Equity Transfer and Legal Issues Concerning Article 66-8 of the Income Tax Act
Date Issued
2011
Date
2011
Author(s)
Huang, Yong-Chieh
Abstract
Abstract
Dividend is a distribution of a portion of a company''s earnings. According to the Company Act of the R.O.C, shareholders of a company are entitled to claim the dividends distributed from the company if there is earning surplus. The gross dividend received by each shareholder should be subject to taxation according to the Article 14, Income Tax Act. If shareholders transfer all the shares of a company, they would not be entitled to the distribution of dividends or bonus, and would not have profit-seeking income. However, they could have the income from the security transactions if there is capital gain from that transaction. Under Article 4-1 of the Income Tax Act, income tax levy on gains derived from the securities transactions has been temporarily suspended.
Whether taxation on security transaction gains should be imposed has remained a controversy for years. Whether this tax is imposed or not, it remains suspicious if this could violate the principle of the ability to pay, which derived from the Article 7 of Constitution of R.O.C. However, interpretation by the Judiciary Yuan, No. 565 has provided that it is a policy that provides the tax incentives within a defined limit, and it represents a reasonable differential prescription made by an administrative agency under authorization of law based upon its professional judgment of the interim needs for economic development and the actual condition of the capital market for the purpose of promoting the public interest, and is not contrary to the principle of equality under Article 7 of the Constitution. However, Article 66-8 of the Income Tax Act prohibits taxpayers from evading or reducing the tax burden by means of transfer of shareholder''s equity or any other false arrangement.
The issue is that while shareholders sell their stocks, equity transfer must be the consequence. There is a prominent contradiction that the legislator uses “equity transfer” as a tax benefit element in the article 4-1 of the income tax act, but uses the same concept as an element of article 66-8 of the income tax act, which is an anti-avoidance rule. This may severely infringe upon people’s fundamental right that is protected by our Constitution.
Subjects
Equity transfer
Income tax on gains derived from the securities transactions
Tax avoidance
Taxation according to ability to pay
Tax incentives
Legal loophole
Tax evasion
Unappropriated retained earnings
Shareholders’ account
Anti-avoidance rule
Type
thesis
File(s)![Thumbnail Image]()
Loading...
Name
ntu-100-R96a21086-1.pdf
Size
23.32 KB
Format
Adobe PDF
Checksum
(MD5):1f2e2d0f1f2fb074f9083f39e867af90