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Recently we handled a tax lawsuit for an internationally renowned musical instruments and musical education company (the "Company") regarding the tax authorities' denial of the Company's provision of musical education services to its musical instruments retailers and imposition of penalty on the Company for its violation of the regulation for issuance of invoices (the "Case"), and obtained the final favorable judgment from the administrative court. Moreover, on 24 September 2012, the Supreme Administrative Court judgment on the Case (Ref. No.: 100-Pan-2254; the "SAC Judgment") was voted as the first Taiwan best tax judgment of the year by the first term of the Taiwan best tax judgment of the year appraisal committee (the "Committee") composed of a former minister of the Ministry of Finance, tax law professors and a tax lawyer. The Committee voted for the SAC Judgment because the SAC Judgment clarified long-term tax issues, substantially protected taxpayers' rights, and significantly contributed to the development of tax law and the judicial system. We would like to share the keynotes of the SAC Judgment and its impact with you.
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As the Case was being heard by the Taipei High Administrative Court (the "THAC"), the tax authorities only provided the confession made by the Company and some musical instruments retailers during the Taxation Agency's special audit, but failed to provide any further supporting documents. The firm assisted the Company in marshaling the transaction documents between the Company and some musical instruments retailers to prove that an actual transaction existed. However, the THAC only adopted the unfavorable confession but ignored the transaction documents between the Company and some musical instruments retailers, and handed down the judgment against the Company (the "Original Judgment").
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The firm thoroughly analyzed the Original Judgment and concluded that an appeal against the Original Judgment can be filed because it has constituted a violation of the laws, and so the Company accepted the firm's suggestion to appeal the Case to the Supreme Administrative Court. Consequently, the SAC Judgment accepted the firm's reasons of appeal and ruled that the Original Judgment had indeed constituted a violation of the laws in 9 categories. The SAC Judgment revoked the Original Judgment and ordered the THAC to conduct a re-trial. The THAC finally ruled that the Company should be remitted from the tax penalty. As the tax authorities surrendered its appeal rights, the Case was concluded.
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The SAC Judgment accepted the firm's reasons of appeal and summarized them into three important tax rules, which significantly contributed to the protection of taxpayers' rights and the development of tax law and the judicial system (the following statements are excerpts of the Committee's comments on the SAC Judgment):
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(1)
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The SAC Judgment expounded that the Original Judgment only adopted the unfavorable evidence but ignored the favorable evidence of the Company which constituted a violation of laws and an appeal can be filed against it. The SAC Judgment has significant value in promoting the quality of the administrative court's judgment.
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(2)
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The SAC Judgment clarified that tax law should generally defer to the freedom of contract doctrines in civil law. Even if the tax authorities apply the substance-over-form principle to make any adjustment to suspected tax avoidance arrangements, the tax authorities should provide substantial evidence and comply with due process. The SAC Judgment initially addressed the relation between freedom of contract and tax adjustments, which clarifies long-term tax issues.
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(3)
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The SAC Judgment concluded that the tax authorities should bear the burden of proof for the facts when imposing tax penalties and the standard of proof should be beyond a reasonable doubt; otherwise the administrative court should rule that the facts for imposing the tax penalty did not exist. In this regard, the SAC Judgment benefits taxpayers in that it protects taxpayers' rights.
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If you have any questions about the tax law or related disputes, please feel free to contact our Tax Practice Group.
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