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  • Interpretation
  • No.616
  • Date
  • 2006/09/15
  • Issue
    • Are the provisions of Article 108, Paragraph 1, and Article 108-1, Paragraph 1, of the Income Tax Act constitutional in requiring payment by the taxpayer of a surcharge for late filing of a tax return?
  • Holding
    •        The Income Tax Act, as amended on December 30, 1989, provides in Article 108, Paragraph 1: “Where a taxpayer failed to file the final income tax return within the period specified in Articles 71 and 72 hereof but has thereafter filed the return pursuant to Paragraph 1 of Article 79 hereof, and the taxing authority has made an assessment of his/her income and the amount of tax payable upon investigation carried out on the basis of such return, he/she shall be required to pay a late filing surcharge in an amount equal to ten per cent of the tax assessed to be payable by him/her. The amount of such late filing surcharge shall be no less than NT$1,500.” Article 108-1, Paragraph 1, of the Act, as amended on December 30, 1997, provides: “Where a business entity failed to file a report on its undistributed profits within the period specified in Article 102-2 hereof, but has thereafter filed such a report pursuant to Paragraph 2 of Article 102-3 hereof, and the taxing authority has made an assessment of its undistributed profits and the amount of additional tax payable upon investigation carried out on the basis of such report, it shall be required to pay a late filing surcharge in an amount equal to 10% of the amount of additional income tax so assessed. The amount of such late filing surcharge shall be no less than NT$1,500.” These provisions are intended to impose punishment on the taxpayer who fails to perform his/her duty to file a tax return or report within the statutory period of time. Where it is possible and necessary to make differentiation in the degrees of seriousness of the act of breach, the punishment to be imposed shall of course be based upon the degree of seriousness of the act of breach per se. The above-quoted provisions, which require the imposition of punishment on a taxpayer for misconduct by way of payment of an additional late filing fee at a fixed rate of the tax payable without being subject to a reasonable limit on the maximum amount, despite the fact that the taxpayer has already paid the tax payable by him/her, have clearly gone beyond the necessary degree and are therefore contrary to the principle of proportionality under Article 23 of the Constitution and the purpose of Article 15 thereof in protecting the people’s property right. They must be rendered ineffective  not later than one year from the date of issue of this interpretation.
  • Reasoning
    •        As expounded in our J.Y. Interpretation No. 356, punishment for violation of tax laws may be either a punishment for tax evasion to be imposed on a taxpayer for his/her act of evasion of tax or dues or a punishment for misconduct to be imposed on a taxpayer for his/her breach of the duty to act or not to act under tax laws. The Income Tax Act, as amended on December 30, 1989, provides in Article 108, Paragraph 1: “Where a taxpayer failed to file the final income tax return within the period specified in Articles 71 and 72 hereof but has thereafter filed the return pursuant to Paragraph 1 of Article 79 hereof, and the taxing authority has made an assessment of his/her income and the amount of tax payable upon investigation carried out on the basis of such return, he/she shall be required to pay a late filing surcharge in an amount equal to ten per cent of the tax assessed to be payable by him/her. The amount of such late filing surcharge shall be no less than NT$1,500.” Article 108-1, Paragraph 1, of the Act, as amended on December 30, 1997, provides: “Where a business entity failed to file a report on its undistributed earnings within the period specified in Article 102-2 hereof, but has thereafter filed such a report pursuant to Paragraph 2 of Article 102-3 hereof, and the taxing authority has made an assessment of its undistributed earnings and the amount of additional tax payable upon investigation carried out on the basis of such report, it shall be required to pay a late filing surcharge in an amount equal to 10% of the amount of additional income tax so assessed. The amount of such late filing surcharge shall be no less than NT$1,500.” These provisions are intended to impose punishment on the taxpayer who fails to perform his/her duty to file a tax return or report within the statutory period of time and are designed to encourage taxpayers to perform their duty to file tax returns as required by law so that data of taxable sources may be fully controlled and a reasonable tax assessment system may be established. The imposition of a late filing surcharge constitutes a punishment inflicted upon the taxpayer for breach of his/her duty to act and is a form of fine. It sets a restraint on the property right of the people and is by nature a punishment for misconduct. Where it is possible and necessary to make differentiation in the degrees of seriousness of the act of breach, the punishment to be imposed shall of course be based upon the degree of seriousness of the act of breach per se. The above-quoted provisions of the Income Tax Act, Article 108, Paragraph 1, and Article 108-1, Paragraph 1, which require the imposition of punishment on a taxpayer for misconduct by way of an additional late filing fee at a fixed rate of the tax payable without being subject to a reasonable limit on the maximum amount, despite the fact that the taxpayer has already paid the tax payable by him/her, have clearly gone beyond  the necessary degree and are therefore contrary to the principle of proportionality under Article 23 of the Constitution and the purpose of Article 15 thereof in protecting the people’s property right. They must be rendered ineffective not later than one year from the date of issue of this interpretation. 
      
    • *Translated by Raymond T. Chu.
      
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