New Administrative Penalties Law Will Make Tax Fines Farer
Individual taxpayers and businesses often neglect to file tax returns or make mistakes in them because they are not familiar enough with the intricacies of the tax code. Whether for this reason or because taxpayers and tax collectors have different understandings of the facts in a transaction, the tax authorities may be led to suspect the taxpayer of tax evasion and impose high fines. After the taxpayer receives such a setback, there are few attractive options, for although by law you can file review requests, appeals and lawsuits, most of the time there is no way to show proof of one’s innocence, and many cases end up being a big waste of time and effort.
For example, say a taxpayer with interest income is not issued a withholding receipt due to a careless error by an accountant at the bank that paid the interest, and the taxpayer neglects to report that interest income when filing a consolidated income tax return. The matter will await a random check by the National Tax Administration, which will insist that taxpayers have a legal obligation to report all of their income. Even if a withholding receipt was not received, they will maintain that the taxpayer could still approach the withholder to check and verify, and it will be hard for the taxpayer to escape the verdict of tax-evading negligence and a fine for twice the amount of tax underpayment.
The main reason why taxation has the above-described drawback is that the tax authority typically takes tax penalties to be essentially different from administrative penalties, and it is not necessary for the taxpayer to have broken provisions deliberately, or through negligence. Moreover, taxpayers are obligated to know and abide by the law, so where there is a violation of the tax laws, there is (at least) negligence. Furthermore, applying the “presumption of responsibility for negligence” system in interpretation no. 275 (1991) by Taiwan’s High Court, it is up to taxpayers accused of violations to produce evidence that they had been scrupulous in attending to their obligations. Hence, the tax administration will most likely impose high penalties where clear exonerating evidence is not forthcoming.
The unreasonable practice described above received a rather heavy blow when the Legislative Yuan passed the Administrative Penalties Act on January 14, 2005. Article 7 of the Act clearly stipulates: “Behavior that violates obligations under administrative law, if not deliberate or negligent, is not subject to punishment.” The legislative reasoning is clearly indicated. It is based on the principle in contemporary countries that responsibility must be established for punishment to be justified, and is intended to increase safeguards for human rights: Where the state wants to punish a perpetrator, it bears the burden of producing proof that the perpetrator acted deliberately or negligently. In addition, the Administrative Penalties Act provides that where the “responsible person" (including directors, supervisors and managers) of a company or "juridical person" organization, or its representative or effective actor, commits a deliberate or negligent violation, it will be presumed to be the deliberate or negligent act of the said company, etc. People may not be absolved of their responsibility to bear punishment for offenses because they are ignorant of the law, but punishment may be made lighter or even waved altogether, depending on the circumstances.
Once the Administrative Penalties Act takes effect one year after its passage, the transitional tasks having been completed, the "presumption of responsibility for negligence" in the High Court’s 1991 interpretation will pass into history. In accordance with the Act’s rules and its legislative intent, the tax authorities must investigate the powers of office in detail, and it may not throw the burden of proof in defense against a violation onto a taxpayer without first having produced concrete evidence that the taxpayer has committed the violation, and the taxpayer did so with the unlawful intent to evade taxes on his/her own behalf or on behalf of another.
In terms of the example given before, in which the taxpayer was not sent a withholding statement due to a careless error by a bank employee, and so failed to report a chunk of income, there was actually no intent to evade taxes. And since the withholding evidence is all in the hands of the Tax Administration, which can use automatic computer checking, it was just not possible for the taxpayer to evade tax on that income. Under the new Administrative Penalties Act regulations, the Tax Administration could only impose a penalty for tax evasion if it could present evidence that the taxpayer and the bank employee colluded with intent to evade tax.
In addition, corporate officers (responsible persons) must also note the following: Pursuant to Article 15 of the Administrative Penalties Act, where action(s) taken in the course of business by a juridical person’s director or its authorized representative causes the juridical person to violate administrative law obligations and be subjected to a fine, then if the unlawful act was due to the deliberate intent or gross negligence of a responsible person, or inadequate supervision, the responsible persons shall be held jointly accountable for penalties, except where otherwise stipulated by law. In other words, if a director, etc., of a company has clear knowledge of an illegal act of tax evasion, or is grossly negligent and fails to observe and be informed, or if supervision is deficient, then the taxation authority can impose fines of identical amounts on (all of) the responsible persons. Therefore, corporate managers and officers are advised to pay especially close attention to fixing any imperfections their corporate governance, accounting and tax filing systems might have, lest they be subjected to huge fines by the tax authority after implementation of the Administrative Penalties Act.
On the issue of time limits on the effectiveness of punishment, Article 27 of the Administrative Penalties Act provides that an administrative authority may not impose penalties more than three years after an illegal activity took place. However, Article 48-3 of the current Tax Collection Act requires the application of a "lighter penalties for newer (offences)" principle in imposing penalties. Which rule should take precedence will depend on a clarification from the taxation authority, or a further change in the law.