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Income tax is the primary source of tax revenues in Taiwan. However, both efficiency and fairness are the major issues in nation’s income tax system which resulting in the increasing deterioration of tax base erosion. The rich “legally” use the loopholes of tax rules for tax avoidance planning. Consequently, wealth gap is increasingly serious, and the source of tax revenue for central government most comes from the middle class and wage earner. Therefore, the reformation of the income tax system has been deeply concerned by the society nowadays. The above-mentioned considerations create the motivation of this thesis. The study compiled the issues about income tax investigated in Taiwan and other countries, and refers to textbooks and the data in the websites of Ministry of Finance and Judicial Yuan. By using the document analysis, case study, comparative analysis and inductive approach, the investigation of pros and cons of the domestic judgments, which relating to the controversy of the tax avoidance in income tax system, has been conducted. The suggestions of domestic scholars and the measures applied to other counties were also presented to concretize the abstract laws. Moreover, this study provides guideline about the reformation of the income tax system for government to build the taxing environment with fairness and justice, financial balance, equal distribution of wealth, and fiscal sustainability. The Principle of Substantive Taxation should is based on economic substance to obtain the effects on taxation law. Generally speaking, it including the actions of tax evasion and tax avoidance has to be adjusted according to the ability-to-pay principle. The principle of substantive taxation and the taxpayer rights protection complement each other, and also are related to the taxation personnel protection very closely. The tax authorities apply it in tax audit and bear the burden of proof. The taxpayers have the obligation of assistance to them. The taxation personnel cannot incur the doubt about the intention of profiting others because of protecting the rights of taxpayers, or cannot have the dispute over profiting national treasury due to law enforcement. Both rights of the taxpayer and the taxation personnel will be protected and the aim of tax levy and payment will be achieved. After all, it pursues the aim of the fairness and justice in tax, economic substance, and taxpayer rights protection. There are four anti-tax avoidance mechanisms in Taiwan: 1 and 2. The anti-tax avoidance rules were amended in July 2016 for controlled foreign company (CFC) and place of effective management (PEM). 3. The principle of anti-thin-capitalization was revised in 2011. 4. The law of “Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's-Length Transfer Pricing” was drawn up in 2004. In order to prevent cross-border tax avoidance and evasion, the Ministry of Finance announced the “Regulations Governing the Implementation of the Common Standard on Reporting and Due Diligence for Financial Institutions” on November 16, 2017. The “Common Reporting Standard” (CRS) will be conducted in 2019. Furthermore, the financial information exchange and transparency of financial flows will be built, and the credit rating of national financial activities will be enhanced in 2020. After these laws take effect, the CFCs and PEMs in Taiwan will be regarded as companies within country for taxation. The Income Basic Tax Act was revised in 2017 to prevent the way of instituting the CFC in the name of an individual, which will avoids the application to the Income Tax Act for CFC. The Ministry of Finance also announced the key work plan of maintaining the fair of tax in 2016 and revised Article 66-9 of the Income Tax Act in 2017 for enhancing the audit of tax evasion. The suggestions that the study makes are as follows: Judicial Yuan should formulate the specific evidence law applied to criminal, civil and administrative litigation, and establish a dedicated tax court, which emulates the ways coming from Japan, Germany and USA. The judge has the authority to ascertain the taxpayers’ obligation and directly gives the sentence with the help of the judicial associate officer with financial background. The summation theory should be adopted and the constitutional review (complaint) system should be instituted. The restoration of special deduction for savings and investment, tax base broadening and development of revenue source will be made to create wealth for society. |