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  • Interpretation
  • No.706【Offset of input tax in cases where a business entity buys court-auctioned goods】
  • Date
  • 2012/12/21
  • Issue
    •        Is it unconstitutional where the input certificate shall be limited to the third copy (deduction copy) of a business tax payment slip as issued by the tax collection authority, which is not a seller business entity, in the case of buying court-auctioned goods?
  • Holding
    •        The provisions of Sub-item 6, Item 4, Point 3 of the Enforcement Notes for the Business Tax Act as amended and promulgated by the Ministry of Finance on June 28, 1988 (abolished on August 11, 2011) that “when a business entity reports and pays business tax based on the input certificate bearing the amount of the business tax to offset output tax, in addition to those provided for in Article 38 of the Enforcement Rules of this Act, acceptable certificates include: 6. … court-auctioned goods … the third copy (deduction copy) of a business tax payment slip as issued by the tax collection authority (relisted in Item 11, Paragraph 1, Article 38 of the Enforcement Rules of the Value-added and Non-value-added Business Tax Act as amended and promulgated on June 22, 2011: “… court-auctioned or -sold goods …the deduction copy of a business tax payment slip as issued by the tax collection authority.” The said Item was amended and promulgated on March 6, 2011, but the above provision remains the same), and the Ministry of Finance Letter 1996.10.30 Tai-Tsai-Shuei No. 851921699: “… 2. For court-auctioned or -sold goods that are subject to business tax, the tax collection authority shall, after receiving the amount of court-distributed tax, issue a “court-auctioned or -sold goods business tax payment slip” for the same amount … if the buyer is a business entity which should calculate the amount of tax in accordance with Section 1, Chapter 4 of the Business Tax Act, the deduction slip shall be delivered to the buyer as an input certificate to report and offset output tax. 3. As regards the amount of un-distributed business tax … if it has been paid and the buyer is a business entity which should calculate the amount of tax in accordance with Section 1, Chapter 4 of the Business Tax Act, the tax collection authority shall notify the buyer to apply on a special case basis to offset the amount paid against the output tax” , are in breach of the Principle of Statutory Taxpaying as enshrined in Article 19 of the Constitution, and shall not be applied.
  • Reasoning
    •        Article 19 of the Constitution provides that the people shall have the duty of paying taxes in accordance with law. This means that when the State imposes a tax or provides a preferential tax deduction or exemption treatment for its people, this must be based on laws or regulations clearly authorized by law, prescribing the constituent conditions of the tax such as the subject, subject matter, tax base, tax rates, methods of payment and period of payment. The interpretation of relevant laws by the competent authority within its competence shall abide by the principles of the Constitution and the meaning and purpose of the relevant laws, and comply with the general rules of legal interpretation. Any interpretation that exceeds the bounds of legal interpretation of law and that creates tax duties not provided for under the law is not permitted by the Principle of Statutory Taxpaying under Article 19 of the Constitution (see J.Y. Interpretation Nos. 622, 640, 674, 692 and 703).
      
    •        When a business entity which is subject to value-added business tax in the territory of the Republic of China sells taxable goods, it shall include the amount of the business tax in the price of the goods (originally set forth in Item 1, Point 3 of the Enforcement Notes for the Amended Business Tax Act as amended and promulgated on June 28, 1988 (abolished on August 11, 2011); later incorporated into Paragraph 2, Article 32 of the Value-added and Non-value-added Business Tax Act (hereafter, Business Tax Act) on January 26, 2011) and, pursuant to the “Schedule for Business Entities Issuing Sales Certificates” and upon receipt of payment or dispatch of goods, shall issue and deliver government unified invoices identifying the name, address and unified business number of the buyer business entity and the amount of the business tax or other certificate bearing the amount of business tax as approved by the Ministry of Finance (see Article 1, Paragraphs 1 and 3, Article 32, Items 1 and 3, Article 33, Business Tax Act). When paying the price to the seller business entity, the buyer business entity pays the business tax as transferred from paying the goods, and shall, based on the certificate, be entitled to exercise the right to offset the amount of input tax against the amount of output tax, and is obliged to report and pay only the balance. This is not conditional upon the seller business entity reporting and paying the business tax in time (see Paragraph 1, Article 15, Business Tax Act). In addition, the provision of Item 3, Article 33 of the Business Tax Act: “other certificates bearing the amount of the business tax as approved by the Ministry of Finance” authorizes the Ministry of Finance to approve certificates other than government unified invoices issued in accordance with the preceding two Items of the same Article by the seller business entity to meet practical needs.
      
    •        An auction or sale under the Compulsory Execution Act is made by the Execution Court as seller, on behalf of the debtor, to transfer, through a compulsory execution procedure, the title of the auctioned or sold goods and collect payment for the price. If the seller is a business entity subject to value-added business tax and auctions or sells taxable goods, the auctioned or sold price shall also include business tax (see Point 4 of Handling Notes for Levying Business Tax for Court-, Administrative Execution Agency- or Customs-auctioned or -sold Goods). Civil compulsory execution matters are handled by court clerks together with enforcement assistants as ordered by judges or judicial administration clerks of the District Court Civil Execution Department. When the auction or sale procedure is closed, the court clerk shall make a record signed by the auctioneer, indicating the type and quantity of the auctioned or sold goods, the names and addresses of the creditor, debtor, and buyer, and the highest bidding price (see Articles 1, 3, 60, 73, 113 of Compulsory Execution Act). The auction or sale procedure administered by the Execution Court in accordance with the law is rigorous. There is public faith in the receipt of non-government unified invoices. The business tax included in the auctioned or sold price may be ascertained in accordance with the statutory formula. Relevant information may be verified by the above court record (see Article 10, Business Tax Act, Points 2 and 4, Handling Notes for Levying Business Tax for Court-, Administrative Execution Agency- or Customs-auctioned or -sold Goods; Item 22, Article 4, Usage Rules for Government Unified Invoices). Therefore, the receipt issued by the Execution Court to the buyer upon receipt of the auctioned or sold price amounts to a certificate issued by a seller business entity.
      
    •        Sub-item 6, Item 4, Point 3 of the amended Enforcement Notes for the Business Tax Act: “when the business entity reports and pays the business tax based on the input certificate bearing the amount of business tax to offset output tax, in addition to those certificates provided for in Article 38 of the Enforcement Rules of this Act, such certificates include: 6. … court-auctioned goods … the third copy (deduction copy) of the business tax payment slip as issued by the tax collection authority (relisted in Item 11, Paragraph 1, Article 38 of the Enforcement Rules of the Value-added and Non-value-added Business Tax Act as amended and promulgated on June 22, 2011: “… court-auctioned or -sold goods …the deduction copy of a business tax payment slip as issued by the tax collection authority.” The said Item was amended and promulgated on March 6, 2011, but the above provision remains the same; hereafter the “Provisions”), and the Letter 1996.10.30 Tai-Tsai-Shuei No. 851921699: “… 2. For court-auctioned or –sold goods that are subject to business tax, the tax collection authority shall, after receiving the amount of court-distributed tax, issue a “court-auctioned or -sold goods business tax payment slip” for the same amount … if the buyer is a business entity which should calculate the amount of tax in accordance with Section 1, Chapter 4 of the Business Tax Act, the deduction slip shall be delivered to the buyer as an input certificate to report and offset the output tax. 3. As regards the amount of un-distributed business tax … if it has been paid and the buyer is a business entity which should calculate the amount of tax in accordance with Section 1, Chapter 4 of the Business Tax Act, the tax collection authority shall notify the buyer to apply on a special case basis to offset the amount paid against the output tax” expressly providing that the business entity buying court-auctioned or -sold goods shall use the third copy (deduction copy) of the business payment slip as issued by the tax collection authority, which is not a seller business entity, as the input tax certificate. Furthermore, it is a condition precedent on the tax collection authority’s issuing the business tax payment slip that the amount of business tax should have been collected or paid, excluding the eligibility of the receipt issued by the court, which indicates the type and price of the auctioned or sold goods or to which the court record that indicates the type and price of the auctioned or sold goods has been attached, as an input tax certificate. These rules contradict Paragraph 1, Article 32 of the Business Tax Act that a seller business entity shall issue a certificate for the full amount of business tax upon receipt of payment, and Item 3, Article 33 that the Ministry of Finance will approve the certificate issued by a seller business entity, and that the certificate shall not be limited to the one issued by a tax collection authority. They have prevented the buyer business entity from offsetting the input tax which is transferred through the auctioned or sold price against the current output tax in accordance with Paragraph 1, Article 15 of the Business Tax Act, thereby affecting the amount of business tax currently payable. They create tax payment obligations without a statutory ground, and are incompatible with the Principle of Statutory Taxpaying, and thus should not be applied.
      
    •        Based on the meaning and purpose of this Interpretation, the relevant authorities shall have discussions as soon as possible, and the Ministry of Finance shall, in accordance with Item 3, Article 33 of the Business Tax Act, approve the eligibility of  court-issued receipts, which indicate the type and price of the auctioned or sold goods or to which the court record indicating the type and price of the auctioned or sold goods has been attached, as the input tax certificate of the buyer business entity.
      
    • ______________________
      
    • * Translated by Chun-yih CHENG.
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