The Taipei High Administrative Court rendered the 103-Su-297 Decision of October 22, 2014 (hereinafter, the "Decision"), holding that for vouchers which are cost or expense vouchers in form in the possession of a profit-seeking enterprise, the recognition of such costs or expenses in the annual income tax return of the profit-seeking enterprise should be allowed if the defrayment of such costs or expenses reflected in such vouchers can be substantiated by other means, even though the appearance and recordation of such vouchers are defective. Conversely, for a profit-seeking enterprise holding vouchers which are expense or cost vouchers in form, if there was in fact no defrayment of the costs or expenses indicated in the vouchers, the recognition of such costs and expenses in the income tax return of the profit-seeking enterprise should not be permitted.
In the facts underlying this Decision, the Plaintiff filed its profit-seeking enterprise income tax return for 2008. With respect to the originally recognized operating cost, the Defendant found that although the Plaintiff did not in fact purchase from Nano Co., still the Plaintiff obtained the invoices at issue and declared tax deductible items. Therefore, the Defendant assessed the amount of the business tax that should be supplemented by the Plaintiff. In addition, after the Plaintiff's complaint in a lawsuit was finally rejected, the Defendant further determined that the operating cost declared by the Plaintiff was false, re-assessed the operating cost, requested supplemental taxes and imposed a fine. Dissatisfied, the Plaintiff applied for re-examination. After the application was rejected, the Plaintiff filed administrative appeal, which was also rejected. As a result, this administration action was brought.
The first part of Article 24, Paragraph 1 of the Income Tax Law provides: "For the income calculation of a profit-seeking enterprise, the net profit obtained by subtracting all kinds of costs and expenses, losses and taxes from the total revenue of the year shall be the income."
According to the Decision, based on the principle that revenues should go with costs and expenses, although the appearance and recordation of a voucher which is an expense or cost voucher in form in the possession of a profit-seeking enterprise are defective, if the defrayment of the cost or expense indicated in the voucher can be substantiated by other means, the recognition of such cost or expense in the annual income tax return of the profit-seeking enterprise should be allowed. Conversely, although a profit-seeking enterprise holds a voucher which is a cost or expense voucher in form, if the cost or expense reflected in such voucher was not actually defrayed, the recognition of such cost or expense in the income tax return of such profit-seeking enterprise should certainly not be permitted.
It was further held in the Decision that the Plaintiff purchased from Nano Co., which requested cash on delivery of goods with no record showing receipt of the payment and with no mention of payment offset, even though the Plaintiff subsequently submitted a copy of such payment receipts or statements showing the Plaintiff's offset against any accounts receivable from Nano Co., a move suspected of fabrication of evidence for the lawsuit. With multiple invoices at issue individually carrying an amount over NT$1 million for a total of NT$25 million, cash on delivery is hardly a normal mode of business. In addition, that a payable goods payment for a given day was broken into different amounts for deposit in Nano Co.'s accounts at different banks or in the same bank account is not consistent with normal practices of cash on delivery. The invoices submitted by the Plaintiff are not sufficient to substantiate the verity of the transactions at issue. In addition, the ledgers submitted by the Plaintiff were not signed or sealed by the representative, managers, supervisors-in-charge and clerks-in-charge to guarantee the verity of the ledgers. Therefore, they did not serve as evidence that substantiates the purchases at issue.
As a result, it was concluded in the Decision that since the operating cost of NT$25,335,635 as recognized is false when the Plaintiff in fact did not make the purchases as shown in the invoices at issue, the removal of such operating cost is not unlawful. Therefore, the Plaintiff's complaint was rejected.