In case a taxpayer has supplemented the filing of a tax return along with the payment of the supplemental tax before a penalty is imposed, the tax agency shall specifically indicate that the supplemented filing of a tax return and the payment of the supplemental tax have been taken into account in the penalty reasons; otherwise, the tax agency would be unlawful for discretionary indolence (Taiwan)

2017.9.14
Yi-Shan Cheng

The Supreme Administrative Court rendered the 106-Pan-492 Decision of September 14, 2017 (hereinafter, the “Decision”), holding that in case a taxpayer has supplemented the filing of a tax return along with the payment of the supplemental tax before a penalty is imposed, the tax agency shall specifically indicate that the supplemented filing of a tax return and the payment of the supplemental tax have been taken into account in the penalty reasons; otherwise, the tax agency would be unlawful for discretionary indolence.

According to the facts underlying this Decision, the Plaintiff had filed his consolidated income tax for 2012 before the Defendant found the Plaintiff had generated an income by selling his shareholding in non-listed and non-OTC-traded companies without assessing and filing such income pursuant to the Basic Income Tax Statute. A violation was subsequently established following the Defendant’s review.  In addition to supplementing the tax, a penalty equivalent to 100% the tax amount to be supplemented was imposed.  Dissatisfied with the disposition that imposed a penalty, the Plaintiff brought administrative action.  After the original trial court ruled against the Plaintiff, the Plaintiff appealed out of dissatisfaction.

According to the Decision, the Reference Table for Penalty Multiples (including its usage instructions) is a discretionary standard for exercising the discretionary sanction power over tax violation cases as promulgated by the Ministry of Finance for its affiliated tax agencies.   According to such Reference Table for Penalty Multiples, if a taxpayer who illegally evaded any tax “has admitted to the fact of violation in writing or in an interview transcript and is willing to pay up the tax and penalty” or “has supplemented the tax filing along with the payment of the supplemental tax before a disposition that imposed a penalty is rendered” or is subject to any other similar circumstance, there are always penal requirements under various tax categories that a relatively lighter penalty would be imposed as opposed to taxpayers who are not subject to any of the above circumstances.   Particularly with respect to the circumstances where “the supplemental tax has been paid before a disposition that imposes a penalty is rendered,” the Treasury’s early collection of tax monies is beneficial to its fund mobilization.  Therefore, a lighter penalty under the Reference Table for Penalty Multiples is appropriate and meets the purpose of granting discretionary power under relevant laws and regulations.  However, this matter was not included in the scope of discretion in this case involving a tax evasion in violation of Article 15, Paragraph 2 of the Basic Income Tax Statute. Therefore, when the taxpayer in a specific case has supplemented the tax filing along with the payment of the supplemental tax before a disposition that imposed a penalty is rendered, the tax agency seeking to impose a penalty pursuant to the Reference Table for Penalty Multiples or to reduce the penalty is required to specifically indicate in its examination report that it has taken into account the fact that the taxpayer has supplemented the tax filing along with the payment of the supplemental tax before a disposition that imposes a penalty is rendered. Otherwise, the tax agency would have discretionary indolence and be unlawful for abusing its discretionary power.

Therefore, it was found in this Decision that the original decision should be reversed and remanded on the ground that the original decision had applied inappropriate laws and regulations due to its failure to consider the fact that the Plaintiff had supplemented tax filing along with the payment of the supplemental tax before the penalty was imposed and had laid such claim when applying for reconsideration.