The Taxpayer Rights Protection Act Article 7

The laws involving taxation shall be construed in accordance with the principle of taxation by law and the respective purposes of the relevant laws, balancing therewith the principle of fairness considering economic purposes and economic substance.When a tax authority identifies the constituent elements and facts of a tax assessment, they shall base these on the actual economic relationships and the economic interests derived therefrom.If a taxpayer, for the purpose of gaining tax benefits, abuses legal forms to avoid the constituent elements of taxation by non-arm’s length transactions and attain the economic benefits derived from arm’s length transactions, such actions shall be termed tax avoidance. The tax authority shall still assess the taxpayer’s tax obligations according to the legal forms commensurate with the actual economic benefits, and impose surcharge and interests.The tax authority shall bear the burden of proof for the tax avoidance referred to in the preceding paragraph and the constituent elements and facts of the tax assessment referred to in Paragraph 2.The obligation of taxpayers to facilitate investigation by reporting the required information under this Act and any other relevant tax law is not affected by the preceding paragraph.A tax authority, after identifying tax avoidance as referred to in Paragraph 3 between a taxpayer and his or her counterparty or related persons, in order to determine the correct amount of the tax obligations owed, may, in accordance with the tax law, make adjustments based on arm’s length transactions or the information obtained through investigation.The surcharge referred to in Paragraph 3 shall be 15% of the tax that should have been paid, and the taxpayer shall be charged with the daily interest accrued on the amount of such tax that should have been paid at the fixed interest rate on January 1 of each year for the one-year period deposit of postal savings, for the period from the next day of the original deadline to the day on which a notice was issued demanding the tax that should have been paid.In the case of Paragraph 3, a tax authority may not impose a penalty on tax evasion, except that taxpayers conceal, make false and misleading presentation, or provide incorrect information as to material items when filing tax returns or being investigated, which results in the tax authority assessing a lower amount of tax.Taxpayers may, before engaging in specific transactions, apply to and provide relevant documents to a tax authority for consultation; the tax authority shall reply within six months.The cases of tax avoidance that shall be subject to a civil penalty according to a tax law but have not yet been issued a penalty before this Act comes into force, Paragraphs 3, 7, and 8 of this Article shall apply. The cases of tax avoidance that have already been issued a penalty but have not become final, the amount of such penalties shall not exceed the total amount of the surcharge and interests prescribed in Paragraph 7, except for the proviso of Paragraph 8.