A report in a recent edition of the Chinese-language CommonWealth Magazine said that the 12 richest people in Taiwan use overseas tax havens, and have offshore companies and accounts that they use to send their assets overseas. The report said that the National Taxation Bureau has a hard time investigating these practices and that tens of billions in taxes is lost each year as a result.
After that news came out, one of the wealthy businesspeople named in the magazine’s report who owns a newspaper responded to the magazine’s claims through a front-page story which said that sending money generated by businesses in Taiwan and China overseas to buy property is legal. The newspaper report featured commentary from experts and academics vouching for the legality of that act, saying that it is unfair to shareholders for the head of the company they have a stake in to not use legal tax-saving measures.
These latter remarks are hard to agree with. Anyone with a little knowledge of finance should know that the bank accounts of companies that use tax havens are private and that these enterprises find it easy to skirt the legal regulations and tax duties of the country they are investing in, such as Taiwan, as well as those of the country being invested in, like China.
Taiwanese businesspeople often leverage triangular trade to keep profit in tax havens, a practice which has long been defined as tax avoidance by income tax law.
However, last year, legislators joined hands to stop a bill aimed at stopping the formation of what are known as controlled foreign corporations used by offshore companies in tax havens.
Then there are the significant reductions imposed over the years on estate, gift and business income taxes, as well as capital gains tax exemptions and a plethora of other tax incentives and subsidies. These measures have impeded the implementation of fair tax reforms. How are Taiwanese supposed to believe that all of these policies are not the result of clandestine work by interest groups? The way in which the wealthy pretend to pay their taxes as required by law and use legal means to save on taxes is highly insulting to the nation’s hardworking wage and income earners who pay their taxes honestly. Are offshore accounts of the wealthy spick-and-span and not used to avoid taxation?
Take a Supreme Administrative Court ruling on individual income tax made in 2010: The ruling was about a company that went public on the over-the-counter bulletin board and, after its board approved a cash capital increase, the firm immediately wired US$5 million to an offshore banking unit account in Taiwan — which for all intents and purposes is viewed as foreign — under the guise of paying what they called OEM (original equipment manufacturing) fees.
The next day, the money flowed back into five Taiwanese dummy accounts and was used as a false form of subscription to capital stock. Once the National Taxation Bureau discovered the activity, it fined the company and people who provided the dummy accounts in excess of NT$100 million (US$3.3 million) on the grounds of making false claims for US$5 million in expenses and failing to disclose the taxable income they derived from the dummy accounts. However, in essence, this case was more about company and securities fraud than tax evasion.
Are the way in which offshore companies pay commissions and management fees in tax havens an action conducted by the minority, or is it just the tip of the iceberg?
The Ministry of Finance not only does not take the issue of losing government revenue seriously, it also fails to look into the matter and ascertain how offshore banking unit accounts are being used. All the ministry does is complain that a cross-strait tax agreement has not been signed yet and how it is difficult for them to check the taxes of overseas companies.
It is obvious that the ministry is waiting for things to blow over, so it would seem that when it comes to the offshore bank accounts of the rich, all the public can do is trust that the wealthy have a conscience and will publically disclose details of their bank transactions Perhaps with the recent tainted oil and real-estate speculation scandals, it is time that the wealthy came out and proved that they are fulfilling their duty to pay tax. This is all they can do if they want to prove their innocence.
Huang Shih-chou is an associate professor at the Taipei College of Business.
Translated by Drew Cameron
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