Josephine Peng/Leo Tsai
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With respect to a taxpayer's violation of any regulation resulting in any underpaid tax, tax laws do not individually differentiate the punishment under a taxpayer's intentional act or negligent act. However, according to paragraph 1, article 18 of the Administrative Penalty Act, when imposing a penalty, the tax authorities should not only consider the benefits gained by a taxpayer from an act which is in violation of tax laws, but also consider the culpability of the taxpayer for such act. A taxpayer may violate regulations intentionally or negligently, and the culpability between intention and negligence should be different. Therefore, the tax authorities should consider whether the taxpayer violated the regulation intentionally or negligently, and impose different punishment accordingly.
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In addition, according to note 4 of the Reference Table for Fines and Multiples of Punishments ("Reference Table"), if the fines and multiples of punishments regulated in the Reference Table are within the maximum or minimum punishments under tax laws, the tax authorities may increase the punishments to the said maximum or reduce punishments to the said minimum; provided that the tax authorities should state the reasons for the adjustment in the examination report. It is apparent that the Ministry of Finance issue the Reference Table for the tax authorities' reference only and does not prohibit the use of their discretion for imposition of punishments on taxpayers. Nevertheless, in practice, the tax authorities seldom consider the culpability of taxpayers but invariably impose the fines and multiples of punishments as stated in the Reference Table, which is against the spirit of paragraph 1, article 18 of the Administrative Penalty Act and note 4 of the Reference Table.
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In some cases in which statutory withholders violated Article 88 of the Income Tax Act ("ITA") and under-withheld taxes over NT$200,000 (approximately US$7,000), but subsequently paid up such under-withheld taxes within the prescribed time limit, the tax authorities invariably referred to punishments under Paragraph 1, Article 114 of the ITA as stated in the Reference Table, and imposed maximum punishments of one time of the under-withheld taxes on taxpayers. The resolution which was made on the second meeting of the Supreme Administrative Court Judge Committee in March 2013 (the "SAC Resolution") corrected the tax authorities' current practice. The SAC Resolution states that while the tax authorities impose punishment on taxpayers who negligently under-withheld taxes over NT$200,000 (approximately US$7,000), the culpability of such negligent acts should be lower than that of intentional acts; the tax authorities can lower the punishment in accordance with Paragraph 1, Article 18 of the Administrative Penalty Act and note 4 of the Reference Table. If the tax authorities imposed maximum punishment of one time of under-withheld taxes on taxpayers without considering the culpability of an act, the tax authorities should be deemed to have failed to execute their discretionary power set forth by tax laws which will therefore constitute an unlawful act of failing to exercise discretion.
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The SAC Resolution, which cites Paragraph 1, Article 18 of the Administrative Penalty Act and note 4 of the Reference Table to interpret the tax authorities' principle of discretion on imposing penalties on taxpayers, should apply to all of the penalty cases. Consequently, for each un-finalized penalty case, the tax authorities should re-examine the taxpayer's culpability (i.e., intention or negligence) and impose appropriate punishments on a case by case basis. Moreover, the tax authorities should not just state that "the taxpayer acted either intentionally or negligently"; instead, they should specifically state the reasons why the taxpayer's act constitutes an intentional act or negligent act. For taxpayers who negligently violated the law and suffered punishments, should, before the punishments are finalized, voluntarily initiate negotiations with the competent tax authority to reduce the fines or the multiples of punishments, so as to protect their own rights.
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