TAIWAN: The Tax and Legal Reform League against abusive taxation (Part 1)
HRWF (22.06.2021) – On 3 September 2020, the League sent its proposals signed by its expert, Prof. Huang Chun-Chieh, and three representatives (Chuck Cheng; Xu, Xiao-Huan and Daisy Liu), to the National Human Rights Commission. (Part 1)
- The “interpretative letters and directives” lack a legal basis and thus cannot be cited for taxation
- The tax system is not transparent. Foreign investors are not willing to invest
- Tax Lawsuits: The chances for the people to win their cases are slim
- The bonus system corrupts people’s hearts and devours the future of the country
Dear President and Chair of the Board Chen:
We are glad to hear that the National Human Rights Commission (NHRC) has been officially inaugurated. The NHRC must be better able to perform the function of protecting human rights and the people. We anticipate the NHRC to “be the conscience of the nation” and to reach the goal where everyone’s human rights is fully realized.
Nowadays, taxpayer’s human rights are important human rights that are widely recognized throughout the world. The protection of “property rights” is the key to Western civilization’s dominance over the world in just a few centuries, and the government’s emphasis on taxpayer’s human rights allows people to live and work in peace and prosperity and the country to develop steadily. However, in Taiwan, the suppression and violation of taxpayer’s human rights are still in full swing, as described below.
The “interpretative letters and directives” lack a legal basis and thus cannot be cited for taxation
The principle of taxation according to the law under Article 19 of the Constitution: Article 19 of the Constitution stipulates that the people have the obligation to pay taxes in accordance with the law. Therefore, when the state imposes the obligation to pay taxes or grants tax breaks to the people, there should be laws that expressly stipulate the constitutive elements of taxation, such as the subject of taxation, the object of taxation, the tax base, and the tax rate. Although the competent authorities have the right to make necessary interpretations when applying the provisions of the tax laws within their jurisdiction, many of the more than 9,000 interpretative letters and directives issued by the Ministry of Finance lack a legal basis and have not been subject to legislative procedures; therefore, scholars and legal and tax professionals have long criticized these interpretative letters and directives because many of them violate the “principle of taxation according to the law” and impose questionable restrictions on taxpayers, and their applicability in tax assessment is questionable. Some of the interpretative letters and directives date back to the Martial Law period. The Ministry of Finance even has the discretionary power to interpret the application or repeal of the interpretative letters and directives without informing the public. The tax officials have too much discretionary power. The Ministry of Finance has a large number of interpretative letters and directives, which are not easy to search. The Ministry of Finance’s search system for these interpretative letters and directives allows people to conduct searches according to tax items, statutes and regulations, laws and regulations, and the contents of the interpretative letters and directives, etc. This kind of search method is difficult for legal and tax professionals, let alone the general taxpayers. As of August 28, 2020, of the 794 interpretations by the Justices of the Constitutional Court, there were 131 tax-related interpretations, of which 56 laws and “interpretative letters and directives” were declared unconstitutional. The National Taxation Bureau (NTB) has used nearly 10,000 “interpretative letters and directives” as an important basis for taxation, which violates the principle of taxation according to the law, the principle of legal certainty, and the spirit of human rights protection under the Constitution and the ICCPR and ICESCR, seriously depriving people of their property rights and seriously infringing on their taxpayer rights!
There is a company which found an error in its tax return and asked the NTB how to correct it, but it was heavily fined 20 times of the original tax amount. An old company of Mr. Chien Yong-song, who served as science and technology advisor to the Executive Yuan, had not been in operation for more than 10 years, but the NTB still issued a tax bill concerning that company to him. A tax officer used an invalid “interpretative letter and directive” to pursue taxes in the amount of NT$70 million from his old company that was dissolved and liquidated, without giving him a chance to explain. The Control Yuan also pointed out the mistake of the NTB, but the court copied the information from the tax authorities. Mr. Chien passed away already, but the tax bill has not yet been revoked, and the unjust tax bill has been passed on to his children.
In 2000, in response to a call from the Ministry of Economic Affairs to contribute to Taiwan, Mr. Yeh, Yang-Chun, a scientist, gave up his enviable job in the U.S. and brought DNA chip technology back to Taiwan, and agreed to obtain shares of a company by contributing his technological knowledge and skills instead of money, which was legally approved by the Ministry of Economic Affaires through an audit by an independent certified public accountant. Later, he took the initiative to ask the NTB about tax filing because he had sold some of his shares, but he did not receive any reply. A year and a half later, the NTB determined that the shares were salary income, and taxed him at a rate of 40%, resulting in his owing more than NT$4 million in taxes. He was unable to return to the U.S. to be with his wife and children because he was restricted from leaving Taiwan by the NTB, and he owed several million New Taiwan dollars in tax debts. His wife was very upset about this, and they divorced. The NTB’s long-standing practice of restricting taxpayers from leaving the country violates Article 12 of the ICCPR, which protects freedom to travel abroad, and Article 10 of the ICESCR, which protects the right to family reunification.
The tax system is not transparent. Foreign investors are not willing to invest
According to a 2015 report by the Lausanne Institute of Management (IMD), the top three reasons why foreign investors do not invest in Taiwan are all related to the government, namely government effectiveness, tax system competitiveness and legal environment. Taiwan’s tax system is unfair and non-transparent, causing foreign investors to be deterred, and the brain drain is serious. The U.S., European and Japanese companies have all gave warning that Taiwan’s tax and investment environment is risky, and that Taiwan’s preferable tax treatments for foreign investors have strings attached. In its 2015, 2016, 2017 and 2018 proposals, the American Chamber of Commerce in Taipei and European Chamber of Commerce Taiwan called on the Taiwan government to create a friendly tax environment for foreign investors and make Taiwan’s tax system more rational and easier to follow, and it pointed out that failure to properly align with international standards would leave multinational enterprises with no recourse and could lead to unnecessary tax disputes and a negative impression of Taiwan’s tax environment. The 2019 ECCT Position Papers says Taiwan’s regulations are unfriendly and push foreign talents out of the country. In the 2017 JCI White Paper, it was stated that there were many discrepancies in tax officers’ opinions and that their differences were not clearly explained in accordance with the relevant laws and administrative regulations. It also suggested that the consistency and transparency of tax investigation should be improved. Taiwan’s non-transparent tax system has given foreign investors a negative impression, forcing domestic investors to leave Taiwan and deterring foreign investors to invest in the nation, and thus resulting in an economic crisis.
A few years ago, HANG TEN and other three well-known clothing brands were in dispute with the tax authorities. These companies paid their taxes without any delay. But because their method of issuing invoices was different from the NTB’s expectation, these companies were heavily fined more than NT$590 million, causing the four companies to leave Taiwan. Some tax lawyers mentioned that there were Japanese companies which came to Taiwan for the tax incentives, but they missed the application deadline due to the opaque tax system, and they felt that they were cheated by the Taiwanese government.
The founder of Ccliu, a Taiwan-based shoe brand famous for the American brand (Crocs) “Busch shoes,” first entered the Japanese market in 2007 and has been selling in 60 countries with 1,500 points of presence. It gave up the 5-year tax exemption offered by the Singapore government and chose to return to Taiwan. But its founder lamented that they were being audited by the tax authorities all the time because the NTB did not believe that there could be a Taiwanese company that created its own brand and could collect royalties from foreign companies and suspected that it was a shell company that laundered money.
Tax Lawsuits: The chances for the people to win their cases are slim
Scholars point out that the current Taxpayer Rights Protection Act is only beneficial to tax officials and cannot protect taxpayers at all. When people receive a questionable tax bill, they have to pay one-half of the tax or provide an equivalent guarantee before they can avoid enforcement. Otherwise, the property will be enforced, auctioned off, and the taxpayer will even be restricted from leaving the country or being placed in receivership! This is even more unreasonable than the practices in the U.S., where it only costs $60 to file a tax complaint. Moreover, why must the taxpayer pay half of the tax when the court has not determined if the tax bill is justified? Why can people’s freedom of movement and personal freedom be restricted? For example, according to the Ministry of Finance in 2016, the rate of people’s appeals being rejected was as high as 90%, and the rate of losing appeals was so high that people had no choice but to choose to pay the taxes. The direct deprivation of personal freedom due to taxation is totally disproportionate and is a serious infringement of the fundamental rights protected by the constitution, as well as a violation of Article 9 of the ICCPR, which recognizes the rights to liberty and security of the person. The annual report of the Judicial Yuan’s judicial statistics shows that from 2013 to 2017, the average rate of people winning tax lawsuits in the High Administrative Court was only 5.24%, while in Germany, the Czech Republic, India, and Denmark, the rate was as high as 44.08% to 60%. Are the people of Taiwan unruly or is unjust taxation rampant in the nation?
The American Chamber of Commerce in Taipei and the European Chamber of Commerce Taiwan have called on the Taiwanese government in White Papers and Position Papers to address the lack of a fair and transparent tax relief mechanism. In 2016, the White Paper of the National Federation of Industries suggested that “it is essential to promote the establishment of a specialized tax court with a group of professional tax judges” because of taxpayers’ low success rate of tax lawsuits, which has caused obstacles to investment. However, the competent authorities responded that although tax laws are complex and it requires professional knowledge to understand them, the basic principles of administrative law and procedural jurisprudence that should be followed are common to other administrative litigation matters, especially since tax litigation has always been the first or second largest number of cases heard by administrative courts at all levels, and administrative court judges are not unfamiliar with handling tax matters. Therefore, they argued that the current practice of using a special tax court room or a special tax unit should be a pragmatic compromise. The people’s voices
The bonus system corrupts people’s hearts and devours the future of the country
The bonus system is a product of the martial law era. The Ministry of Finance and the NTB have bonuses for collecting taxes, and the Enforcement Agency has performance bonuses. Such bonuses have no legal basis, but a fund is budgeted for this bonus system each year. Businesses are often coerced by tax officers to pay some unjustified taxes, and some tax officers would even conduct malicious tax audits for the sake of bonuses. Many people don’t owe any tax, but the Enforcement Agency would forcibly auction their property. “A bad system will make good people do bad things.” Scholars pointed out that there are performance pressures and bonuses, and that issuing a wrong tax bill will not be punished. It is almost impossible for the NTB to impose fair and reasonable taxes. Legislators said that the biggest culprit of unlawful tax bills is the bonus system.
Former Control Yuan member Qian Lin Huijun said, “The bonus system should have been abolished long ago because bonuses provide an incentive to be greedy. Public servants are paid by the public money, they must work properly according to their conscience.”
The case of Tai Ji Men, for example, was listed by the Control Yuan in 2005 as one of the major human rights protection cases in the “General Report and the Work of Human Rights Protection of the Control Yuan (1999-2005)” in 2009. Former Control Yuan member Qian Lin Huijun said publicly, “You can go to the website of the Control Yuan to see that I have listed seven points of correction. For each correction, the NTB said, ‘Ah! We made a mistake!’ In 2011, I told the Minister of Finance, “The Tai Ji Men case should be closed.” He didn’t take it as his own business. Their mentality is: I took the bonus already; it is you that will pay the tax.” However, after more than 10 years, not only are human rights not protected, but the land of Tai Ji Men was auctioned illegally. The judge of the first trial of the Tai Ji Men case, Chao Tze-jung, believes that the Enforcement Agency rushed to carry out the enforcement because there were bonuses for the enforcement! Because of human nature, with the attraction of bonuses, how can the public servants who enforce the law not be influenced? The bonus system has not only become an incentive for unjust cases, but also an obstacle to the redress of unjust cases.