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Judicial Yuan Interpretation No. 713 (Penalty on Late Submission of Tax-Withholding Statements)



On 18 October 2013, the Justices of the Constitutional Court handed down Interpretation No. 713 to address the penalty on late submission of tax-withholding statements. Chiu Fou-Sheng, the petitioner for the interpretation, did not withhold the 20% income  tax on satellite broadcast service fees between his corporation and foreign corporations during 2000 to 2003. Despite the fact that Chiu paid the additional tax as ordered, the National Taxation Bureau fined Chiu around NTD 20,000,000 in accordance with Subparagraph 2, Paragraph 1, Article 6 of the "Criteria for Reduction of or Exemption from Penalties on Evasion of Tax Payments" (the "Criteria") effective at the time, simply because Chiu delayed submission of the tax-withholding statements. According to Subparagraph 2, Paragraph 1, Article 6 of the Criteria, whether a tax withholder had breached the obligation to submit the tax-withholding statements or the obligation to withhold tax, the National Taxation Bureau should assess a penalty of 1.5 times the amount of the tax payable. Chiu objected to the fine and took the case to the administrative court, but received an unfavorable final ruling ("Final Ruling"). He then brought the case before the Judicial Yuan, and the Constitutional Court Justices rendered Judicial Yuan Interpretation No. 713, finding Subparagraph 2, Paragraph 1, Article 6 of the Criteria unconstitutional:
 
A.    Because Subparagraph 2, Paragraph 1, Article 6 of the Criteria was substantively applied to the Final Ruling, Chiu may petition for an interpretation of the Constitutional Court Justices.
 
Chiu petitioned for an interpretation of the Constitutional Court Justices to contest the constitutionality of Subparagraph 2, Paragraph 1, Article 6 of the Criteria, the legal basis of Supreme Administrative Court Ruling No. 1000 (2008). Although the Final Ruling did not cite the Criteria, the administrative court substantively applied Subparagraph 2, Paragraph 1, Article 6 of the Criteria in its legal reasoning. Accordingly, the provision is subject to Judicial Yuan interpretation.
 
B.    The damage to the national treasury receipt and tax equity from not withholding tax and from not submission of the tax-withholding statements varies significantly. The National Taxation Bureau's assessment of a penalty equal to 1.5 times the tax due and payable in both scenarios violated the principle of proportionality and the right of property under Article 15 of the Constitution.
 
The Constitutional Court Justices held that the tax withholder’s tax-withholding obligations include (1) the obligation to withhold tax, and (2) the obligation to submit the tax-withholding statement; however, there is a discernible difference in the damage to the national treasury receipt and tax equity from breaching the former and the latter. 
 
That is to say, although tax withholders who pay tax by the extended deadline undermine the tax authorities' collection of tax data and the income tax returns, the severity of such damage is less than that of not paying tax at all. If the tax authorities apply the same standard when fining tax withholders without considering the differences in their violations, such punishment may violate the principle of proportionality for being excessive and violating the right of property, which is protected by Article 15 of the Constitution. Given the opinion of the Constitutional Court Justices, Subparagraph 2, Paragraph 1, Article 6 of the Criteria became null the day after the interpretation was promulgated.
 
Judicial Yuan Interpretation No. 713 would not have come about without the dedication of our colleagues and their nonpareil expertise in administrative litigation and taxation laws. The interpretation affords greater protection to taxpayers' basic rights and aligns Taiwan's relevant protective measures with those of the international community. This success demonstrated once again Lee and Li's unrivaled experience in and understanding of constitutional litigation.
 


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