Speculator fined $2m for dodging tax

Speculator fined $2m for dodging tax

TAIPEI, Taiwan - The Tax Administration, Ministry of Finance yesterday announced that it has imposed a fine of NT$50 million (S$2 million) against an offending real estate speculator for manipulating a government programme that rewards bonus volume-to-floor area ratio allotments for development projects.

The case of the NT$50 million fine is one of four cases total that have been detected in a comprehensive auditing sweep over the first half of this year, said the administration.

The administration specified that the speculators did not meet their tax obligations after exercising the rewards.

As the acquisition of bonus volume-to-floor area allotments is deemed a transaction of an instrument that entitles the holder the right to reap immense added profits to real estate development projects, sales of such instruments must be taxed according to regulations governing properties transactions.

Tactics Like 'alchemy': Taxation Administration

The administration explained that it is aware of the practice where real estate speculators purchase and donate unmarketable properties to the government such as land lots reserved by the government for the purpose of preserving historical sites and public construction projects.

In exchange for their donation, speculators gain the right of added volume-to-floor area allotments, which may be transferred to more profitable real estate development projects such as luxury residences.

The administration described such tactics as "alchemy," whereby high-rise residence buildings may be built in small land plots residing in crowded alleyways due to the added volume-to-floor area allotments gained through the government's reward programme, originally aimed at promoting urban renewal efforts by the private sector.

The Ministry of Finance noted that due to the immense profits involved, manipulation of the reward programme has been listed among this year's tax evasion auditing efforts, and that contingency responses have been planned to curb the practice.

Government officials stated that over the past decade, the price rights granting developers extra volume-to floor allotments have expanded twenty times, from about 10 per cent of a property's current value to two times the current value of a development project, and as a result, in vying for the immense arbitrage profits, notaries, agencies and developers have been flocking to the trade of the instrument.

The administration stated that many speculators tend to overlook paying taxes on the transactions of bonus volume-to-floor area rights, as with the exception of major disclosures related to notable asset transactions by listed companies; the registration of their sale is not required by law.

Tax Administration officials clarified that offenders may still be revealed through auditing of transaction records between properties developers and the holders of bonus volume-to-floor ratio allotments.

In addition, auditing efforts are aided by the fact that high-value development project transactions often require the establishment of designated bank accounts, so the flow of funds is easily tracked and detected.

According to the administration, although the trade of volume-to-floor ratio allotment rights is not classified as an actual real estate transaction, individuals buying and selling the instrument are still subject to the Profit-Seeking Enterprise Income Tax and the Business Tax.

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