Taxpayers often arrange some false or fictitious transactions, with the ultimate goal of reducing or exempting taxes (tax avoidance). The Inland Revenue Department will cite Article 61 of the Tax Ordinance to treat these transactions as non-existent and ignore them. The Inland Revenue Department will consider the following to determine whether the transaction is false or fictitious:
• Will the transaction actually occur in the business environment?
• Are there commercial reasons for arranging the transaction?
• Are there any relevant official documents
• Whether the transaction was arranged in response to post-event results
• Is there any intention to implement the transaction? Is it a normal merchant?
• Has any property rights disposal behavior been implemented?
Article 61 of the Tax Regulations is not a taxation provision. It mainly protects the tax liability established by other provisions. When dealing with tax avoidance cases, the Inland Revenue Department will refer to the terms of the transaction and study the status of the establishment and implementation of the transaction. In the end, the Inland Revenue Department will make tax assessments based on the actual conditions of the payment and the relationship between the parties involved in the transaction.
The above information is for reference only. If in doubt, we welcome your tax inquiries