Maliyat Journal, No. 17, Autumn 1997

 

 

IN THE NAME OF ALLAH

 

  

FROM THE PRESIDENT

 

We are nearly approaching the centennial of existence of new administrative structure -including modern tax system - in this country. In the course of this long period of time, the tax administration derived, undoubtedly, precious experience in discharging its vast and omnibus responsibilities.

The most eminent part of the knowledge so acquired, would manifest itself in the expertise of the fisc for recognition, examination and assessment of tax events.

As a matter of course, any professional would gradually find effective methods for performing his job as efficiently as possible. The more the time passes, the higher skill would be gathered.

This state of affairs would become deeply rooted, when new generations of professionals would continuously be in contact with the older generations who derived significant know - how during their life-work. This situation is accurately true in case of tax officials who pass their carrier inside the tax organization, generation, after generation.

The priceless heritage of the tax administration so gathered is to recognized and appreciated by the all involved in the task of tax assessment and collection. Denying the existence or value of such a treasure means nothing except to deny the observations of the mankind in the course of his log history.

Deplorable fact, however, is the fact that no efforts have been rendered so far to undertake researches and deliberations in this respect. To be more specific, no serious steps has been taken to study current techniques of detecting, examining and assessing taxable income of the taxpayers. Now-how and skills are handed down orally through generations, and thus are deprived from improvement and correction by intellectual contemplation. Studious work in this field is a prerequisite for r4ectificationand reformation of those techniques and procedures.

Some points are worth mentioning for more clarification of the subject. First, the emphasis must be put on usual methods and techniques adopted commonly by tax officials in their day-by-day practice. There might always some extreme ways of action be present in every organization. Such exceptional cases are beyond the scope of the studies suggested above.

On the other hand, the study we have in mind, is an overall research on the whole system of tax assessment procedure. Some isolated cases of such procedure are occasional examined by certain organs of the tax administration. Among them one can refer to the supreme council of Taxation, in particular, which deliberates from time to time on some disputes that may include technical and procedural issues. Such scattered deliberations are also not meant by us.

Finally, the suggested research must be concentrated on current and actual methods, and should not be deviated to the more interpretation of procedural regulations, although such regulations are also to be taken in consideration while analyzing the living structure of techniques and methods.

Dr. Aliakbar Arabmazar

 

 

 

Tax News

 

 

PREPAYMENT FOR FUTURE TRANSACTIONS

 

Companies producing automobiles, as well as those producing houses and buildings, conclude - in most cases - contracts with their customers for delivery of cars and houses in the future. They demand the buyers to pay certain percentage of prices in advance. The prepayment so effected is compensated for in two ways. Firstly, an annual interest of20 to 24 percent is paid to buyer each year up to the date of final transfer of can or building. Secondly, a discount is also granted to the buyer on prices of the same items.

The Supreme Council of Taxation (SCT) which in the highest organ inside the Ministry of Economic Affairs and Finance for reviewing and delivering opinion on taxation affairs, was asked to render its view on tax ability of the interest and discount so granted to the buyers of future transaction described above.

It is noteworthy that the interest paid on money is subject to taxation under the Direct Taxation Act, except for the interest on saving accounts held by the Iranian banks.

The SCT reviewed the matter in its Plenary Board and decided that both payment under consideration (interest and discount) are in essence discounts on sale price of relevant cars and buildings. Thus, they could not be taxed under the regulations pertaining to taxation of interests and similar payments.

Therefore, the buyers will be from taxation in case of the interest and discount so granted to them

 

TFN AND JUDICIAL PROSECUTION

 

Tax File Number (TFN) is an innovation in the history of the Iranian tax system. It has-been established in recent two, three years and certain categories of taxpayers are required to be registered for this purpose. By registration, a TFN shall be allocated teach qualified taxpayer. The TFN - which is called Economic Number or simply Tax Number - must be inserted on all invoices and documents of relevant taxpayers.

This procedure would facilitate the task of the fisc in the field of recognition and findings much taxable transactions as possible.

Taxpayers failing to comply with the duty of registration and taking TFN shall be subject to judicial prosecution and criminal punishment. The same is true in case of registered taxpayers who escape the duty of mentioning TFN on their invoices and documents. Commencement of prosecution, however, depends on the decision of the Minister of Economic Affairs and Finance.

On the other hand, the Board of Settlement of Tax Disputes (BSTD) is vested - under the Iranian Direct Taxation Act - with the power to receive and review all tax claims and disputes.

A question was raised as to whether the taxpayers or tax officials could refer disputes about the judicial prosecution in respect of TFN to BSTDs. The ambiguity in this regard cause the Finance Ministry to issue a new circular letter, which specifies that any case of this kind should be directed to the legal Department of the Ministry.

Further actions, beginning from reporting the case to the Minister, up to the filing and following up of the petition with criminal courts, shall be taken by the said department.

 

TAX STATUS OF ALAVI FOUNDATION

 

Before the Islamic Revolution of 1979, there existed a foundation that used to handle apart of the governing dynasty's properties. After the revolution, the said institute was renamed as Alavi Foundation.

Another foundation was also established after the victory of Islamic revolution under the title of "Foundation of the Oppressed People". All the properties of the deposed dynasty -including the Alavi Foundation - were transferred to the Foundation of the Oppressed. The latter foundation enjoys certain tax privileges under the current regulations. Since status of the Alavi Foundation was not clear for task offices, and they were not sure if theta privileges of the Oppressed Foundation would extend to the properties and operations of the former foundation, or not.

A new circular of the Finance Ministry deals with this subject and rules that the regulations concerning the tax status of the Oppressed Foundation covers all and every parts of its possessions, including the Alavi Foundation.

 

VALUATION OF FOREIGN CURRENCIES

 

Foreign contractors working for Iranian employers, usually receive all or a part of their remuneration in currencies other than that of the host country.

Meanwhile, all taxes in this country - including those of the foreign contractors - are to be assessed and calculated in national currency. But foreign exchange facilities granted to applicants for their transactions in non-national currencies are not unique. There have been different rate of exchange prevailing during the recent years, and various names have been given to them, like floating rate, exportation rate, etc.

Taking into account such unequal and varied situati8ons, one could naturally become confused about the assessment of the income tax; if there have been a case of foreign exchange element constituting whole or part of the taxable income of the taxpayer.

The Ministry of Economic Affairs and Finance treated the issue in a special circular letter. It has been said in the circular that we have to deal with each case according to the conditions of allocation of foreign exchange to each taxpayer. The rate of exchange used at the time of such allocation must be taken as the basis of calculation of foreign currencies received by the contractors under discussion, and their income should be assessed in Iranian Rail based on the same specific rate.

 

COMPUTERIZED BOOKS AND RECORDS

 

Sometime ago the Ministry of Economic Affairs and Finance authorized the companies and other taxpayer to keep their books and records in computerized form, provided that they would inform relevant tax authorities of their intention and would obtain their agreement in this regard.

As it is known from the text of a recent circular of the Ministry, some entities proceeded with computerization of their records without obtaining the agreement of relevant officials. Some tax assessors, however, did not reject such computerized books in spite of not having been agreed upon in advance.

The ministerial circular confirms the action of the tax assessors and declares that such computerized books and records could not be rejected solely because the previous agreement of authorities was not obtained.

 

INHERITANCE TAX AND BLOOD MONEY

 

Under the Islamic Criminal Law, a person convicted of murder shall be subject to reprisal (qisas) and is to be executed, provided that the heirs of the murdered person would deposit certain amount of blood money, to be paid to the heirs of the murderer afterwards. As far as the inheritance tax of the murdered is concerned, the question is that the blood money so paid can be deducted from his taxable estate or not.

The Supreme Council of Taxation examined the same question and rendered the following opinion^ Since the regulations of the Direct Taxation Act do not provide any rules for deduction of the blood money from the murderer's estate, such payments are not deducti8ble for assessment of the inheritance tax.

 

MINISTERIAL CIRCULAR AMENDED

 

As it was mentioned earlier in this journal (no 16, Autumn 1997), a circular of the Finance Ministry ruled on some provisions of "The Law concerning to payment of service Bonus to and a part of the Urgent Expenditures of the Civil Servants". The circular differentiated between the various kinds of those payments and considered some of them tax exempted, while the others were recognized as subject to taxation.

Later, the Supreme Council of Taxation (SCT) submitted a report on the same subject to the Finance Undersecretary for Revenue and observed that some amendment i9n the circular might be necessary. The Undersecretary referred to report to the Plenary Board of SCT for consideration. The Board reviewed the matter and decided that none of the payments under the aforementioned law are taxable, since they are in essence a kind of compensation for the urgent expenditures born by employees at occasions like marriage and death.

 

CASH INSTEAD OF STAMP

 

Regulations about the stamp duty are provided under the Chapter 5 of the first Section of the Direct Taxation Act (DTA). Article 50 of the same chapter stipulates that the Ministry of Economic Affairs and Finance can receive cash money as stamp duty if it finds such course of action appropriate.

Then, affixing tax stamp would not take place and the relevant tax office shall issue official receipt against the cash paid by the taxpayer.

Attorneys-at-law and other agents, who are authorized to plead the cause of people and entities before judicial or non-judicial tribunals, are among the taxpayers who have to pay stamp duty in the form of affixing stamps on instruments verifying their power of attorney.

Regulations concerning stamp duty of this particular category of taxpayers are arranged under the Article 103 of DTA. Paragraph 4 of the said article pertains to advocacy on financial disputes before non-judicial specialized tribunals. Among them one can refer to administrative tax tribunals and those responsible for disputes regarding municipal duties.

A new circular of the Finance Ministry deals with the aforesaid paragraph 4 of Article 103DTA. Based on the power given to the Ministry under the Article 50, DTA (as described earlier), it has been said in the circular that hence forward the relevant offices can accept cash in case of disputes and claims raised by virtue of the said paragraph 4, Article 103.The authorization so given is restricted to cased of impossibility of affixing and canceling of tax stamp on relevant instruments.

 

LEASE WITH OPTION TO PURCHASE AND LEGAL SEAT

 

Lease with option to purchase is a lease which the lessee has the right to purchase the property. Agreements of this kind are mostly concluded between banks and their clients. The bank pays price of the property and is considered to be the legal owner of it. The client, on the other hand, becomes the lessee of the property with the right of purchase of the same. In essence, however, he is the borrower of the money paid by the bank, and the monthly rent he pays constitutes the installments of the sum so borrowed. The option of purchase will run when the installments are paid. Then the property will be transferred legally to the client.

Meanwhile, the residence of taxpayers is the bases for imposition of tax, as well as for the jurisdiction of tax offices around the country. Every tax assessor is allocated certain geographical districts, inside which he has to perform his duties. This overall rule, however, is apt to exception in certain instances if the Finance Ministry so decides. Among those instances one can mention a case where the place of major activity of an entity is different from its center of administration. In such cases the Ministry may refer the relevant tax file to the tax office of the place where that major activity is performed.

As far as the case of lease with purchase option is concerned, the property under the lease might be located outside the area in which the administrative center of the bank is situated. Since the final transfer of the property to the lessee, requires payment of taxes, it must be decided that which of the two tax offices are competent to receive the tax: that which has jurisdiction over the area where the legal seat of the bank is situated or the other one with jurisdiction over the location of the property?

A circular of the Finance Ministry rules in favor of the latter solution, and states that the tax office of the region where the property is located will be the proper authority for taxation.

 

 

 

ABSTRACTS OF PERSIAN ARTICLES

 

Editorial

 

Foresightedness in the field of taxation is the theme of the articled titled "Trends in Anti-Avoidance". This very interesting article was written first by Dr. David Williams and published in the Bulletin for International Fiscal Documentation. The author attempted to address future trends in tax avoidance. The scope for anti-avoidance depends - according t6o him - on laws of fiscal dynamics, which he described in detail. A Persian translation of the first part of the article is provided in the Persian section of the journal.

 

A Comparative Study: Indirect Taxes in Iran and Some Other Countries

 

This is the first study on indirect taxes provided by this journal. The article deals in particular with the share of the indirect taxes in overall tax revenue of the country in comparison with many countries of the world. Certain proposals are given by the author for improvement of the situation.

 

Tax System and Official Accountants

 

The role the official accountants can play for improvement of the tax system in the main focus of the article. A brief history of the profession of the official accounts in the world, as well as in Iran, has been provided first. Then the position of this profession in the Iranian Direct Taxation Act and other relevant regulations in analyzed. The conclusion and certain proposals come at the end.

 

New Provisions on Salary Tax

 

As we mentioned earlier in this journal (No. 17, page    ) The Article 84 and its Note were amended recently with the aim of raising the level of the threshold of salary tax as well as for equalizing the tax states of all employees and workers. A detailed schedule covering the amount of taxes accruing to different levels of salary income was prepared and provided by a reader of the journal which has been printed in the Persian section.

 

Indicia for Assessment of Income Tax

 

Indicia are circumstances which point to the existence of a given fact. They denote facts which give rise to inferences.

In the real of taxation, Indicia for inference of taxable income are enumerated by the law. They are - according to Article 152 of the Direct Taxation Act (DTA) - the facts such as annual purchase, annual sale, gross income, and the like.

The author analyzes these factors, presents critical observations on shortenings of the laws and makes certain suggestions in this field.

 

Taxes on Construction Developers

 

Construction developers are subject to payment of tax on their business. At the same time they have to pay certain taxes on transfer of the properties built by them, but this latter tax is deductible from their business tax. Construction Developers are good money-makers in this country, as several rulings and ministerial circulars have been issued for assessment of their taxable income. This subject is deal with in the article.

 

TAX EXEMPTION OF INDUSTRIAL AND MINING COMPANIES

 

Article 132 of the Direct Taxation Act as amended on April 1992, provides for tax holidays of 4, 6, and 8 years with regard to industrial and mining entities, for which the exploitation permit will be issued from the date of adoption of the amendment. Several ambiguities were raised about this article, that cause3d the Finance Ministry to issue two circulars, the second of which was, in effect, an amendment to the first one. Some taxpayers, however, were not satisfied with the Ministry's Rulings and filed complaint with the Court of Justice Administration. The Court held the view of the taxpayers, and ruler against the circulars. The author reviews these developments and expresses his opinion on the commencement dare of the relevant tax holidays.

 

Regulations and Rulings

 

The texts of latest laws, regulations, and opinions of the Supreme Council of Taxation are reported in the Persian section of the Journal. A part of the same is presented in English section under the heading "Tax News".

 

Tax Glossary

 

Several tax terms and expressions are presented and defined in each issue of Maliyat journal. Detailed explanations follow the definition of the terms.

 

Tax News around the World

 

A number of international tax news is selected and presented to the Iranian readership.

 

 

Comment on an Article

 

Our readers are invited to furnish us with their opinions regarding the subjects presented in this journal. A comment of this type is printed in the current issue. It concerns an article printed in the issue No.... of the journal. The article had examined an incentive provided in articles 189 and 190 of the Direct Taxation Act. Some aspects of the view expressed by the author of that article are criticized by the commentator.

 

 

 

The End