Newsletter
CLARIFICATION OF THE "HEAVIER PENALTY" PRINCIPLE
On 26 April 1996, the Ministry of Finance stated that in cases where a business simultaneously violates a provision of Article 51 of the Business Tax Act (BTA) and a provision of Article 44 of the Tax Collection Act (TCA), the business should not be penalized under both provisions, but only under the provision that carries the heavier penalty. However, doubts have arisen over how this rule should be applied in practice. For example, a business that fails to issue invoices is subject under Article 51 of the BTA to an administrative fine of one to 10 times the amount of tax evaded; while under Article 44 of the TCA it is subject to an administrative fine of 5% of the unreported business revenue, as verified and determined by the tax collection authorities. There may be doubt as to which of these penalties is the more severe.
In an interpretation dated 30 June 2008, the MOF further elucidated the principle of penalizing only the violation that carries the heavier penalty. In accordance with Article 24 Paragraph 1 of the Administrative Penalty Act, a comparison should first be made, in respect of the specific individual case, between the highest available penalty of 10 times the evaded tax under Article 51 of the BTA, and the penalty of 5% of the unreported revenue under Article 44 of the TCA, in order to select the legislative provision under which the heavier penalty is available. A penalty should then be imposed according to the rules applicable under the legislative provision that is selected in this way.
For example, suppose that Business A fails to duly issue Unified Invoices for the sale of goods, and the tax collection authorities, acting on a tip-off, detect the evasion, and determine that the total amount of unreported sales is NT$10 million, and that the amount of tax evaded is NT$500,000. Before determining the administrative fine for the tax evasion, the tax collection authorities should first calculate the maximum potential fine under Article 51 of the BTA for a tax evasion of NT$500,000, based on the maximum fine of 10 times the amount evaded. This gives a fine of NT$5 million. They should then calculate the potential fine under Article 44 of the TCA, at 5% of the assessed unreported sales of NT$10 million. This gives a fine of NT$500,000. Comparing the two, the penalty under Article 51 of the BTA is the heavier, and therefore Business A should be penalized under Article 51 of the BTA for its failure to issue Unified Invoices.
After deciding that Business A should be penalized under the BTA, the tax collection authorities should then consult the Reference Table of Fine Amounts or Multipliers Applicable to Tax Violation Cases, and according to the facts of the violation under Article 51 of the BTA, find the prescribed multiplier and calculate the actual administrative fine that should be imposed. Supposing that according to the Reference Table a multiplier of three applies to failure to issue invoices, then the actual fine on Business A for its failure to duly issue invoices will be NT$1.5 million.