The Income Tax Act adopts the system of pay-as-you-earn (PAYE) by designating specific individual as the tax withholder (obligator), who, at the time of paying tax payer’s income, deducts the tax amount in accordance with the regulated withholding rate or procedure, submits to the national treasury within the statutory period, completes the tax withholding voucher to the taxing authority and issues the withholding certificates to the tax payers (see Article 7, Paragraph 5, Article 88, Article 89, Paragraph 1, and Article 92 of the Income Tax Act). The purpose of this tax withholding obligation is to ensure the state’s timely collection of tax income, to facilitate the dispatching of funds, and to take actual control over the taxing information, necessity to enhance the public interests (see J.Y. Interpretation No. 317). With regard to whom should be designated as the tax withholder(s), it is for the legislative body to consider candidates who are [most] suitable to carry out the above-indicated withholding system and under the premises that the principle of proportionality is complied with.
The anterior of Article 89, Paragraph 1, Sub-paragraph 2 of the Income Tax Act, as amended on December 30, 1989, stipulates: “For salary, interest, rental, commission, royalty, remuneration for carrying out occupational works, cash award or gifts given in any contest or game competition, prizes from chance winning, and income of a foreign profit-seeking business having no fixed location of business or business agent within the territory of the Republic of China, the tax withholders shall be the chief accounting personnel of the relevant organizations or institutions, the responsible person(s) of the businesses and the business executive(s).” The same provision, as amended on February 9, 1999, stipulated: “For salary, interest, rental, commission, royalty, remuneration for carrying out occupational works, cash award or gifts given in any contest or game competition, prizes from chance winning and income of a foreign profit-seeking business having no fixed location of business or business agent within the territory of the Republic of China, the tax withholders shall be the head of the unit responsible for tax withholding for the relevant organizations or institutions, the responsible person(s) of the businesses and business executive(s).” The amendment on May 30, 2006 to the same provision stipulates: “For salary, interest, rental, commission, royalty, remuneration for carrying out occupational works, cash award or gifts given in any contest or game competition, prizes from chance winning, retirement pension, severance payment, termination allowance, departure allowance, life-time pension, retirement annuity not as insurance benefits, reward for crime information or reporting, and business income of a foreign profit-seeking business having no fixed location of business or business agent within the territory of the Republic of China, the tax withholders shall be the head of the unit responsible for tax withholding for the relevant organizations, institutions, or schools, the responsible person(s) of the businesses, the trustee(s) of bankrupt estates and the business executive(s).” In order to effectively enforce the PAYE items, by designating the chief accounting personnel of the organizations or institutions, and the responsible person(s) of the businesses as tax withholders carries an appropriate objective.
As far as a taxpayer’s income received from institutions, organizations or businesses, as defined under Article 88, Paragraph 1, Subparagraph 2 of the Income Tax Act, is concerned, although the payers of the respective incomes are the institutions, organizations or businesses, not the chief accounting officers of organizations or institutions or the responsible persons of the businesses, the accounting certificates based on which the cashiers of the government agencies conduct withholding, require the signature or seal of the chief accounting personnel or his/her authorized agent, provided that the accounting personnel is responsible for the pre-examination and re-examination of all internal expenses and receipts of the institutions (see Article 101 Paragraph 1 and Article 95 of the Certified Public Accountant Act). Therefore, the accounting personnel are the ones who participate the substantive withholding businesses, or, in terms of an organization, possibly conduct the substantive withholding work for that organization. In addition, since the responsible person for a business carries out duties on behalf of that business and is responsible for its success or failure, the relevant financial expenditures, including, among other things, income tax withholding, are indeed matters under his/her supervision. Thus by bestowing the withholding obligations to the chief accounting personnel and responsible person of the business, the above-indicated provision can better implement the legislative objectives of the PAYE withholding system, provided that the added burden to the above stated personnel in their conducting of businesses is reasonable and not unexpected, thus does not contravene the principle of proportionality under Article 23 of the Constitution.
Withholding is an important measure for the taxing authority to control tax income, tax information, and to achieve tax fairness. A tax withholder who fails to withhold, under-withhold or does not truthfully file withholding documents not only causes the source of taxes being unable to control, impacts the dispatching of state funds, but also makes it easier for taxpayer to evade taxes. Especially in the event the incomer earner is an individual not residing in the Republic of China or a foreign profit-seeking business having no fixed location of business or business agent within the territory of the Republic of China, given that PAYE is the chief taxing measure, the tax withholder’s failure to comply with the regulations is likely to result in tax evasion and jeopardize the state’s tax revenue. Article 114, Paragraph 1 of the Income Tax Act, as amended on December 30, 1989 and January 3, 2001 (the latter only amended Subparagraph 2 and left Subparagraph 1 intact) stipulates: “A tax withholder who fails to withhold tax in accordance with the provision of Article 88 shall, in addition to being ordered to pay the tax amount which should be withheld but was not withheld or has under-withheld and to submit supplemental tax-withholding certificates within a given time limit, be subject to a fine of no more than one fold of the amount of the tax amount that should be withheld but was not withheld or was short withheld. If the tax withholder still does not comply with the order to pay the tax amount or to submit supplemental tax-withholding truthfully within the given time limit, he/she shall be subject to a fine of no more than three folds the amount of the tax amount which should be withheld but was not withheld or was short withheld” (hereinafter the disputed provision)(the amendments on May 27, 2009 has revised the administrative penalty from double and treble to a fine of no more than double or treble, respectively.) To subject tax withholders who fail to withhold in accordance with Article 88 of the Income Tax Act to pay the tax discrepancy and to supplement the withholding certificates (returns) within the designated deadline, together with penalties, serves to urge the chief accounting personnel of an institution or organization or person(s) responsible for a business, acting as tax withholders, conduct withholding in accordance with the regulations, and is necessary to ensure that the withholding system is carried out as well as the public interest.
How to sanction an act in violation of a duty under the administrative law is, by definition, subject to the discretionary authority of the legislative body, which should weigh in the particular nature of the matter, the extent of the legal interests being infringed upon, and the effectiveness of control it intends to achieve. As long as it does not exceed the principle of proportionality, it cannot be easily said to be unconstitutional (see J.Y. Interpretation No. 517). In the above-indicated provisions on the supplemental tax payment and submitting the withholding certificates order, it is to ensure the state tax revenue that orders are issued to tax withholders to pay the unreported or underreported but should have been reported tax amount. After a tax withholder makes the supplemental tax withholding payment, while the taxpayer can offset it against the annual tax payment, the tax withholder can nevertheless file claim against the taxpayer. (see Article 71, Paragraph 1 and the proviso of Article 94 of the Income Tax Act). In other words, the taxpayers are obligated to restitute the tax withholders for the discrepancy. Therefore, by ordering the tax withholder to pay the supplemental tax withholding amount and the filing of certificates would not have caused excessive damages to the property right of the tax withholder. For tax withholder who pay the discrepant tax withholding amount and file the certificates within the deadline, given that it has caused relatively minor damages to the national treasury and tax fairness, by subjecting to a fine no more than double the discrepant tax amount is not excessive; for those who refuse to pay within the deadline after receiving the notice, since it constitutes a violation of the duty to pay tax, particularly for individuals who do not reside in the territory of the Republic of China or foreign profit-seeking businesses that do not have fixed locations for businesses or business agent within the territory of the Republic of China, the failure to pay withholding taxes by the tax withholders results in damages to the state tax revenue not different from tax payers’ evasion of taxes. Furthermore, because the refusal to pay occurs after being notified, the degree of violation is certainly more significant than those who eventually pay in time. Thus, an administrative fine trebling the tax amount is not overbearing. As such, on the part of the disputed provision that provides an administrative fine doubling the withholding tax discrepancy for tax withholders who make the supplemental payment and filing of certificates in time, and the trebling of fines for those who fail to pay within the deadline, it neither contravenes. the principle of proportionality under Article 23 of the Constitution, nor the protection of people’s property rights, equal protection under Article 7 of the Constitution, and the principle of taxation by law under Article 19 of the Constitution.
The withholding obligations bestowed to a tax withholder, however, consists of withholding tax payment and the submission of tax withholding certificates, the violation of which should carry different degrees of damage to the national treasury’s tax revenue and public interests. On the posterior of the disputed provision, if the tax withholder should have timely paid the discrepant amount that should have been withheld, but did not truthfully submit the supplemental tax withholding certificates, while the tax authority’s control over the taxing data and tax payers’ return filing may be impacted, now that the discrepant tax amount has been paid, it should generate lesser adverse impact on tax revenue than those who fail to make the payment. Thus by imposing the same treble administrative fines on this part as those who do not make the payment within the deadline, and without authorizing the tax authorities to exercise discretion, by taking into consideration the circumstances of the specific violation and seriousness to determine the amount of fines, the penalty has apparently exceeded the necessary degree and is not consistent with the principle of proportionality under Article 23 of the Constitution and affronts the protection of people’s property rights under Article 15 of the Constitution. The provision shall cease to be applicable as of the issuance date of this Interpretation. It is also pointed out that by rendering penalties on cases yet to be ripened for not filing the withholding certificates (returns) within the deadline, the relevant authority shall take into account the seriousness of individual cases and make reference to Article 48-3 of the Tax Collection Act to render appropriate dispositions that meet the principle of proportionality.
Translated by Lawrence L. C. Lee