The Ministry of Finance Memorandum Tai Tsai Shui No. 890457254 of October 19, 2000 on interpreting the means to determine unreported taxable income under Article 51, Section 3 of the Value-added and Non-value-added Business Tax Act, as promulgated by Article 52, Paragraph 2, Section 1 of the Enforcement Rules for the Value-added and Non-value-added Business Tax Act, states that for taxpayers who underreported or misreported sales amount but provided valid value-added tax input certification only after being investigated and discovered, no output tax amount may be deducted by the tax levying agency in calculating the tax shortage. It is in compliance with the legislative purpose of Article 35, Paragraph 1, Article 43, Paragraph 1, Section 4 and Article 51, Section 3 of the Act, and does not contradict the principle of taxation by law under Article 19 of the Constitution.

　　Article 19 of the Constitution imposes the duty of the people to pay taxes in accordance with the law. It means that the State must impose tax duty or provide preferential tax deduction or exemption treatment to its people based on laws or regulations having clear authorization of a given law, taking into consideration such conditions as the subject, subject matter, tax base or tax rates.. In the event any doubt should derive from the application of the statutory provisions within the scope of its authority, the governing agency, as a matter of exercising such legal authority, provides interpretations on the relevant provisions.　It is not against the principle of taxation by law insofar as such interpretation is provided in accordance with the general principle of the legal interpretation and in compliance with the relevant principles embodied in the Constitution. (See J. Y. Interpretations Nos. 607, 622, 625 and 635).

　　Article 51, Section 3 of the Value-added and Non-value-added Business Tax Act (hereinafter Business Tax Act) provides that a taxpayer who “underreports or misreports sales amount,” is subject to the payment of back tax, a fine equivalent to one to ten times the tax shortage amount, and suspension of business. “Tax shortage amount” means, in accordance with Article 52, Paragraph 2, Section 1 of the Enforcement Rules for the Business Tax Act, “the additional tax amount, as determined by the governing tax levying agency based on all the investigation documents, that needs to be paid.”　As the governing agency, the Ministry of Finance issued Memorandum Tai Tsai Shui No. 890457254 on October 19, 2000 (hereinafter the Memo) to interpret how to determine the tax shortage for “non-reported or underreported sales amount.”　Illustration 3 of the Memo states: “In accordance with Article 35, Paragraph 1 of the Business Tax Act, regardless of whether any sales amount is accrued, a business operator must file periodic tax returns to the governing tax levying agency concerning its sales amount, tax owed, or overpayment, with tax deduction and other related documents attached.　As such, the deductible or refundable input valued-added taxes of the business operator are premised on the fact that they are reported.　Therefore, in the event that a business operator should be held in violation of Articles 51, Sections 1 to 4 and Section 6 of the Business Tax Act and subject to penalties accordingly, but provide valid input certificate only after being investigated and discovered, no output tax amount may be deducted by the tax levying agency in calculating the tax shortage.”　Based on this Memorandum, the deductible amount for input tax is limited to what the taxpayer has reported in accordance with Article 35, Paragraph 1 of the same Act.　If the taxpayer provides valid certification for input tax payment only after being investigated and the shortfall or evasion of tax payment is discovered, the input value-added tax may no longer be deductible under Article 15, Paragraph 1, which provides: “The amount of business tax payable or overpaid by a business operator shall be the output tax in a given tax period subtracted from the input tax in the same period.”　Instead, the taxpayer shall pay tax calculated by the audited documentary evidences for output and reported input tax.

　　The “input tax amount” that may be deductible from the output tax in the same period under Article 15, Paragraph 1 of the Business Tax Act is premised on the condition that the registered business operator has obtained the valid certification on formality compliance stipulated under Article 33 of the Business Tax Act and has attached that certification with the filing for deduction to the governing tax levying agency within the given period based on which the business tax owed or overpaid in the same period is calculated. (See Article 19, Paragraph 1, Section 1, Article 35, Paragraph 1, and Article 43, Paragraph 1, Section 4 of the same Act as well as Article 38, Paragraph 1, Sections 1, 3, and 4 of its Enforcement Rules). Should the business operator fail to accurately file sales return in accordance with Article 35, Paragraph 1 stated above, thereby resulting in underreporting or misreporting of sales amount, Article 43, Paragraph 1, Section 4 of the same Act is applicable in that the sales amount and tax for the same period is determined by the investigated data (including the reported input tax certification).　Hence, the filing of added-value business tax return is limited to those business operators who have already submitted input value-added certification, so that the reported amount can be deducted from the output valued-added tax for the same period in determining the tax payment or overpayment. That the governing tax levying agency may determine the sales amount and tax payment according to “investigated data” and preclude the certified input tax not yet filed for the same period is to carry out the purpose of Article 35, Paragraph 1 of the same Act that business operators should voluntarily file tax return for the same period.　In addition, Article 51, Section 3 of the Business Tax Act stipulates that a taxpayer who underreports or misreports sales amount is subject to the payment of back tax, a fine equivalent to one to ten times the tax shortage amount, and suspension of business.　The means to determine underreported tax, under Article 52, Paragraph 2, Section 1 of the Enforcement Rules, is also based on “investigated data” by the governing tax levying agency for the additional tax to be levied, which does not permit business operators to claim deduction against output tax by providing valid certification only after being investigated and discovered. With regard to the input tax certification not reported for the given tax period, there is no concern over repeated taxation given that it can be deferred to be reported in another tax period in accordance with Article 29 of the Enforcement Rules, which provides, “For business operators stipulated in Chapter 4, Section 1 who do not file input tax certification for the given tax period, the filing can be deferred to the next period to claim deduction.　 If the business operator should again fail to file input certification in the next period, a detailed explanation shall be provided along with the return filed for that given period.”

　　In reviewing the disputed Memorandum concerning underreporting or misreporting of sales amount under Article 51, Section 3 of the Business Tax Act, the governing tax levying agency shall not permit the deduction of input tax should valid input tax certification be provided only after the underreporting or misreporting is investigated and discovered .　Such is the natural interpretation when jointly applying Article 15, Paragraph 1; Article 35, Paragraph 1; Article 43, Paragraph 1, Section 4; Article 51, Section 3 of the Business Tax Act, as well as Articles 29, 38, Paragraph 1, Sections 1, 3, and 4, Article 52, Paragraph 2, Section 1 of the Enforcement Rules for the Act.　It does not contradict the meaning and purpose of the aforementioned articles and is consistent with the general principles of legal interpretation.　Furthermore, given that it does not impose any additional limitations other than as prescribed by the laws or regulations authorized by laws, it does not violate the principle of taxation by law under Article 19 of the Constitution.