Filing #: Supreme Administrative Court Ruling 2010/12/02 99(PAN)1xx4
Cause of action: Value Added Tax
Appellant: xxx Information Ltd
Represented by: Lin XX
Agent ad litem: Lin XX
Appellee: National Taxation Bureau of Taipei, Ministry of Finance
Represented by: Lin XX
Appellant pays for court costs and expenses.
Statement of Reasoning
- From July 1999 to December 2003, the retrial petitioner provided sales services in Taiwan to XXX Services LTD in Hong Kong (hereinafter called CRS HK) and earned NT$197,072,520 (tax not included) as foreign exchange income, which amount the retrial petitioner listed as non-taxable (0% tax rate) when filing its taxes and failed to submit the Business Tax of NT$9,853,626. Zhongbei Office of the retrial respondent later investigated and concluded that the retrial petitioner had failed to report the Business Tax of NT$9,853,626 and had to make a supplementary payment of this amount. However, the sales of July and August 1999, totaling NT$20,093,449 (nominal tax of NT$1,004,672) was free from the penalty due to the expired five-year penalty period having already elapsed. After subtracting this amount, the adjusted sales was NT$176,979,071 (tax not included) and the amount of tax evaded was NT$ 8,848,954. According to Value-added and Non-value-added Business Tax Act (Business Tax Act text supplied below) Article 51 VII, the tax evasion carried a threefold penalty of NT$26,546,800 (rounded to hundreds). The retrial petitioner disagreed, failed to reverse after review, and filed this retrial.
- The retrial petitioner claimed: The final ruling referring to Business Tax Act Article 7II Services relating to export or services provided in the R.O.C. but used in a foreign country whose purpose was to boost foreign exchange by encouraging export of services, should be judged as utilization of services from the point of whether the exported services yield foreign exchange or not.
Besides the aforementioned purpose, Business Tax is basically a form of Consumer Tax, which is based on the principle of destination, and can only be collected by the importing countries for the sake of avoiding multiple taxation across borders. In order to tell how the services have been utilized, it should be based on where the services are actually performed, either domestically or abroad. It is improper to interpret or derive new rules outside the scope of Business Tax Act Article 7II, such as whether the exported services yield foreign exchange or not.
The final ruling stated that it was the local company bearing the final cost with gaining no foreign exchange when the retrial petitioner provided services to CRS HK. The location of the services utilized was domestic and the retrial petitioner's claim was not within the scope of Business Tax Act Article 7II Services relating to export or services provided in the R.O.C. but used in a foreign country. It is also against the Principle of Taxation Under the Law to extend its scope without proper legislative process.
- The court found that the appellant (the same as the retrial petitioner above) signed an agreement with CRS HK, who provided access to the AXXXeus online reservation system, and signed up travel agents in Taiwan to increase the online traffic and the number of reservations made through the computer systems in Hong Kong. CRS HK agreed to pay the appellant $15 or $20 per for each successful passenger flight, , the appellant in fact providing services locally. But, CRS HK, a foreign company, benefited entirely except for the $15 or $20 commission payout per flight. From an economic point of view, the travelers ultimately bear the cost. Above all, it is evident that the location of the services utilized was within the borders of the R.O.C., so the 0% tax rate listed in Business Tax Act Article 7II Services relating to export or services provided in the R.O.C. but used in a foreign country does not apply. The court found no grounds for a retrial. Based on Administrative Litigation Act Article 278 II, 98 I, the court dismissed the retrial.
Value-added and Non-value-added Business Tax Act (VAT Act)
Chapter 2, Article 7
The business tax rate is zero for sale of the following goods or services:
1. Exported goods.
2. Services relating to export or services provided in the R.O.C. but used in a foreign country.
3. Goods sold to outbound or transit passengers by duty-free shops established under applicable law.
4. Goods or services sold to a bonded zone business entity for its operational use.
5. International transportation; however, foreign transport enterprises engaging in international transport within the territory of the R.O.C. shall qualify for the zero tax rate only if reciprocal treatment, or exemption from similar taxes, is given to international transport enterprises of the R.O.C. by the foreign country in which the foreign enterprise is incorporated.
6. Vessels and aircraft used in international transportation and deep sea fishing boats.
7. Sales of goods and maintenance services to vessels and aircraft used for international transportation and deep sea fishing boats.
8. Goods sold by a bonded zone business entity to a taxable zone business entity and exported directly without being transported to the taxable zone.
9. Goods sold by a bonded zone business entity to a taxable zone business entity for export and placed in a bonded warehouse or logistics center administered by an enterprise inside a free trade zone or by Customs.
In any of the following circumstances, the taxpayer shall be pursued for payment of taxes owed and be fined no more than five times the amount of tax evaded, and the operation of the taxpayer's business may be suspended:
- Where the taxpayer conducts business without application for business registration as required.
- Where thirty days have elapsed since the time limit set for reporting the sales amount or detailed list of uniform invoices used, and the business tax due and payable has not been paid.
- Where the sales amount is under-reported or not reported at all.
- Where the taxpayer continues to conduct business after it has applied for cancellation of registration or its business has been suspended by the competent tax authority in accordance with the provisions of this Act.
- Where the amount of input tax is falsely reported.
- Where thirty days have elapsed since the time limit set for the payment of business tax, and the business tax has not been paid under Article 36, paragraph 1 herein.
- Where tax is evaded in any other way.
In the event that a taxpayer falls within the circumstance of subparagraph 5 of the preceding paragraph, if the taxpayer has obtained a voucher issued by a party that was not counterparty to a transaction, and it is found that a purchase had occurred and that the voucher had been delivered to the taxpayer by the profit-seeking enterprise that sold the goods, and that the profit-seeking enterprise that sold the goods had duly made a supplementary payment of the tax owed and been penalized, the taxpayer may be exempted from the penalty prescribed in the preceding paragraph.