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New Rules for Tax Avoidance and Substance-over-Form Principle
Josephine Peng/Leo Tsai
On 29 May 2013, the Legislative Yuan amended Article 12-1 of the Tax Collection Act, and supplemented (i) the definition and relevant regulations for tax avoidance, (ii) tax adjustment methods under the substance-over-form principle, and (iii) the advance consultation system. However, what impact these supplements will have on the practice in future are subject to further observation.
For the supplemental to the general rules regarding (i) the definition of the tax avoidance, (ii) the burden of proof and (iii) the duty of assisting tax enforcement of taxpayers under tax avoidance cases, since there are similar rules stipulated in individual tax laws and the administrative courts have adopted similar rules in their judgments constantly, such amendments should not have any significant impact on the practice in future.
Moreover, for the supplemental to the general rule regarding tax adjustment methods under the substance-over-form principle, since such rule only integrates similar rules stipulated in other tax laws, without specifying adjustment principles or methods for the tax authority to follow, such amendment should have less impact on the tax authority's current practice. In fact, regardless of the amendment, when the tax authority applies the substance-over-form principle to proceed with the tax adjustment of tax avoidance cases, it must conform with the principle of "the ability to pay tax", the principle of "proportionality" and other general principles under the administrative law.
As for the supplemental in respect of "advance consultation with the tax authority by taxpayers before engaging in transactions", although there is no guarantee that taxpayers can obtain clear or specific responses from the tax authority, taxpayers who apply for advance consultation may claim in future disputes that they have conformed with the duty of "honest disclosure" or that they had no intention of evading tax nor were they negligent in any matter which gave rise to the issue of tax evasion, so as to mitigate the risk of being imposed with a tax penalty.
