The Supreme Administrative Court rendered the 107-Pan-696 Decision of November 26, 2018 (hereinafter, the “Decision”), holding that in case of an entity’s continued engagement of specific economic activities for profit-seeking purposes, the entity is still regarded as a profit-seeking enterprise and shall be taxed for its income even though no business registration has been sought.
According to the facts underlying this Decision, the Appellant was the spouse of the representative of Company A, which is not a party to this lawsuit, and entered into a joint development agreement under which the Appellant shall provide the land at issue for the development of real estate and sell the land through joint development and separate sales with 70% of the total selling price as the payment for the land. Subsequently the Appellant reported the annual income on his own, while the net business income, annual income and tax-free income of the Appellee were re-assessed by a net profit margin of 10% for a real estate investment and development enterprise. Dissatisfied, the Appellant brought this administrative lawsuit pursuant to applicable procedures.
According to this Decision, if an entity engages in specific economic activities continuously and independently engaged for profit-seeking purposes, although there is no registered business license number or registered premises in the absence of business registration, still such entity shall be regarded as a “profit-seeking enterprise” under Article 11, Paragraph 2 of the Income Tax Law with its profit-seeking income subject to consolidated income taxes in light of economic implications and the principle of fairness in substantive taxation. Transaction income from any sale of land by an individual or profit-seeking enterprise shall be tax-free income. The only difference is that the total income of a profit-seeking enterprise shall still include such tax-free income, which is not included as part of the taxable income. The income of the sole-proprietor from the distribution of the profit-seeking enterprise’s profit is regarded as a profit-seeking income only in case of any profit after the profit-seeking enterprises settles its accounts. To wit, Article 71, Paragraphs 1 and 2 of the Income Tax Law effective at the time of the act provided that a sole-proprietorship profit-seeking enterprise shall be obligated to assess and file its taxes during May 1 through May 31 each year. Although it is not necessary to calculate and pay the payable assessed tax amount, still the income of the profit-seeking enterprise shall still be included as a profit-seeking income by the sole proprietor of the capital and subject to consolidated income taxes.
It was first pointed out in this Decision that although the Appellant did not have a business license number or business location, still he used a house and the land on which it is located and engaged in a trading model for concurrent sale by having Li Tung Co. sell the housing units while his land was also sold at the same time. The activity engaged by the Appellant has substantially the same economic implication as Li Tung Co., which had a business license number or business location and engaged in the same profit-seeking activities of selling real estate. Therefore, the Appellant shall be deemed a “profit-seeking enterprise” within the meaning of Article 11, Paragraph 2 of the Income Tax Law. The original decision was not without basis when it upheld the legality of the Appellee’s assessment of the net business income and the tax-free income as shown in the decision on reconsideration on such basis. However, it was further pointed out in this Decision that the original trial court had failed to investigate ex officio when the transfer of the land ownership shares to buyers of jointly developed housing units was registered. Since the original decision was unlawful for failure to apply appropriate laws and regulations and for insufficient grounds, the original decision was reversed and remanded.