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(釋字第 722 號 )      友善列印PRINT  
Interpretation
J.Y.
Interpretation
NO.722  [ Case concerning solo professional practitioners to adopt accrual basis accounting to calculate income ]
Date 2014/6/27
Issue Is the relevant provision of Regulations Governing Business Income from Professional Practice which only permits the adoption of accrual accounting for professional joint practitioners or professional associations collecting and disbursing on behalf of members unconstitutional?
Holding Paragraph 2, Article 10 of the Regulations Governing Business Income from Professional Practice provides: “Professional joint practitioners or professional practitioners whose revenues are collected and disbursed by their professional associations are eligible to adopt accrual basis accounting to calculate their income; provided, however, that an approval from the tax authority must be obtained at least one month prior to the commencement of the applicable fiscal year; so does any change”. Nevertheless, it does not cover solo professional practitioners who incur carry-over revenues and expenses from one fiscal year to another, run on a large scale operation and complicated accounting matters, similar to that of a corporation. As such, there is no rational connection between the differential treatment and the purpose it aims to achieve. It is thus inconsistent with the principle of equality under Article 7 of the Constitution.
Reasoning Article 7 of the Constitution provides that people’s right to equality shall be protected. Whether the stipulations of a law are in compliance with the constitutional principle of equality should hinge on whether the purpose of the differential treatment is justifiable under the Constitution, and whether between the distinctions created and the stated objective of the law there is a certain degree of connection. (see J.Y. Interpretations Nos. 682, 694 and 701).

Article 3 of the Regulations Governing Business Income from Professional Practice provides: “Unless otherwise provided for by the Regulations, cash basis accounting is in principle adopted as the basis of accounting to calculate income from professional practice.” Paragraph 2, Article 10 of same Regulations provides: “Professional joint practitioners or professional practitioners whose revenues are collected and disbursed by their professional associations are eligible to adopt accrual basis accounting to calculate their income; provided, however, that an approval from the tax authority must be obtained at least one month prior to the commencement of the applicable fiscal year; so does any change” (hereinafter referred to as “regulations in dispute”). The regulations in dispute only permit those professional joint practitioners or professional practitioners whose revenues are collected and disbursed by their professional associations are eligible to adopt accrual, rather than cash, accounting as the basis to calculate their income from their professional practices. The regulations in dispute thus create a differential treatment resulting from whether the formation is a professional joint practice or the revenue being collected and disbursed by a professional association in terms of whether the option of accrual accounting is available in the calculation of practice income.

That the regulations in dispute differentiate business models such as professional joint practitioners or professional practitioners whose revenues collected and remitted by their professional associations to be eligible for the adoption of accrual accounting method is based on the consideration that a professional joint practitioner more resembles a profit-seeking corporate organization, with more sizeable scale, and more complex accounting of operational revenue, expenses, and disbursement. In addition, for professional practitioners whose revenues are collected and remitted by their professional associations, they often encounter delayed collection for account receivables that cross-over two fiscal years that may not be appropriate to be entirely counted towards the revenues for the fiscal year. The regulations in dispute are thus promulgated to cover such a situation. (see Ministry of Finance Directive Tai-Tsai-Shui-Tze No. 10104020320 dated June 25, 2012) The objective of the regulations in dispute is to have those professional practitioners the option to adopt accrual method to adapt to the nature and operations of their businesses and is thus consistent with the Constitution.

The regulations in dispute bestow the option for accrual accounting on the basis of business models and method of collecting income. Nevertheless, solo practitioners may also often run businesses on a considerable scale not necessarily smaller than that of professional joint practitioners. The accounting matters for the revenues and expenses of a larger-scale solo practitioner may be just as complicated, if not more, as that of a professional joint practice. Conversely, the scale of a joint practice may not be larger than that of a solo practitioner and the accounting of the business income, expenses and the disbursement of surplus may not involve complicated accounting matters. Given that the revenue and disbursement of a solo practitioner may as well be often delayed and cross over to the next fiscal year, it is thus not suited for being accounted as revenue or expense within a given fiscal year. While the objective of the regulations in dispute is to relax the method of calculating revenues for practitioners having larger-scale operations with more complex accounting and incurring income carry over two fiscal years, and to provide option for accrual accounting. However, the objective cannot be achieved by just using business models and method of revenue collection as the means to categorize. The regulations in dispute do not cover solo professional practitioners who incur carry-over revenues and expenses from one fiscal year to another, run on a large scale operation and accounting matters similar to that of a corporation. As such, there is no rational connection between the differential treatment and the purpose it aims to achieve. It is thus inconsistent with the principle of equality under Article 7 of the Constitution.

The petitioner also alleged that Article 3, Paragraph 1 of Article 10 and Subparagraph 1 of Article 31 of the Regulations Governing Business Income from Professional Practice as well as Ministry of Finance Directive Tai-Tsai-Shui-Tze No. 861907562 dated July 31, 1997, were in violation of the Constitution and therefore petitioned for interpretation. The aforementioned allegation only disputed the appropriateness of the court’s finding of facts and application of laws but had not submitted concrete reasons for the formation of objective belief that the law is unconstitutional, or objective description of concrete unconstitutionality. Furthermore, the petitioner filed a petition for an additional interpretation of J.Y. Interpretation No. 377. Upon examination, there is not any ambiguity or incompleteness of the J.Y. Interpretation No. 377; thus, no supplemental interpretation is needed. As such, the above petitions do not comply with Item 2, Paragraph 1, Article 5 of the Constitutional Interpretation Procedure Act, and should be dismissed pursuant to Item 3 of same Article. It is so indicated herein.
Translated by Wei Feng Huang of THY Taiwan International Law offices
Editor's Note Summary of facts: The Income Tax Act adopts accrual and cash method as the basis for accounting. Article 22 provides that corporate income tax shall, in principle, adopt the former basis, whereas individual income tax shall adopt the latter, as confirmed by J.Y. Interpretation No. 377. With respect to “income derived from professional practice”, Category 2, Paragraph 1, Article 14 of Income Tax Act authorizes the Ministry of Finance to prescribe the “Regulations Governing Income from Professional Practice” (the “Regulations”) and Article 3 of the Regulations provides: “Unless otherwise provided by the Regulations, cash basis accounting is in principle applied as the basis of accounting to calculate income from professional practice”; whereas Paragraph 2, Article 10 provides that only those “professional joint practitioners” or “professional practitioners whose income from professional practice are collected and remitted through and by their professional associations on their behalf”, are eligible to adopt accrual basis to calculate income once being approved.

The petitioner, Chang, Huan Chen, who was in charge of Landseed Hospital (壢新醫院), obtained an approval in 1998 to adopt accrual basis accounting to calculate income. He filed his 1999 individual income tax return based on the accrual basis method and listed NT$0 income from his professional practice earned from the hospital. In 2002, National Taxation Bureau of the Northern District opined that the petitioner was not eligible to adopt accrual basis to calculate his income because he is neither in joint practice nor a solo practitioner whose income being collected and disbursed by his professional association under Article 10, Paragraph 2 of the Regulations. Consequently, his income should be calculated by adopting cash basis accounting pursuant to Article 3 of the Regulations. National Taxation Bureau of the Northern District thus revoked its previous approval, and adopted cash basis method to have recalculated the petitioner’s income from professional practice in 1999 at NT$26,388,247. The petitioner, for relief, had filed an administrative litigation which was finally and conclusively overruled by Supreme Administrative Court decision No. 98-Pan-Tzu-738. Consequently, the petitioner asserted that the regulations in dispute and relevant directives of the Ministry of Finance were unconstitutional and petitioned for interpretation, together with a request for a supplemental interpretation on J.Y. Interpretation No. 377.
Opinion
(Files)
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