Tiffany Hsiao
The Supreme Administrative Court rendered the 109-Pan-77 Decision of February 13, 2020 (hereinafter, the “Decision”), holding that a tax agency reviews the compliance of a tax-free income filed by a profit-seeking enterprise based on the precondition of whether the profit-seeking enterprise has applied to the Ministry of Finance for five-year exemption of the profit-seeking enterprise income taxes.
According to the facts underlying this Decision, the Plaintiff filed its profit-seeking enterprise income tax return for 2014, in which tax-free income that complied with incentive regulations was included. The Defendant found as a result of its investigation that the Plaintiff had failed to apply to the Ministry of Finance for a five-year exemption of profit-seeking enterprise income taxes by the required deadline. Therefore, a disposition was rendered to conclude that the tax-free income was assessed at zero and a payable tax amount of NT$16,611,799 should be supplemented (hereinafter, the “Original Disposition”). Dissatisfied, the Plaintiff applied for reconsideration, which was rejected by the Defendant through a decision. Still dissatisfied, the Plaintiff filed an administrative appeal, which was also rejected. As a result, the Plaintiff brought an administrative action with the Taipei High Administrative Court (hereinafter, the “Original Trial Court”). After the complaint was rejected by the Original Trial Court, an appeal was filed.
The Decision points out that the legislative purposes of Articles 8 and 9 of the Statute for Upgrading Industries are to encourage the creation or expansion of emerging and important strategic industries that are of great economic benefits for economic development, risky and need to be fostered by providing either a shareholder investment credit or a 5-year exemption of profit-seeking enterprise income taxes for eligible companies. In addition, with the authorization under Article 8, Paragraph 3 of the Statute for Upgrading Industries, the Executive Yuan formulated and promulgated the Measures for Rewarding Emerging Industries to stipulate the scope of application, the agencies granting approvals, application period, application procedure, etc., for emerging and important strategic industries. If the company’s establishment or expansion meets the requirements of the Measures for Encouraging Emerging Industries, such company may assert the tax exemption right pursuant to law if it chooses to apply the five-year exemption of profit-seeking income taxes in accordance with Article 9, Paragraph 1 of the Statute for Upgrading Industries. To regulate the application procedure for obtaining the tax exemption right and the collaborative obligation of a company, the Executive Yuan released the procedural requirements for Article 19 and 20 of the Enforcement Rules of the Statute for Upgrading Industries. Therefore, if a company seeks to apply the five-year exemption of profit-seeking income taxes for emerging and important strategic under Article 9 of the Statute for Upgrading Industries, it is not only required to meet the criteria under the Measures for Encouraging Emerging Industries but also to follow the application procedure under Articles 19 and 20 of the Enforcement Rules of the Statute for Upgrading Industries and to apply to the Appellee for the five-year exemption of profit-seeking enterprise income tax law in order to enjoy the tax exemption incentive. Therefore, a tax agency’s review of the tax-free income filed by a profit-seeking enterprise to determine its compliance with the incentive requirements is based on the precondition of whether the profit-seeking enterprise has applied to the Ministry of Finance for the five-year exemption of profit-seeking income taxes.
It was further indicated by the Decision that although Article 71 of the Statute for Upgrading Industries generally authorizes the Executive Yuan to prescribe the enforcement rules, still an observation of the interconnected meanings of the overall provisions of the Statute for Upgrading Industries shows that the application procedure and period under Articles 19 and 20 of the enforcement rules meet the legislative purposes of the Statute for Upgrading Industries and do not exceed the scope of the enabling law. In addition, the fiscal incentives regulated under the Statute for Upgrading Industries are tax reduction or exemption privileges additionally granted by lawmakers who selected specific industries or specific purposes in consideration of economic development needs, not an restriction on the freedom or rights of the people. Under such circumstances, the application of the principle of legal reservation is not as strict as compared to circumstances involving interference with administration. The procedural requirements for a company’s obtaining the tax exemption privilege under Articles 19 and 20 of the enforcement rules can hardly be found to be in violation of the principle of legal reservation, the principle of explicit delegation, or the principle of taxation prescribed by law. Since a company eligible for choosing the five-year exemption of the profit-seeking enterprise income taxes because it falls within the scope of emerging and new strategic industries has to go through an application procedure and obtain an approval from the Ministry of Finance in order to obtain the tax exemption privilege, it certainly has no tax exemption privilege before an approval is granted by the Ministry of Finance. Therefore, a statute of limitations for the right of claim can hardly be asserted. Therefore, regarding the Appellant’s filing of its profit-seeking enterprise income tax return in this case, the Appellant certainly could not assert that it was eligible for the tax exemption right under the Statute for Upgrading Industries. To wit, the Appellant’s profit-seeking income tax return in this case certainly entailed no tax exemption right.