Fri, Jan 23, 2015 - Page 8 News List

Defining loans, gifts and justice

By Ko Ke-chung 柯格鐘

One of the hottest topics in recent days has been Taipei Mayor Ko Wen-je’s (柯文哲) parents being asked by the National Taxation Bureau to explain their loan to Ko when he needed funds to purchase a house.

The mayor, in turn, asked bureau officials to explain the motivation behind the opening of an investigation.

Vice Minister of Finance Wu Tang-chieh (吳當傑) said he supported the bureau’s probe.

As a tax law researcher and college professor, I would like to explain what this is all about.

The issue of gifts or loans between parents and children is easy to explain academically.

If it is a gift, it involves no payment in return, including the gifted sum.

If it is a loan, the debt must be repaid, and interest usually has to be paid.

There is nothing complicated about either case.

However, when it comes to practical taxation matters, it is very difficult to prove or investigate whether the offering of money from parents to children is a gift or a loan, because there are usually no documents or receipts and no complicated credit checking, identity verification, security or surety.

Usually the child just asks for money, the parents agree and the sum is transferred.

However, this is also why disagreements usually follow.

Even in civil litigation concerning gifts or loans between parents and children, there are cases in which some claim that they are just lending their names for trust funds or investment, and everyone is happy when they all agree on the deal, but afterward they often have a different interpretation of what occurred.

If it involves an inheritance dispute, siblings might also become involved, leading to conflict and civil or criminal lawsuits.

This is something that is seen in court on an almost daily basis.

So, if it is a loan between parents and children, as Ko’s parents say was the case, there might not be an IOU, security or surety, but there should be a repayment of the debt and perhaps the payment of interest, both of which are the minimum requirements that constitute a loan.

These are also the primary tools that other nations use when investigating and verifying matters of gifts or loans between parents and children.

Loans should involve repaying the debt and paying any interest, preferably documented on paper.

If neither exist, truthfully speaking, not even the most talented judge could prove whether a financial offering from parents to children is a loan or a gift — not to mention that Taiwan is a nation which adopts the rule of law that employs judges and taxation bureau officials.

Hence, following the principle of proportionality, when someone reports an issue to the taxation bureau and provides evidence, it concurs with the rule of law for the bureau to first request the giver of the gift, who is responsible for paying any gift tax, to explain what happened, as this sort of intervention is least invasive.

The main problem is not whether the government interferes with gift giving between parents and children.

Neither is it about the bureau asking the taxpayer to explain his or her actions, nor the bureau conducting an investigation into the matter, because politicians should not expect to be exempted from a legal tax investigation.

In Germany, for example, several parliamentarians at the height of their careers had to retire, their reputation sullied by tax evasion.

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