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  • Interpretation
  • No.779【Whether to Impose the Tax on the Price Appreciation of Land on the Non-Urban Land Reserved for Transportation Purposes】
  • Date
  • 2019/07/05
  • Issue
    • 1. Does Article 39, Paragraph 2 of the Land Tax Act, exempting the tax on the price appreciation of land violate Article 7 of the Constitution protecting the right to equal protection? Does the Ministry of Finance T’ai Ts’ai Shui Letter No. 0900457200 issued on November 13, 2001, not exempting the npn-urban land designated as road and used for transportation purposes from the tax on the price appreciation of land violate Article 7 of the Constitution protecting the right to equal protection?
    • 2. The Executive Yuan, Council of Agriculture Nung Ch’i Letter No. 900102896 issued on February 2, 2001 states that, as the public roads under the Public Roads Act are not land for agriculture, Article 37, Paragraph 1 of the Agricultural Development Act does not apply to exempt such roads. Does the letter violate Article 19 of the Constitution that requires taxation by statutes and Article 23 of the Constitution that requires that persons’ rights and obligations be provided for by statutes?
  • Holding
    •        Article 39, Paragraph 2 of the Land Tax Act, a provision on exempting the tax on the price appreciation of land, exempts from taxes the price appreciation of land only the land reserved for public facilities, as designated by the Urban Planning Act. To the extent that Article 39, Paragraph 2 of the Land Tax Act does not exempt from the tax on the price appreciation of land the non-urban land designated as land for transportation purposes and land for public facilities, Article 39, Paragraph 2 is inconsistent with the right to equality protected by Article 7 of the Constitution. The relevant office should review and amend the applicable provisions of the Land Tax Act accordingly within two years of the pronouncement of this Interpretation.
      
    •        Ministry of Finance Tai Cai Shui No. 0900457200 Letter Ruling (November 13, 2001), stating that the non-urban land that is designated as road and used for transportation uses is not exempted from the tax on the price appreciation of land under Article 39, Paragraph 2 of the Land Tax Act, shall cease to apply since the pronouncement of this Interpretation.
      
    •        Executive Yuan, Council of Agriculture, Nung Chi No. 900102896 Letter Ruling  (February 2, 2001), stating that the public roads under the Public Roads Act are not land for agriculture and therefore not exempt from the tax on the price appreciation of land under Article 37, Paragraph 1 of the Agricultural Development Act, is consistent with Article 19 of the Constitution that requires taxation in accordance with statutes and Article 23 of the Constitution that requires that individual persons’ rights and obligations be affected only by statutes. 
  • Reasoning
    •        The petitioner, Jia-hong Su, contracted with a non-party on May 16, 2013, to sell his land (hereafter referred to as “the land in dispute”) located in the Shan-hua District of Tainan City. Mr. Su, on May 17, 2013, through the internet, reported the “current value of the transferred land” to the Tax Bureau of Tainan City Government. The land in dispute is land for transportation in a agricultural district. The petitioner applied to the Office of Shan-hua District of Tainan City for “certificate that the particular piece of land is used for agricultural purposes”, but the Office Shan-hua District rejected the application. The application was denied because only the southern part of the land in dispute (approximately 50 square meters) is used for cultivating Chinese sugarcane, but the northern part of the land in question (approximately 422 square meters) is used as a road numbered South Line 122 rather than for agricultural purposes. Without the “certificate that the particular piece of land is used for agricultural purposes,” the petitioner could not apply for the exemption from the land price appreciation tax pursuant to Article 39-2, Paragraph 1 of the Land Tax Act. The Tax Bureau of the Tainan City Government found that, even though part of the land in dispute is used as a road, it belongs to the category of non-urban land for transportation, rather than the category of land reserved for public facilities so designated under Urban Planning Act. In other words, the conditions for the exemption from land appreciation tax set out in Article 39, Paragraph 2 of the Land Tax Act (hereafter referred to as the statute in dispute) are not met. As a result, the land in dispute was assessed at the tax rate for the appreciation of ordinary land in the amount of 200,727 New Taiwan Dollars (TWD). The petitioner appealed the assessment decision, but the appeal was dismissed both at the level of second review and at the level of petitions and appeals. The petitioner then initiated administrative litigation. The Taiwan Tainan District Court ruled against the petitioner in its Chien-Tzu Judgment No. 79 (2013); on appeal, the Kaohsiung High Administrative Court ruled against the petitioner in its Chien-Shang-Tzu Judgment No. 23 (hereafter referred to as the final judgment).
      
    •       The petitioner applied to this Court for an interpretation of the Constitution, contending that the provisions in dispute applied by the final judgment, the second point of the Explanation part of the Ministry of Finance Tai Cai Shui No. 0900457200 Letter Ruling (November 13, 2001), the second point of the Explanation part of the Executive Yuan, Council of Agriculture, Nung Chi No. 900102896 Letter Ruling (February 2, 2001) may have violated Articles 7, 19, and 23 of the Constitution. As the application is consistent with Article 5, Paragraph 2, Subparagraph 1 of the Constitutional Court Procedure Act and, therefore, it shall be established. The reasons for the Interpretation are set out below:
      
    •        1. The provisions in dispute with regard to an exemption for the tax on the price appreciation of land are inconsistent with the right to equal protection as provided for in Article 7 of the Constitution.
      
    •        Article 7 of the Constitution sets out the principle of equality, which intends to prevent the legislature from giving people unreasonable differential treatment. If differential treatment is given to the same matters or issues without a legitimate reason, then the principle of equality set out in Article 7 of the Constitution is violated. (See J.Y. Interpretation No. 687). The question of whether a particular legal norm satisfies the principle of equality depends on whether the objective sought by the specific legal norm is constitutional and whether a sufficient nexus exists between the classification adopted and the objective. (see J.Y. Interpretation Nos. 701 and 760)
      
    •        The imposition of and exemption from the tax on the price appreciation of land is provided for in Chapter 4 of the Land Tax Act, in Article 28 to Articles 39-3.  Different types of land are taxed differently. The classification of land and the differential treatment accorded it involves the planning and estimation of the nation’s income; it is, therefore, best determined by the Legislative Yuan representing popular opinion and the relevant administrative offices with fiscal expertise. However, their decisions should still be made to achieve legitimate objectives, and a reasonable nexus should exist between the classification and the achievement of the objectives so that the principle of tax equity is respected and the equal protection of law set out by Article 7 of the Constitution is not violated. (see J.Y. Interpretation No. 745)
      
    •        Article 28 of the Land Tax Act provides that for pieces of land that have been assessed a price at a time when the ownership of land is transferred, the tax on the appreciation of land should be assessed at the total amount of that appreciation. Article 39, Paragraph 1 of the Land Tax Act provides that the land confiscated by the government is exempt from the land price appreciation tax. When the Land Tax Act was amended on May 21, 1997, the following provisions were added: Transfers of land reserved for public facilities as designated under the Urban Planning Act that occurred before confiscation are exempt from the tax on the price appreciation of land. If the land reserved for public facilities so designated under the Urban Planning Act later becomes land not reserved for public facilities, the tax on its price appreciation of land should be levied. When calculating price appreciation, the previous price should be either the amount assessed by the government or the price at which the land was last transferred. Only the land reserved for public facilities so designated under the Urban Planning Act is exempt from the tax on the price appreciation of land. Non-urban land designated as land for transportation purposes, and land for public facilities is not exempt from the land price appreciation tax. There is a differential treatment between these types of land.
      
    •        The provisions in dispute exempt only the land reserved for public facilities from the tax on the price appreciation of land for the following reasons: As long as a piece of land is designated as land reserved for public facilities, the property value decreases dramatically, which seriously affects the rights and interests of the landowners. Since the government does not have sufficient fiscal resources, it often takes the land and compensates owners for their losses years later. During this period between reservation and taking, the liquidity of the land is limited, and no price appreciation exists before the government takes the land and compensates the landowners, which affects the opportunities and value of market transactions. If the law does not exempt the land reserved for public facilities from the tax on the price appreciation of the land, the original intent to exempt the land taken by the government from the price appreciation tax on the land is contradicted. When private parties transacted the land reserved for public facilities, the tax on the price appreciation of land is usually assessed following the present value of the land as assessed by the government. The current value of the land is determined by government policy and does not necessarily reflect the market value of the land in question. If the tax on the price appreciation of land is levied based on the present value of the land, it is unreasonable and inconsistent with the society’s fairness and justice principles. For the same piece of land reserved for public facilities, the landowners at the time of taking do not have to pay the tax on the price appreciation of the land, but the landowners who sell before the taking (or confiscation) takes place has to pay the tax on the price appreciation of the land. It is an unfair situation. (see the Proposal Explanation by the Legislator, the Gazette of the Legislative Yuan, Volume 86, Number 15, from page 83 to page 85.) Therefore, the disputed provisions were enacted to compensate for the disadvantages caused by the designation of urban land as land reserved for public facilities. They did so through exempting such land from the tax on the price appreciation of land. Such an objective is legitimate.
      
    •        Under the current law, urban land is primarily regulated by the Urban Planning Act, and non-urban land is controlled mainly by the Regional Planning Act, Land Act, and the Regulations on the Use of Non-Urban Land. In other words, there are two regulatory systems for land. However, there are also similarities respecting the extent to which urban land and non-urban land are regulated. Under the Regional Planning Act and other relevant regulations, the use of non-urban land is regulated. The non-urban land designated to be used for particular purposes (huating shihyung fench’u) and granted the permission to be used for particular purposes should be used only in accordance with such designated purposes and permitted purposes. (see Article 6 of the Regulations on the Use of Non-Urban Land) The non-urban land designated to be used for transportation and to be land for public facilities (see Articles 12 and 13 of the Regulations Implementing the Urban Planning Act.) has to be used in a particular manner, and the liquidity, opportunities, and value of market transactions for such land are adversely affected by government policies and laws, which is similar to the land reserved public facilities designated by the Urban Planning Act. In addition, non-urban land used as public roads are, effectively, public facilities. The liquidity, opportunities, and value of market transactions for such land suffer more severe adverse consequences. This type of non-urban land is similar to the land reserved for public facilities designated under Urban Planning Act. Therefore, it should be accorded similar treatment to comply with the principles of tax fairness and equality as set out in Article 7 of the Constitution. However, the provisions in dispute exempt from the tax on the price appreciation of land only the land reserved for public facilities designated under the Urban Planning Act, but not the non-urban land designated as land for transportation purposes and land for public facilities. As discussed above, the differential treatment is unreasonable, and the relevant offices offer no reasonable explanation for such differential treatment. Therefore, there is no reasonable nexus between the differential treatment and the objective it sought to achieve; therefore, the differential treatment violates the principle of equality in Article 7 of the Constitution. Relevant offices should review and amend the applicable provisions of the Land Tax Act within two years of the pronouncement of this interpretation, per the discussion above.
      
    •        2. The relevant part of the first letter in dispute cease to apply
      
    •        The first letter in dispute states the following: Article 39, Paragraph 1 of the Land Tax Act exempts the land taken from private owners by the government from the tax on the price appreciation of land. Article 39, Paragraph 2 states that when land reserved for public facilities under Urban Planning Act is transferred before the government takes it, the tax on the price appreciation of land is also exempted. The legislative intent is that, as the land reserved for public facilities is exempt from the tax on the price appreciation of land at the time of taking, transfers completed before the confiscation takes place should also be exempt from the tax on the price appreciation of land so that tax fairness is achieved. Therefore, the land that may be exempt from the tax on the price appreciation of land under Article 39, Paragraph 2 has to be land designated as land reserved for public facilities and that will later be taken by the government. The non-urban land reserved for transportations purposes is not the land reserved for public facilities designated under Urban Planning Act, and, therefore, Article 39, Paragraph 2 does not apply to the transfers of such land. In other words, the first letter in dispute opined that the non-urban land reserved for transportation purposes is not the land reserved for public facilities designated under Urban Planning Act, and, therefore, the exemption from the tax on the price appreciation of land provided for in Article 39, Paragraph 2 is not applicable. The first letter in dispute is explaining the meaning of the disputed provisions. As the provisions in dispute are inconsistent with the protection of equality set out in Article 7 of the Constitution, the aforementioned portion of the first letter in dispute should cease to be applied after the pronouncement of this Interpretation.
      
    •        Another issue should also be noted. Article 143, Paragraph 3 of the Constitution, which states that the price appreciation that does not arise from labor or capital should be subject the tax on the price appreciation of land and enjoyed by all people of the nation, is intended to realize the policy that all the people of the country may enjoy the natural price appreciation of land. (see J.Y. Interpretation No. 286.) According to Article 143, Paragraph 3 of the Constitution, as long as there is a natural price appreciation of land, the tax on the price appreciation of land should be imposed. However, Article 39, Paragraph 1 of the Land Tax Act was amended on January 7, 1994 to exempt land taken by the government from the tax on the price appreciation of land. The legislative intent of Article 39, Paragraph 1 of the Land Tax Act was that the present value of land assessment by the government was far lower than the land’s market value and that landowners were insufficiently compensated, even though the government may compensate them for up to 140% of the present value of the land and allow them to pay lower taxes on the price appreciation of land. Therefore, Article 39, Paragraph 1 of the Land Tax Act was amended on January 7, 1994 to exempt the land taken by the government from the tax on the price appreciation of land. (See the Proposal Explanation by Legislators, Gazette of the Legislative Yuan, Volume 82, Number 4, pages 201 and 202.) However, the Land Taking Act was amended on January 4, 2012, and Article 30, Paragraph 1 states that the owner of a piece of land taken by the government should be compensated at the market price at the time of taking; it further states that the owner of the land reserved for public facilities within urban planning areas should be compensated at the average market price of an adjacent piece of land not reserved for public facilities. Therefore, whether the compensation paid to landowners for the land taken by the government is sufficient, and whether it is still necessary to exempt the landowners from the tax on the price appreciation of land, are questions that the relevant offices had better take into consideration when reviewing and amending the applicable provisions of the Land Tax Act. 
      
    •        3. The second letter in dispute are consistent with Article 19 and Article 23 of the Constitution
      
    •        Article 19 of the Constitution states that individual persons are obligated to pay taxes under the law, which means that, when the state imposes on people obligations to pay taxes, or alleviates or exempts their obligations to pay taxes, the state should set out in statutes the requisite elements. These elements include the persons paying taxes, the taxed objects, the attribution of taxed objects to taxed subjects, tax base, tax rate, paying method, and paying period. If the competent authorities interpret the provisions of tax law within their competences following constitutional principles and relevant legislative intent and common methods of legal interpretation, their interpretations are not violating the constitutional requirement that individual persons’ obligations to pay taxes have be imposed by law (see J.Y. Interpretation Nos. 607, 635, 674, 685, and 693)
      
    •        Article 39-2, Paragraph 1 of the Land Tax Act states that, when the agricultural land currently used for agricultural purposes is transferred to a natural person, the seller may apply for an exemption from the tax on the price appreciation of the land. Article 37, Paragraph 1 of the Agricultural Development Act states that when the agricultural land that is currently used for agricultural purposes is transferred to a natural person, the seller may apply for an exemption from the tax on the appreciation of the land. Article 39-2, Paragraph 1 of the Land Tax Act is identical to Article 37, Paragraph 1 of the Agricultural Development Act. Article 37, Paragraph 1 of the Agricultural Development Act is intended to enhance the welfare of farmers to help farmers to acquire farmland and to realize the policy that agricultural land be used for agricultural purposes. (see the Gazette of the Legislative Yuan, Volume 88, No. 59, page 261 and page 266) Article 39-2, Paragraph 1 of the Land Tax Act is intended to complement the Agricultural Development Act. (see the Gazette of the Legislative Yuan, Volume 89, No. 3, page 125, and Volume 88, No. 59, page 266) Therefore, Article 39-2, Paragraph 1 of the Land Tax Act should be interpreted and applied, as does Article 37, Paragraph 1 of the Agricultural Development Act.
      
    •        The second letter in dispute states the following: Article 3, Paragraph 1, Subparagraph 10 (changed to become Article 3, Subparagraph 10 on February 7, 2003, identical in contents) states that the phrase “agricultural land” refers to non-urban land or urban land located in agricultural districts or conserved districts being used for the following purposes: (1) for agriculture, forestry, . . ., (2) agricultural buildings inseparable from agricultural activities . . . agricultural lanes, irrigation, drainage, and other types of land for agricultural purposes; (3) farmers’ association. Article 2, Paragraph 1 of the Regulations Implementing Agricultural Development Act states that the phrase “agricultural land” as provided for in Article 3, Paragraph 1, Subparagraph 10 of the Agricultural Development Act has the following legal bases and scope: 1. The Agricultural Development Act . . . 2. The land designated under the Regional Planning Act for forestry, for aquaculture, …, and the land used as agricultural roads and designated as “road” (on June 10, 2005, it was moved to Article 2 and changed to the phrase “land used as agricultural roads”), or the land in the aforementioned areas and their uses not yet designated. Therefore, land used as agricultural roads designated as “road” and inseparable from agricultural activities should qualify as land for agricultural activities, and the uses designated under the Regional Planning Act are not a limiting factor. Therefore, even though non-urban land used as agricultural roads is still considered land for agricultural purposes, and Articles 37 and 38 of the Agricultural Development Act still apply to such land. However, the public roads defined by the Public Roads Act—which include national roads, provincial roads, county roads, rural roads, and special roads—are still not land for agricultural purposes, and Articles 37 and 38 of the Agricultural Development Act do not apply to such land. The second letter in dispute is an interpretation made by the Council of Agriculture on the relevant provisions of the Agricultural Development Act. The second letter in dispute relied on Article 3, Paragraph 1, Subparagraph 10 of the Agricultural Development Act valid before the amendment on February 7, 2003 (on the definition of land for agriculture), and Article 2, Paragraph 1 of the Regulations Implementing the Agricultural Development Act (on the legal bases and scope for the land for agriculture). Article 3, Paragraph 1, Subparagraph 10 of the Agricultural Development Act valid before the amendment on February 7, 2003, and Article 2, Paragraph 1 of the Regulations Implementing the Agricultural Development Act are identical in contents to Article 10, Paragraph 1 of the Land Tax Act and Article 57 of the Regulations Implementing the Land Tax Act.
      
    •        The second letter in dispute—which states that public roads under the Public Roads Act are not agricultural lands and that Article 37, therefore, does not exempt them from taxes on the price appreciation of the land—is an interpretation made by the Council of Agriculture within its competence concerning the requisite element “agricultural roads inseparable from agricultural activities” per ordinary methods of legal interpretation. Its interpretation describes the scope of the land for agriculture that is exempt from the tax on the price appreciation of land, as provided under Article 37 of the Agricultural Development Act. That interpretation was authorized by Article 3, Subparagraph 10, Item 2 of the Agricultural Development Act and Article 2 of the Regulations Implementing the Agricultural Development Act (identical in contents to Article 10, Paragraph 1 of the Land Tax Act and Article 57 of the Regulations Implementing the Land Tax Act). Further, such interpretation was consistent with the legislative intent of Article 37, Paragraph 1 of the Agricultural Development Act (identical in contents to Article 39-2, Paragraph 1 of the Land Tax Act). Moreover, such interpretation helps to clarify the potential questions during application and helps the tax authorities in their deliberations. Furthermore, that interpretation does not increase obligations to pay taxes beyond statutes, and it does not decrease the tax benefits provided for in the statutes. Therefore, the second letter in dispute does not violate Article 19 of the Constitution that requires taxation by statutes or Article 23 of the Constitution that requires that persons’ rights and obligations be provided for by statutes.
      
    • ______________________
      
    • *Translated by Chi CHUNG
      
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