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(釋字第 508 號 )      友善列印PRINT  
Interpretation
J.Y.
Interpretation
NO.508 
Date 2000/6/9
Issue The Ministry of Finance in its directive requires that in case a farm lease is terminated because of government expropriation, 50 percent of the compensation the tenant farmer receives from the landlord shall be subject to income tax. Does the said directive violate the constitutional principles of taxation by law, legal reservation, equality in fair taxation and the people's property right, thus being null and void?
Holding   Article 2, Paragraph 1, of the Income Tax Act amended and promulgated on February 5, 1993, provides: “For any individual having income from sources in the Republic of China, consolidated income tax shall be levied on income derived from sources in the Republic of China in accordance with this Act." If leased farm land is expropriated pursuant to the law, then compensation payable to the lessee under Article 11, Paragraph 1, of the Equalization of Land Rights Act, amended and promulgated on October 30, 1989, is determined to be income as referred to in Article 8, Paragraph 11, of the Income Tax Act, and shall be treated as "other income" under Article 14, Paragraph 1, Category 9, of the said Act and thus shall be included in the individual's gross consolidated income. The Ministry of Finance Ordinance No.14894 of April 23, 1985, specifies that: "Where a lease taken by a tenant farmer is terminated due to expropriation by the government, then compensation awarded to the farmer under Article 11 of the Equalization of Land Rights Act ─ which is one third of the net compensation for land value, received by the land owner, after the land value tax ─ is analogous to variable income, being compensation for returning the leased farm land, under Article 14, Paragraph 3, of the Income Tax Act. As a consequence, only one half of the compensation is treated as taxable income while the other half is tax exempt." The bases for the foregoing Ordinance are the principle of fair tax and the objective to reduce tax liability for lessees of farm land. The Ordinance complies with the abovementioned provisions of the Income Tax Act and does not breach Articles 15, 19 and 23 of the Constitution. The said Ordinance No.14894 is an explanation of how compensations received by farm land lessees from lessors upon government expropriation of leased farm land are included in the calculation of annual income. The Ministry of Finance Ordinance No.34616 of July 15, 1977, states: "In cases of private land sales, compensation for crops growing on the land, excluding that paid for the land and the building, received from purchasers are exempt from income tax. If the said compensation is received by the tenant farmer who cultivated the crops, it is also exempt from income tax." This means that in any conveyance, if compensation is received by a tenant farmer for cultivating crops, it is exempt from income tax. Reference to compensation in Ordinance No.14894 is "other income" while that in Ordinance No. 34616 is “compensation for loss.” They are different in nature and are thus incompatible, and do not breach the principle of equality stipulated in Article 7 of the Constitution.
Reasoning   Article 11, Paragraph 1, of the Equalization of Land Rights Act stipulates: "If the land that is expropriated pursuant to the law or is acquired is a leased farm land, the lessee shall receive compensation from the land owner, in the amount of one third of the net compensation for the land value received after the land value tax, besides compensation from the government for costs of land improvement and crops not yet harvested." The said compensation for the land expropriated or acquired is granted to tenant farmers upon termination of their farm land lease by operation of law. Its nature is analogous to the compensation granted to lessees under Article 77 of the Equalization of Land Rights Act ─ being a source of income under Article 8, Paragraph 11, of the Income Tax Act amended and promulgated on February 5, 1993, (See Article 4 of the said Act and Article 6, Paragraph 3, of the Act Governing the Development of New Urban Centers). The said compensation shall be treated as "other income" as referred to in Article 14, Paragraph 1, Category 9, of the Income Tax Act, and the net amount ─ being the amount received as compensation less costs and necessary expenses ─ shall be included in the lessee's gross consolidated income and taxed under Article 2, Paragraph 1, of the said Act.

  In the event a lessor of the farm land terminates the lease and repossesses the land pursuant to Article 76 of the Equalization of Land Rights Act, then under Article 77 of the same Act, the lessor must compensate the farm land lessee in the amount of one third of the net government assessed land value, as of the date of the lessor's application for termination, after the estimated land value tax. Under Article 14, Paragraph 3, of the Income Tax Act, only half of the said compensation is included in the individual's annual income while the other half is exempt from tax. The reason for such treatment is because the compensation to the lessee is income accrued over several years and has the nature of long accrual, and consolidated income tax is taxed at a progressive tax rate so that if one calculates a farm land lessee's gross consolidated income as "other income" in accordance with the said provision in Article 14, Paragraph 1, Category 9, of the said Act, and taxes the whole of the compensation in one financial year, it will increase the farm land lessee's tax liability. With regard to leased farm land expropriated by the government, the lessor of the farm land shall, in accordance with Article 11 of the Equalization of Land Rights Act, pay compensation to the farm land lessee in the amount of one third of the net compensation for the expropriated land after the land value tax. Its nature is analogous to the compensation awarded under the abovementioned Article 77 of the same Act. The Ministry of Finance Ordinance No.14894 of April 23, 1985, states that: "Where a lease taken by a tenant farmer is terminated due to expropriation by the government, compensation awarded to the farmer under Article 11 of the Equalization of Land Rights Act─ which is one third of the net compensation for land value, received by the land owner, after the land value tax ─ is analogous to variable income, being compensation for returning the leased farm land, under Article 14, Paragraph 3, of the Income Tax Act. Thus, only one half of the compensation is treated as taxable income while the other half is tax exempt." The bases for the foregoing Ordinance are the principle of fair tax and the objective to reduce the tax liability for lessees of farm land. The Ordinance complies with the principle of fair tax, and is not contradictory to Article 2, Paragraph 1, Article 8, Paragraph 11, and Article 14, Paragraph 1, Category 9, and Paragraph 3 of the Income Tax Act, nor does it breach the people's right to property, duty to pay tax and principle of legal reservation (Rechtsvorbehaltprinzip) stipulated in Articles 15, 19 and 23, respectively, of the Constitution.

  The Ministry of Finance Ordinance No.14894 of April 23, 1985, is an explanation of how compensations received by farm land lessees from lessors upon government expropriation of leased farm land are included in the calculation of annual income. The Ministry of Finance Ordinance No.34616 of July 15, 1977, states: "In cases of private land sales, compensation for crops growing on the land, excluding those paid for the land and the building, received from purchasers are exempt from income tax. If the said compensation is received by the tenant farmer who cultivated the crops, it is also exempt from income tax." This means that in any conveyance, if compensation is received by a tenant farmer for cultivating crops, it is exempt from income tax. Reference to compensation in Ordinance No.14894 is "other income" while that in Ordinance No. 34616 is “compensation for loss.” They are different in nature and are thus incompatible, and do not breach the principle of equality stipulated in Article 7 of the Constitution. Further, penalty to taxpayers for omission or underreporting of taxable income under Article 110 Paragraph 1 of the Income Tax Act can only be imposed where there is intent or negligence (See this Yuan's Interpretation No. 275). Whether there is intent or negligence is a question of fact.

' Translated by Wei-Feng Huang of THY Taiwan International Law Offices.
Opinion
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