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  • Interpretation
  • No.661
  • Date
  • 2009/06/12
  • Issue
    • Does MOF’s said Instruction which stated that the publictransportation subsidies received by government/privately-owned public transportation businesses for compensating losses in running remote routes are subject to business tax, violate the Constitution?
  • Holding
    •     Illustration 2 of the Ministry of Finance Memorandum Tai Tsai Shui No. 861892311 provides, among other things, that “vehicle and vessel transportation operators maintain their businesses by charging fees for passenger transportation services. The subsidy income they received from the government is based on the frequencies and mileage rendered for servicing remote routes and to cover losses due to insufficient usage. It is derived from providing transportation services and by nature the fare for passenger tickets, … and is subject to business tax accordingly.” It has exceeded Article 1 and Article 3, Paragraph 2 of the Business Tax Act, as amended and promulgated on November 15, 1985, by levying business tax duties not otherwise provided under the statute on vehicle and vessel transportation providers running remote routing services at a loss and receiving subsidies, is not in compliance with the meaning and purpose of Article 19 of the Constitution and shall no longer be applicable.
  • Reasoning
    •     Article 19 of the Constitution imposes the duty of the people to pay taxes in accordance with the law. It means that the State must impose tax duty or provide preferential tax deduction or exemption treatment to its people based on laws or regulations having clear authorization of a given law, taken into consideration such conditions as the subject, subject matter, tax base or tax rates. Various J. Y. Interpretations have consistently held as such.
      
    •     Article 1 of the Business Tax Act, as amended and promulgated on November 15, 1985 (the old Business Tax Act), provided: “The sale of goods or services and import of goods within the territory of the Republic of China is subject to the levy of value-added or non-value-added business tax in accordance with this Act.” (The name of Business Tax Act is subsequently changed to Value-Added and Non-Value-Added Business Tax Act, as promulgated on July 9, 2001. Article 1 of the Business Tax Act was amended: “The sale of goods or services and import of goods within the territory of the Republic of China is subject to the levy of value-added or non-value-added business tax in accordance with this Act.”)  The front portion of Article 3, Paragraph 2 of the same Act provides: “Sale of services means the supply of services to others or the supply of goods for the use and benefit of others in exchange for the obtainment of a compensation.” As such, as far as sale of services is concerned, the so-called sales income means the compensation obtained in exchange for the supply of services to others or the supply of goods for the use and benefit of others.
      
    •     Illustration 2 of the Ministry of Finance Memorandum Tai Tsai Shui No. 861892311 provides, among other things, that “vehicle and vessel transportation operators maintain their businesses by charging fees for passenger transportation services. The subsidy income they received from the government is based on the frequencies and mileage rendered for servicing remote routes and to cover losses due to insufficient usage. It is derived from providing transportation services and by nature the fare for passenger tickets, … and is subject to business tax accordingly.” This Memorandum interprets the above-stated subsidy income as the compensation from the sale of services, and is subject to business tax levy. However, in accordance with Article 12, Paragraph 1 of the Regulations on Public Transportation Subsidies, promulgated on February 4, 1998 (now abolished), “the formula for the calculation of maximum subsidies in the basic operations of existing routes is as follows: the maximum subsidies in the basic operations of existing routes = (reasonable operating costs per vehicle km/per vessel nautical mile – actual operating revenue per vehicle km/per vessel nautical mile) × (number of sorties) × (mileage of route/sea path).” Paragraph 4 of the same provision provides that the reasonable operating costs in the formula shall not include profits. Thus the subsidies approved under this formula is an administrative payment by the governing transportation authority to promote the development of mass transportation and to offset the losses resulted from passenger tickets income shortfalls to the operating costs. Those transportation businesses which receive subsidies did not provide sale of services to the transportation authority as regulated under Article 3, Paragraph 2 of the old Business Tax Act. Thus the subsidies the transportation businesses received are not compensations for sales of services to be counted under Article 14 of the old Business Tax Act, as stipulated by the front portion of Article 16, Paragraph 1 of the same act. It follows that [the subsidies] do not fall within the scope of tax levy under Article 1 of the same Act.
      
    •     This memorandum Interpretation has exceeded Article 1 and the front portion of Article 3, Paragraph 2 of the Business Tax Act by levying business tax duties not otherwise provided under the statute on vehicle and vessel transportation providers running remote routing services at a loss and receiving subsidies, is not in compliance with the meaning and purpose of Article 19 of the Constitution, and shall no longer be applicable.
      
    •     With regard to the petitioner’s claim that the Supreme Administrative Court (97) Cai Zhi No. 4643 Ruling applied the Memorandum Interpretation and shall be the basis for constitution interpretation, given that the above-stated ruling was a procedural dismissal for failure to legally state the ground on the petitioner’s motion to rehear the Supreme Administrative Court (97) Cai Zhi No. 21 Judgment, and did not apply the disputed Memorandum, that part of the petition fails to comply with Article 5, Paragraph 1, Section 2 of the Constitutional Interpretation Procedure Act, and shall be dismissed in accordance with Paragraph 3 of the same provision.
      
    • Translated by Li-Chih Lin, Esq., J.D.
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