Taiwan vs Goodland International Limited
Supreme Administrative Court Ruling No. 147
of 109
Date of ruling: 13 February 2020
13 February 109, R.O.C.
Business Tax
The Supreme Administrative Court ruled that
the appellant, Fook Chuen
Tat Co.
For and on behalf of Zeng Mingzhu
Lawyer Liang Jihui
Central District Bureau of Internal
Revenue, Ministry of Finance Appellee
Ruling No. 147 of the year 109 (2020)
Cause of Judgment.
Song Xiuling for
the Appellant
The main appeal is dismissed.
The appellant shall bear the costs of the
trial of the appeal. Reasons
1. The appeal is unlawful and the appeal is
dismissed on the following grounds
1. The appeal against the decision of the
High Administrative Court shall not be allowed unless it is contrary to the
law, as stipulated in Article 242 of the Administrative Procedure Law. In
accordance with the provisions of Article 243, paragraph 1, of the same Law, a
judgment is contrary to the law if it is inapplicable or improperly applied,
and a judgment is ipso facto contrary to the law if it contains one of the
circumstances listed in paragraph 2 of the same Article.
(2) If a party appeals against a decision
of the High Administrative Court on the grounds that the decision of the High
Administrative Court is inappropriate or improperly applied in accordance with
Article 243, paragraph 1, of the Code of Administrative Procedure, the appeal
or statement of reasons shall contain specific allegations and shall reveal the
provisions of the statute or its contents; in the case of a law other than a
written law, the purpose of the law shall be revealed.
In the case of a precedent decision of a
supreme court or an interpretation by a judge of the Judicial Yuan, the wording
or content of the decision or interpretation shall be revealed. If the grounds
are listed in Article 243, paragraph 2, of the Code of Administrative
Procedure, the appeal or statement of reasons shall
(3) The appeal or statement of reasons
shall reveal the facts in accordance with the provisions of that Article.
If the statement of appeal or the statement
of reasons does not comply with this method, or if it does not comply with the
provisions of the above-mentioned law, or if it does not relate to the judgment
on the legality of the judgment, it cannot be considered that there is a
specific allegation that the judgment of the High Administrative Court is
contrary to the law, and the appeal cannot be considered legitimate.
2. The facts of the case and the
proceedings
The appellant was assessed NT$7,351,024 in
back tax based on the following facts.
A. The Appellant sold seven (7) fully
automatic hard-shell hollow capsule production machines (FCD-9D2A) (the
disputed machines) to the domestic business operator, Ting-Yuan Biotechnology
Co.
B. However, the Appellant, through a false
trading arrangement with Goodland International Limited (in Chinese: 美地國際有限公司, hereinafter referred to as Mei Di Company), a controlled foreign
related party, first exported the disputed machine to overseas (Hong Kong) on
21 April 2014, and then imported the disputed machine from overseas (Hong Kong)
to overseas (Hong Kong) in May 2014. In May 2014, the disputed machine was
imported from overseas (Hong Kong) to China and delivered to Ting Yuen. As a
result, a zero tax rate was applied and the business
tax payable was evaded to the extent of RMB7,351,024.
2. The appellant filed an administrative
appeal against the assessment of the penalty, which was eventually dismissed by
the original judgment, and therefore filed the present appeal.
3. The reasons for dismissing the
appellant's penalty revocation action are as follows.
1. The facts underlying the original
judgment were as follows
A. The Appellant was engaged in the
manufacture of metal lathes, milling machines and drilling machines. On 21
April 2014, the Appellant filed an export declaration declaring the sale of the
machine in dispute to Midland and exported it to Hong Kong, reporting a
zero-rated sale of $63,210,000.
B. However, after the disputed machine was
exported to Hong Kong, it was immediately sold by Midland to Ting Yuen at a
price of RMB147,020,489 without being assembled and processed by Midland, and
the import was declared to the Customs on 6 May 2014.
The import was declared to the Customs on 6
May 2014.
C. The Appellant was responsible for the
education and training of the disputed machine and the warranty for defects,
and Midland was a controlled party of the Appellant.
D. It was evident that the Appellant,
through the controlled related party transaction, converted sales of
$147,020,489 to domestic buyers for export and reported zero-rated sales of
$63,210,000, thereby falsely arranging for the omission of taxable sales of
$14,702,489 and the evasion of business tax of $7,351,024.
2. The original judgement affirmed that
"the disputed machines were not physically processed in Hong Kong and the
export declaration of the disputed machines between the Appellant and Midland
was not a physical export transaction but a domestic transaction between the
Appellant and Ting Yuen" for the following reasons.
A. Zheng Zhong Er was a responsible person
of the Appellant's company from 15 February 2012 to 14 May 2017, and
was a commercial responsible person under the Commercial Accounting Law, with
the obligation to produce commercial accounting certificates based on the
facts. Zheng Zhong Er was also the de facto person in charge of Midland
Corporation.
B. According to the indictment No. 3296 of
the Taiwan Taichung District Prosecutor's Office and the criminal judgment No.
2289 of the Taiwan Taichung District Court, the criminal prosecution and
penalties imposed on Zheng Zhong Er for the tax evasion in this case are as
follows.
(1). The
facts of the offence found.
(1) The facts of the case are as follows:
With the criminal intent to obtain money by fraud, to prepare inaccurate
accounting certificates and to evade tax, Zheng Zhong Er, knowing that the
appellant's actual sales were to Ting Yuan Company in the Republic of China,
with sales of $147,020,489, and that there was no actual transaction with the
overseas company Mei Di, made an overseas transaction arrangement and on April
21, 2014, he prepared a declaration in the name of the appellant, No.
DA/03/158/ B3641, with sales of US$2,000,000. On April 21, 2014, through an
overseas transaction arrangement, the Company filed an untrue export
declaration in the name of the Appellant with a sales amount of USD 2,100,000
(equivalent to NTD 63,210,000), and declared the export of 7 units of capsule
machines to a US company.
The Company reported to the tax authorities
that it had exported $63,210,000 to the Customs and Excise Department.
The Company's sales amounted to
NT$63,210,000 and applied for a tax refund of NT$2,565,444, causing the tax
inspector to make a mistake and grant a tax refund, and thereby transforming
domestic sales into export sales and omitting to report domestic sales, which
is detrimental to the correctness and fairness of national tax collection.
(2). Offences
deemed to constitute offences.
Article 71, paragraph 1 of the Commercial
Accounting Law, the offence of preparing accounting certificates with knowledge
of inaccuracies, Article 47, paragraph 1 of the Taxation and Taxation Law,
Article 41, the offence of fraudulent evasion of tax by a person in charge of a
company as a tax payer, and Article 33 9, paragraph 1 of the Criminal Law
before the amendment, the offence of fraudulently obtaining property.
(3). Penalty
imposed.
8 months' imprisonment, suspended for 3
years.
C. Determination of the fact that Midland
is an offshore related party as alleged by the Appellant.
(1). On
March 24, 2002, Ting Yuen entered into a "Contract for the Purchase and
Sale of Equipment and Machinery for the Production of Hollow Capsules"
with Midland, Inc. for the purchase of seven (7) capsule machines, capsule molds, vibratory sifting machines, glue dip trays, capsule
slicer collectors, and glue refill buckets for a total contract amount of
$183,954,090.
(2). On
31 March 102, Midland then entered into a contract with the Appellant for the
purchase of seven capsule machines for US$2,100,000 (pages 66-68 of the
original Disposition 1), of which the person who signed the contract with Ting
Yuen on behalf of Midland was Cheng Chung Yee (i.e.
the representative of the Appellant during the period of the dispute), who was
the contact person for the transaction between Midland and Ting Yuen.
(3). According
to the certificate of incorporation, the register of directors and the register
of shareholders of Mei Di Company, Mei Di Company was established on 28 June 2007 in
accordance with the provisions of the Samoan International Company Law. (son of
Zheng Zhong Er) 18%, Cheng Yue Hsiu (son of Zheng Zhong Er) 18%, Cai Qingzhu (uncle of Zheng Zhong Er's spouse) 5.65%, Cai Gu
Long (son of Cai Qingzhu) 5.46%, Cai Shi (nephew of
Zheng Zhong Er) 9.35%, Cai Cheng Zhan (son of Cai Shi) 1.76% and Chong Mei
Zheng.
The Appellant's representative during the
period in dispute, Zheng Zhong Er, his spouse and his son held a total of 73.6%
of the shares.
(4). In
addition, according to the Appellant's 2014-year profit-making business
investors' list, the Appellant's shareholders included Zheng Zhong Er and his
spouse, Zheng Cai Ying, whose sons, Zheng Yan Chang and Zheng Yue Xiu, were employees of the Appellant.
D. Findings of fact that "the machine
in dispute was not physically processed in Hong Kong".
(1). (1).
After comparing the information in the export declaration and bill of lading
prompted by the Appellant with the information in the import declaration and
bill of lading of Ting Yuen, it was found that the machine in dispute had not
been substantially processed in Hong Kong
(1). A comparison of the export
declarations and bills of lading prompted by the Appellant and the import
declarations and bills of lading of Ting Yuen shows that the machine in dispute
was loaded with the same container number and seal number, and the same net
weight and quantity of goods from the previous export to the subsequent import.
(2). Lee
Mui Fei, the sales manager of Tullett International
Logistics Limited (TIL), which handled the import and export business of the
Appellant and Midland, came to the Appellee's
authorities for an interview on 10 September 105 and the record of the interview
stated that
(A). (A).
The machine in dispute was exported from the port of Taichung to Hong Kong via Wanhai Shipping Co Ltd (Wanhai)
in April 2014 at the direction of the Appellant's employee, Hao-Cheng Chang,
and a former employee, Ya-Ru Chang, and was
designated by HARBOR BRIDGE INT'L LTD (hereinafter referred to as HARBOR
BRIDGE) as the consignee of the container at the Hong Kong consignee of TLL
(B). The
Appellant instructed the relevant staff of Harbor Bridge to change the labels
(outsourcing labels, not machine labels) and no assembly and processing was
carried out.
(C). The
machine in dispute was shipped back from Hong Kong to the port of Keelung in
Taiwan via Wan Hai in May 2014.
(D). The
Appellant's employees were in contact with TÜV SÜD from the time of the export
to the time of the import of the disputed machine.
(3). According
to the explanatory memorandum dated 26 May 106 of HBC: (A). (A). The
Appellant's freight business was undertaken by TLL.
(B). TLL
appointed HBC as the consignee to deliver the four containers subdivided by the
machine in dispute to a private warehouse in Hong Kong.
(C). The
containers in dispute arrived in Hong Kong on or about 24 April 2014 and were
provided with storage by HBC. The Appellant instructed the staff of HBC to
simply change the mark.
(D). After
the private warehouse staff had replaced the upper four containers with new
mark heads, the appellant instructed the upper four containers to be shipped
back to Taiwan in the name of Midland, and the upper four containers were
shipped to Hong Kong All the Way Ltd. on or about 27 April 2014. The four
containers were then shipped back to the port of Taiwan in May 2014.
(4). It
is evident from the above that the disputed machine was exported from Taiwan to
Hong Kong and then transported back to Taiwan from Hong Kong on the same
machine.
The Appellant took the lead in the process,
and only changed the headstock during the process, without any actual
processing in Hong Kong.
E. The fact that the case was a domestic
sale was established as follows
(1). According
to the record of the interview with the Appellee on
23 August 105, Zhang Xiyuan, the general manager of
Ding Yuan, the source of the seven capsule machines purchased by Ding Yuan was
that they were manufactured by the Appellant, exported from Taiwan to Hong
Kong, and then re-imported from Hong Kong to Taiwan to Ding Yuan in the name of
Medi Company.
(2). The
appellant was responsible for the subsequent assembly process of the machine in
dispute and requested Ting Yuen to sign a contract with Midland instead, and
the goods were imported from Hong Kong to Taiwan by the appellant's employees,
Zhang Yaju and Zhang Haocheng,
in liaison with Ting Yuen, and the appellant provided staff training,
installation and operation of the machine and provided warranty for defects.
(3). According
to the acceptance information provided by Ting Yuan, on 22 August 104, Zhang Haocheng, an employee of the Appellant, convened Ting Yuan
and the Appellant to discuss and resolve that Ting Yuan should pay the final
payment for the four capsule machines after acceptance of the machines. If the
appellant does not resolve the matter and if there is an indefinite delay, the
appellant will be required to pay 0.3% per week for the delayed delivery of the
machine. The Appellant is the actual seller of the disputed machine to Ding
Yuan, which should be a domestic sales transaction.
F. The Appellant's claims are not credible
for the following reasons.
(1). The
Appellant argued that the disputed machine was sold to a foreign company,
Midland, which had an export declaration and was exported goods, but the Appellee had no positive evidence to prove that Midland was
under the control of the Appellant, and there was no evidence to prove that the
disputed machine was not physically processed in Hong Kong and the Appellee's original penalty was wrong.
(2). However,
to claim a tax refund under Article 39(1)(1) of the Value Added and Non-Value Added Business Tax Act (the "Business Tax
Act"), it is necessary that the goods are actually exported.
(3). In
the trial of criminal case No. 2289 of the District Court of Taichung, Taiwan,
on December 26, 107, Zheng Zhong Er pleaded: "...... II
The defendant, Zheng Zhong Er, believed
that by selling the company's products under false export methods, he could
legally save tax after deducting the shipping and warehousing costs.
Now, the Defendant Zheng Zhong Er is deeply
repentant and is willing to pay the relevant taxes.
Now, the defendant Zheng Zhong Er has deeply
repented and is willing to pay the relevant tax amount, such as
"......", and pleaded guilty in court during the criminal trial.
(4). The
Appellee found that from March 2014 to April of the
same year, the Appellant only exported on a pro forma basis, without any actual
transaction, by means of false exportation.
The Appellant was found to have falsely
declared zero-rated sales amounting to RMB63,210,000 and refunded 5% of the
sales tax on such sales without any actual transactions, and the Appellee's Feng Yuan Branch approved the payment of
RMB7,351,024 in back tax. The Appellant's claim that the Appellee
did not discharge its burden of proof in relation to the elements of the rent
tax is not supported by the Appellant's counter-evidence.
4. The purpose of the appeal is that the
original judgment was unlawful in that it failed to investigate the evidence in
accordance with its authority and for the following reasons.
(1) The identification of a controlled
foreign affiliate of a profit-making business must meet the requirements of
Article 2 of the Regulations Governing the Recognition of Income of Controlled
Foreign Enterprises and Article 3 of the Regulations Governing the Irregular
Transfer Pricing of Income Taxes of Profit-making Businesses. The so-called
related party should be defined as a person under Article 4(2) of the
Regulations Governing the Irregular Transfer of Income Taxes from Business
Enterprises (incorrectly stated as item 2 in the Statement of Reasons for
Appeal). The original decision did not conduct an investigation into why
Midland met the statutory requirements for an offshore controlled related
party.
The decision was unjustified.
The subject matter of the sales contract
between the Appellant and Midland was not the same as that of the sales
contract between Midland and Ting Yuen. The decision was that "the parties
to the contract of sale between Midland and Ting Yuen were in fact the
Appellant and Ting Yuen". Would this result in a contract between Ting
Yuen and Mei Tei being split into two parts, one void
and one valid, which would be contrary to the law of civil contracts? The
original decision did not examine the matter in detail and adopted the same
view as the decision on the sanction and the appeal.
The Court of Appeal has adopted the same
decision as the decision of the Court of Final Appeal and the decision of the
Court of Appeal, which is unjustified and unlawful. V. Having examined
1. the original judgment has made a
detailed finding that "Midland in this case is an outside controlled party
of the appellant" (see page 10, line 12 to page 11, line 6 of the original
judgment).
The appeal alleges that the original
judgment failed to conduct an investigation, but does not specify what the
original judgment found to be wrong or what specific legal norm was violated.
In fact, Article 2 of the Regulations Governing the Recognition of Income from
Controlled Foreign Enterprises by Profit-making Enterprises, as cited in the
appeal, states that
Article 3 and Article 4, paragraph 2, of
the Regulations Governing the Recognition of Income from Controlled Foreign
Enterprises and the Unusual Transfer Pricing Check for Business Enterprises, as
cited in the appeal, are all specific to the income tax law and may not be
consistent with the judgment of related parties under the business tax law. In
addition, in this case, the U.S. and local companies are at least covered by
the fact that the income tax of the business is not in compliance with the
requirements of Article 3 and Article 4(2) of the regular transfer pricing
audit. The method of recognizing the income of a controlled foreign enterprise
is based on the premise that there is a difference between domestic and foreign
income tax liabilities, and is not related to the determination of related
parties under business tax law. It is difficult to argue that the original
decision did not apply these provisions and that the application of the law was
incorrect or that the reasons for the decision were inadequate.
As to the statement in the appeal that
"the factual findings of the original judgment are contrary to the law of
civil contracts", the reasoning of the appeal is that "the original
judgment is contrary to the law of civil contracts".
It is not clear what the specific breach of
the law is, as the argument is brief and vague and lacks a complete legal
reasoning.
3. In conclusion, the original decision is
clear and detailed and there is nothing that can be said to be unlawful. The
grounds of appeal, as set forth in the original judgment, are only general
allegations of the application of the law, but not specific allegations of
"inapplicability of the law", "improper application of the
law", or "the circumstances listed in Article 243, Paragraph 2 of the
Administrative Procedure Law". In accordance with the preceding provisions
and explanations, the appeal should be considered unlawful.
According to the above conclusion, this
appeal is unlawful. In accordance with Article 249, Paragraph 1, Article 104 of
the Administrative Procedure Law and Article 95 and Article 78 of the Civil
Procedure Law, the decision is as follows
The appeal is lawful.
The People's Republic of China 13 February 2020
Supreme Administrative Court, Fourth
Division
Cheng Siu Hong, Presiding Judge
Judge Liu Kai-chung
Judge Lin Wenzhou
Judges
Judge Lam
Marshal Mae Jun
JABO
in
The above original certificate and the
original
Original
No
No difference
13 February 109th Chinese
Xu Zi Lan, Clerk
Relevant laws and regulations
- Administrative Procedure Law, Articles
242, 243, 249 (103.06.18)
- Commercial Accounting Law, Article 71
(103.06.18)
- Taxation Law Articles 41, 47 (106.06.14)
- Criminal Law of the Republic of China
Article 339 (105.11.30)
- Civil Procedure Law Articles 78, 95 (106.06.14)