companies limited by shares which have not been traded in the open market shall be based on the company*s net asset value as of the date of inheritance or gift. The same applies for the appraisal of contribution value for business organizations not limited by shares." The reason for the foregoing provision is because the securities of companies not yet traded in the open market usually yield no transaction record on the date of inheritance or gift. The existence of such a record, if any, cannot be taken as representing the fair market value since it is not an open market sale. Therefore when assessing the assets of a company not yet traded in the open market, the company*s net asset is assessed by taking into consideration the value of listed shares held by the company as adjusted by their closing price (since they are subject to open-market transactions). The valuation of listed securities, held by companies not traded in the open market, based on the company*s book cost would be in conflict with the principle of fair tax. The reason being that the same listed securities held by different companies not traded in the open market will have different appraisal values due to the difference in cost depending on the time of purchase. Letter No. 790201833 of September 6, 1990, issued by the Ministry of Finance explains: "Article 20 of the Enforcement Rules of the Estate and Gift Taxes Act provides that ‘shares of unlisted companies shall be appraised based on the company*s net asset as of the date of inheritance or gift.’ When assessing the net asset value referred to in the foregoing Article, the tax authority should value the company*s investment in listed shares in accordance with Article 28 of the Enforcement Rules of the Estate and Gift Taxes Act." The foregoing is an attempt by the Ministry of Finance to explain the compliance of Article 29 of the Enforcement Rules of the Estate and Gift Taxes Act with the legislative intention in Article 10 of the Estate and Gift Taxes Act. Further, it is consistent with the citizen*s duty to pay tax and right to property under Articles 15 and 19, respectively, of the Constitution. The method of appraisal for securities of companies not yet traded in the open market affects the people*s tax liability. It should therefore be governed by law or by enforcement rules authorized by such law in order to fulfill the legislative intention set out in the Constitution. 

      The applicant asserts that the adoption, for the calculation of tax, of the Ministry of Finance*s explanation of September 6, 1990, by the relevant taxation authority violates the principle against retroactive application of law since the taxable events occurred in April and August 1990. This Yuan finds that the explanations given by regulatory authorities in regard to administrative laws seek to clarify the purposes of the relevant law and shall be applicable as of the proclamation date of the law. The foregoing has already been determined in this Yuan*s Interpretation No. 287 and it must be clarified that their application does not contravene the Constitution.  

*Translated by Wei-Feng Huang.