By Alvin Teng, C.P.A., Associate Partner of the Formosan Brothers Attorneys-at-Law

In the circumstances where a taxpayer is denied the permission to pay estate tax by surrendering the non-cash property in the estate, the taxpayer may want to appeal such denial. However, to prevent the accrual of delinquency penalty on the overdue tax during the administrative remedy period, the taxpayer may then pay such estate tax first before commencing the remedy. Now the consensus of the Supreme Administrative Court Grand Chamber in its ruling 109-Da-Zi No. 3 held that: the Administrative Court shall consider the totality of the circumstances in determining whether the taxpayer satisfies the element to grant the permission, which is, “the taxpayer has difficulty in paying the full amount in cash” as prescribed in Paragraph 4 of Article 30 of the Estate and Gift Tax Act. The court shall not rule against the taxpayer simply relying on the fact that the taxpayer already paid the estate tax.

The Estate tax is a tax collected against the heir who benefited from the estate received. The characteristics of the Estate tax are similar to the income tax and generally are paid in cash. According to Subparagraph 2 of Paragraph 1 of Article 6 of the Estate and Gift Tax Act, if the decedent did not appoint an executor for the will, generally, the estate tax taxpayer shall be the heir(s). Also, according to the first part of Paragraph 1 of Article 8 and Article 51 of the same law, the heir(s) shall pay off the estate tax before utilizing any of the estate. A delinquency charge penalty that amounts to one percent (1%) of estate tax due for every two days of delay shall be imposed on taxpayers who fail to pay the estate tax in a timely manner and the interest thereof shall accrue daily.

However, the financial prowess of each heir differs. Some may be able to pay estate tax with their own financial resources, while some may need to dispose of the estate before they are able to pay the estate tax. If there is cash in the estate, such cash may be used to pay for the estate tax. However, if there is no cash in the estate or the cash in the estate is insufficient to pay the estate tax, what shall the heir do? In such an event, the taxpayer may, pursuant to Paragraph 3 of Article 30 of the Estate and Gift Tax Act, apply to the National Taxation Bureau for permission to pay estate tax by surrendering the estate property. If such permission is granted, there will be no dispute. If denied, the taxpayer may file for administrative remedies. However, since there is the risk of delinquency penalty and related interest, the taxpayer may first opt to pay off the estate tax in the administrative remedy procedure to avoid delinquency penalty and the interest thereof. Yet, in such circumstances, whether the National Taxation Bureau would deem the taxpayer as having no difficulty paying the estate tax in cash, and in turn, put the taxpayer in a disadvantageous position in the administrative remedy procedure thereafter?

Paragraph 4 of Article 30 of the Estate and Gift Tax Act provides, “In cases where the estate tax or gift tax payable amounts to $300,000 or more, and the taxpayer has difficulty paying the full amount in cash, he or she may apply for permission to pay the deficient part of the tax in full by surrendering the taxed property which is located in the ROC or other easily cashable or storable property which is owned by the taxpayer.” As such, the criteria for applying for the permission to pay estate tax by surrendering the property are: (1) The estate tax amounts to $300,000 or more; (2) The taxpayer has difficulty paying the full amount in cash; (3) The taxpayer surrender a property which meets the requirements to offset the tax. In practice, when examining whether the taxpayer has difficulty paying the tax in cash, the National Taxation Bureau generally examines whether the decedent has remaining cash or bank deposit. The Administrative Court also used to hold that if tax is paid off during the administrative remedy procedure, it means that the taxpayer has no difficulty paying such tax in cash. Then it would mean that the taxpayer does not meet the second criterion of the application for permission to pay tax by surrendering its property, and the court might render an unfavorable decision against the taxpayer.

With respect to such circumstances, the consensus in the Supreme Administrative Court Grand Chamber’s ruling 109-Da-Zi No. 3 holds that, the form of estate, as cash or other property, might change along with the time during the period from the time when the estate is first inherited to the time when the taxpayer applies for the permission to pay the estate tax by surrendering its property, and during the  period of administrative remedy. (for example, the estate might be in the form of land at first, but become cash through expropriation and cash compensation). Therefore, when examining whether the taxpayer has difficulty paying the tax in cash, the court shall consider the totality of circumstances relating to the estate, judging by factors such as whether the tax being paid during the administrative remedy procedure is from the estate, and the likelihood of the estate being converted into cash. The court cannot simply rule that the taxpayer does not meet the criterion of “having difficulty paying the full amount in cash” for paying the estate tax with property simply because the taxpayer pays off the tax during the administrative remedy procedure.

Paying estate tax by surrendering properties is a provision that sympathizes with the taxpayer’s lack of resources. It helps the taxpayer to avoid borrowing money for paying for estate tax in order to inherit an estate. On a case regarding this provision, the conflict often lies in the determination of whether difficulties exist in paying the full amount in cash. The consensus of the Supreme Administrative Court Grand Chamber pointed out the factors the court needs to investigate while deliberating on such cases, which can serve as the baseline to decide on specific cases and helps resolve related disputes.

(This article was published in the Experts Commentary Column of the Commercial Times. https://view.ctee.com.tw/legal/25912.html)

‍