Article 19 of the Constitution provides that the people shall have the duty to pay tax in accordance with law, which should be so construed as to mean that the State shall, in imposing duty on the people to pay tax or granting tax abatements or exemption to the people, prescribe by law such requisite elements of taxation as taxpaying bodies, taxable objects, tax bases, tax rates and so forth. However, since it is impossible to specify all the details in the law, the competent authority may, within its authorities and powers, issue necessary interpretations in applying various provisions of the tax laws. If the interpretations do not contradict the general methodologies in legal construction and interpretation and are in line with the legislative purposes of the respective laws, there is no violation of the principle of taxation by law. In addition, there is no violation of the principle of equality under Article 7 of the Constitution and the constitutional guarantee of the people’s property right under Article 15 thereof if the principle of fair taxation is also observed.
The taxable objects for business income tax under the Income Tax Act are revenues of a profit-seeking enterprise, including the business gains and nonbusiness gains of the enterprise. Such revenues are taxable except where there is any statutory cause of tax reduction or exemption. Article 24-I of the Income Tax Act provides, “The amount of income of a profit-seeking enterprise shall be the net income, i.e., the gross yearly income after deduction of all costs, expenses, losses and taxes.” The definition of the term “gross yearly income,” as well as the items included in the calculation of the amount of income, is furnished by Article 31 of the Enforcement Rules of the said Act, which means: business net profits plus non-business revenues minus non-business loss equals net income (i.e., amount of income). As for income to be exempted from taxation, Article 4 of the Income Tax Act has enumerated the categories thereof. In light of the legislative purposes of Articles 3, 4 and 24-I of the Income Tax Act and the nexus of the provisions in its entirety, there is no violation of the principle of taxation by law under Article 19 of the Constitution.
A profit-seeking enterprise is an economic entity investing labor and capital to engage in economic activities for the purposes of making profits. Whether for business or not, any and all gains made by a profit-seeking enterprise are profits meant to be realized by such enterprise while pursuing the goal of making profits, and thus are sources of the enterprise’s income that may become taxable objects. The compensation for crops relocation received by a profitseeking enterprise due to land rezoning is a kind of involuntary gain accruing from intervention of public authority. Although it is considered to be part of a profit-seeking enterprise’s non-business gains that do not derive from business operation, it should be taxable if there remains any balance after deduction of applicable costs, expenses and/or losses. Therefore, any validated taxation of such income does not contradict the principle of fair taxation.
Directive Ref. No. TTS-841641639 issued by the Ministry of Finance on August 16, 1995 stated, “The compensation received by a profitseeking enterprise in accordance with the regulations governing the compensation for relocation due to public construction or urban rezoning conducted by the government should be listed as other income, the necessary costs and relevant expenses of which may be simultaneously verified and validated.” Directive Ref. No. TTS-821491681 issued by same on July 19, 1993, which ceased to apply as of January 1, 2002, read, “In respect of the matter concerning XX Paper Co., Ltd., which, in filing its business income tax returns for the years 1990 and 1991, listed as non-business income the compensation it received from the government for exercising eminent domain in respect of the facilities on the ground of its factories and the disassembly and relocation of machinery and equipment, and further adjusted such compensation as tax-free income of its own accord, this agency finds that the said company shall pay the overdue tax, along with interests accrued therefrom, in accordance with Article 100-2 of the Income Tax Act.” Explanation No. 3 of Directive Ref. No. TTS-871966516 issued by same on September 23, 1998, read, “The compensation received by a profitseeking enterprise in accordance with the regulations governing the compensation for relocation due to public construction or urban rezoning conducted by the government should still be listed as other income, the necessary costs and relevant expenses of which may be simultaneously verified and validated, as per Directive Ref. No. TTS-821491681 issued by this Ministry on July 19, 1993 and Directive Ref. No. TTS-841641639 issued by same on August 16, 1995.” The foregoing directives have been issued to elaborate on the provisions of Article 24-I of the Income Tax Act and Article 31 of the Enforcement Rules of the said Act in respect of non-business gains. Since the compensation received by a profit-seeking enterprise for crops relocation due to land rezoning does not fall within any taxfree category, the foregoing directives, in regarding such compensation as nonbusiness gains and listing same as other income that is subject to income taxation after deducting non-business losses and expenses, as well as necessary costs and relevant expenses, are not in disaccord with the legislative intent of Article 24-I of the Income Tax Act and Article 31 of the Enforcement Rules of the said Act, and thus do not contradict the principle of taxation by law. Since the compensation for crops relocation received by a profitseeking enterprise is non-business gain, it should be taxable if there remains any balance after deduction of non-business losses and expenses. Therefore, the imposition of business income tax on a profit-seeking enterprise for its net income is in line with the principle of fair taxation and does not violate the property right guaranteed to the people under Article 15 of the Constitution.
Explanation No. 2 of Directive Ref. No. TTS-841641639 issued on August 16, 1995, in citing Directive Ref. No. TTS-780432772 issued on April 7, 1990 as stating, “The compensation f o r b u i l d i n g imp r o v eme n t o r c r o p improvement, the reward for selfdisassembly, and the subsidy for human relocation that are given out in accordance with the regulations governing the compensation for relocation due to the expropriation of land for purposes of public construction or urban rezoning conducted by the government, should be a form of compensation for damages and thus free of income taxation,” has given different treatment for the taxability of the compensation received by individuals a n d p r o f i t - s e e k i n g e n t e r p r i s e s f o r crops relocation (Directive Ref. No. TTS-0910450396 issued on January 31, 2002, in stating, “The statutory compensation received by an individual in accordance with Articles 31, 32 and 34 of the Act of Eminent Domain for building improvement, crop improvement, land improvement, or the relocation should be characteristic of compensation for damages, and thus no consolidated income tax would be levied since no income has accrued therefrom,” has held the same opinion.) Since differences exist as to the tax rates, income structures, tax bases, establishment of accounts, and amortization and depreciation between individuals and businesses, the tax collection authority has ex officio adopted different methods in determining the costs of relocation in respect of the compensation received by an individual for crops relocation, rather than regarded the compensation for relocation as non-income, nor granted any tax-free benefits for compensation received by an individual for relocation that are not provided by law. Therefore, no discriminatory treatment is given to different subjects to be regulated under the same rationale, and thus there is no violation of the principle of equality as embodied in Article 7 of the Constitution.
Finally, it should be noted that, as Article 8 (xi) of the Income Tax Act is not the statutory provision applied by the court to the final and conclusive judgment, the applicable part of the petition should be denied in accordance with Article 5-I (ii) and –III of the Constitutional Interpretation Procedure Act.
*Translated by Vincent C. Kuan.