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  • Interpretation
  • No.640【Under Translation】
  • Date
  • 2008/04/03
  • Issue
    • May a tax collection agency impose a procedural burden on taxpayers for random audits not authorized by the statutes?
  • Holding
    •        Article 80, Paragraph 3, first portion of the Income Tax Law, amended and promulgated on January 29, 1963, provides that, if the income tax filing amount exceeds that for the standard income level established by the tax agency for a particular kind of business pursuant to Paragraph 2 of the abovementioned statute, said income tax filing amount is deemed an acceptable tax basis for paper reviews. Therefore, a tax collection agency may not issue orders for additional audit procedures to inspect the accounting books, receipts, and records of the taxpayer. On May 23, 1997, the Ministry of Finance, Bureau of Revenue, Northern District of Taiwan, issued an Outline for Simplified Tax Audits of Businesses, Cram Schools, Kindergartens and Nursery Schools. Key Point 7 of the Outline provides, “When conducting paper reviews, the tax agents may examine a random sample of ten percent of the tax returns and further audit taxpayers’ bookkeeping records and receipts.” This random audit of individual taxpayers whose income tax filing amount has exceeded the standard income level for a particular kind of business established by the tax collection agency is contrary to Article 80, Paragraph 3, first portion, of the Income Tax Law. It imposes a procedural burden on the tax payer not authorized by the statutes and violates the doctrine of taxation per legislation mandated by Article 19 of the Constitution. Therefore, said Key Point 7 shall become null and void no later than one year from the date of publication of this Interpretation. J.Y. Interpretation No. 247 of this Court is hereby supplemented.
  • Reasoning
    •        Article 19 of the Constitution provides that the people shall have the duty of paying taxes in accordance with law. It means that whenever the government imposes a tax duty on the people, or provides a benefit for lessening the tax burden of the people, it shall prescribe the elements of a tax, e.g., the tax paying subject, taxable object, tax base, tax rate, method of payment, duration of payment, etc., and the collection procedures, according to the statutes. Therefore, no matter concerning a tax collection procedure shall be prescribed by administrative orders that are contrary to, or exceed the scope of laws, or increase the procedural burdens on the people, unless clearly authorized by the statutes. Otherwise, such orders will be in violation of the doctrine of taxation per legislation.
      
    •        Article 80 of the Income Tax Law, amended and promulgated on January 29, 1963, provides: “The tax collection agency, after receipt of the tax returns, shall dispatch agents to investigate and to determine the taxpayer’s income and taxable amount (Paragraph 1). For the abovementioned investigation, the collection agency may, taking into account the number of taxpayers, use a random sampling method to determine the standard income level for a particular kind of business (Paragraph 2). If the taxpayer’s income tax filing amount exceeds that for the standard income level, it shall be accepted as tax basis for calculation. If the filing amount falls below the standard income level, the collection agency shall conduct an individual audit (Paragraph 3).” Therefore, if the tax collection agency has established the filing amount for the standard income level for a particular kind of business pursuant to Article 80, Paragraph 2 of the Income Tax Law, and the taxpayer’s filing amount has exceeded said standard, it shall be accepted as tax basis per the first portion of Paragraph 3. The statute’s purpose is to simplify the tax collection process for the convenience of both the tax collection agency and taxpayer. However, it does not exempt the taxpayer whose income tax filing amount has exceeded the established standard from the duty of honest filing. Should deliberate concealment, deficiency, or neglect be found in the tax return, the collection agency may still conduct an investigation on this matter, and levy a fine or deficiency payment on the taxpayer pursuant to Articles 103 and 110 of the Income Tax Law, and Articles 21 and 30 of the Tax Collection Act (Please refer to J.Y. Interpretation No. 247).
      
    •        The norms of collection procedure not only may affect the taxpayer’s operative costs and expenses, but also may change the substance of his/her tax obligations. Therefore, the collection procedure should be prescribed by the statutes, and if a supplementary administrative order is needed, its legislative authorization must be specific and unambiguous so as to be in compliance with the doctrine of taxation per legislation mandated by Article 19 of the Constitution. Article 80, Paragraph 3, first portion, of the Income Tax Law provides that, if the income tax filing amount exceeds that for the standard income level established by the tax agency for a particular kind of business pursuant to Paragraph 2 of the abovementioned statute, said filing amount is accepted as tax basis for calculations in the paper review. Therefore, a tax collection agency may not issue orders for additional procedures to audit the accounting books, receipts, and records of the taxpayer. On May 23, 1997, the Ministry of Finance, Bureau of Revenue, Northern District of Taiwan, issued an Outline for Simplified Tax Audits Businesses, Cram Schools, Kindergartens and Nursery Schools. Key Point 7 of said Outline provides: “When conducting paper reviews, the tax agent may examine a random sample of ten percent of the tax returns and further audit the bookkeeping records and receipts of the taxpayer.” This random audit of an individual taxpayer whose filing amount exceeds the standard income level for a particular kind of business established by the tax collection agency is contrary to the provision of Article 80, Paragraph 3, first portion, of the Income Tax Law. It imposes a procedural burden on the taxpayer that is not legislatively authorized. In light of the above reasoning, it violates the doctrine of taxation per legislation mandated by Article 19 of the Constitution. Therefore, said Key Point 7 shall become null and void no later than one year from the date of publication of this Interpretation. Should deliberate concealment, deficiency, or neglect be found in the tax return, it is obvious that the tax collection agency is empowered to investigate the matter, and to levy a fine or deficiency payment on the taxpayer, if noncompliance is found, according to Articles 103 and 110 of the Income Tax Law, and Articles 21 and 30 of the Tax Collection Act. J.Y. Interpretation No. 247 of this Court is hereby supplemented.
      
    •        To promote honesty in filing and to preserve fairness in taxation, in some cases the tax collection agency may decide that it is necessary to conduct a random audit even though the income tax filing amount meets the established standard income level for a particular kind of business. It is hereby pointed out that, if said agency wishes to do so, it should make a proposal to amend the relevant tax codes.
      
    • *Translated by Prof. Huai-Ching Tsai.
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