Newsletter
LAND VALUE TAX AND HOUSE TAX TAKE PRIORITY OVER MORTGAGES
In the past, the precedence of tax liabilities over mortgage debt applied only to land value incre-ment tax; when a borrower provided land as collateral, the lender needed only to deduct the potential amount of land value increment tax from the value of the collateral. However, leg-islators took the view that for only land value increment tax to take precedence over mortgage debt repayment was clearly at odds with the legislative intent of Article 6 of the Tax Collec-tion Act, and that it adversely impacted national tax revenue.
Accordingly, on 22 December 2006, the Legis-lative Yuan enacted an amendment to Article 6 of the Tax Collection Act such at the collection of not only land value increment tax but also land value tax, and house tax will take precedence over all debts and mortgages. Thus, when land is sold at auction or transferred to a creditor by the court or by the administrative enforcement agency, the court or the administrative enforce-ment agency must, within five days after com-pletion of such auction sale or transfer, give no-tice of the auction price or transfer value to the local competent tax collection authority, for the authority to duly assess these taxes. The above amendment took effect on 12 January 2007.
In a letter dated 23 January 2007, the Judicial Yuan gave notice to courts at all levels that the amended Tax Collection Act does not expressly state that the amended provisions of Article 6 should be applied retroactively. Therefore, based on the general doctrine that legislation is not retroactive in effect, the new provision should only apply to tax liabilities that arise in respect of the auctioned property after the amendment took effect.
The amended Act has impact on the interests of financial institutions. When calculating the per-centage of a property's value that may be lent, a lending bank now needs to deduct the amount of all three taxes, with the result that the loan amount is likely to be reduced. Furthermore, financial institutions are likely to require that borrowers produce records of payment of house tax and land value tax, in order to properly assess the value of the collateral.