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Maliyat Journal (Iranian Tax Review)

No. 29, Autumn 2000

English Section







The tax appeal system is a fundamental component of any viable tax system, and is one of the recognized rights of taxpayers all around the world. The relationship between taxpayers and tax authorities is based on certain legal principles and laws. The same is true in respect of relations between ordinary people, which are also based on law and customs. When a dispute arises between two persons, they resort to competent forums for solving their cases. The disputes may arise between taxpayers and tax officials in the same way, a fact that is recognized all over the world and special fora are also created for resolving these specific kinds of cases.

In many countries two levels of appeal are available in respect of tax disputes: administrative and judicial. A taxpayer dissatisfied with the decision of tax assessment officials may appeal to the administrative forum inside the tax organization for review of his case. After having received the decision of the administrative forum, the taxpayer may, in case of being in disagreement with it, appeal at a court. Certain points, however, are worth noting in this connection:

1. The ordinary courts usually do not interfere with tax matters and such disputes are in most countries dealt with by specialized tax courts, which are composed of judges and experts.

2. The administrative fora are usually organized within the tax administration and no judges take part in their composition.

3. The expenses attached to the judicial appeal are usually substantial and the procedure of appeal is relatively elaborate and complicated.

4. When an appeal is taken to the court, the tax administration is allowed to demand immediate payment of the full tax liability, and no appeal is usually allowed against such decision. The reason behind such behavior is that the state budget is prepared and approved on basis of revenue forecasting, and delays in collecting taxes would impair the realization of budge goals and targets.  

Now let us consider the Iranian appeal system in taxation matters. This system is quite unique and different from what described above. The foundation laid in Iran for this purpose is based on a mixed composition. The forum for handling the tax appeal is called the Board for Settlement of Tax Disputes (BSTD). The BSTD is composed of three members who are representatives of different interests and considerations, while all of them are bound by the duty of observing the law and legal principles in discharging their responsibilities. The first member is selected and appointed by the Finance Ministry according to certain legal criteria prescribed by the tax law. The second member is the representative of associations and organizations established for defending and regulating the interests of the private sector and taxpayers. The third one is a judge selected and introduced by the judiciary. So, a BSTD is fundamentally different from administrative fora organized in other countries for reviewing tax disputes. The BSTD has to deliver its verdict by majority, and the judge appointed by the judiciary could and should play a significant role in securing judicial justice.

Therefore, the administrative and judicial appeal are both merged and manifested in the composition of BSTDs, and participation of the representative of taxpayers can assure more safeguard for protection of taxpayers against probable ignorance of their legal rights. As far as the structure and legal framework is concerned, the system in question is sound and reasonable. The failure and shortcoming felt in some occasions is not due to the legal framework of the system, but we must search for defects in the practice of the people in charge of securing the goals of the law. More attention is to be paid when choosing the members of the BSTDs, not only by the Finance Ministry, but also by the justice administration and the organizations representing the interests and rights of taxpayers.

Dr. Aliakbar Arabmazar



An Introduction to the

Iranian Tax System


By: Dr. Mohammad Tavakkol

(Part 9)

Different types of property taxes (annual tax on real property, tax on unoccupied real estates, tax on idle lands, inheritance tax and stamp duty) were reviewed in previous issues. Then we discussed about the tax on rental income, which is dealt with under the first chapter of the title C of the Direct Taxes Act. In this issue we will continue, and conclude, our discussion on the same subject of the tax on rental income.


Transfer of real property and goodwill

According to the Art. 59, DTA, the final transfer of real properties, as well as the transfer of goodwill, are subject to taxation on basis of their taxable value. The concept of taxable value and the procedure of its determination will be examined later. The term final transfer means unconditional transfer, that is a transfer which may not be cancelled by either the seller or purchaser of the property. There are special types of transfer contracts that are based on specific conditions, the realization of which would give rise to right of cancellation or withdrawal of the contract by one of the parties. An example of such conditional contracts is the "optional sale", according to which the parties make condition that if the seller gives the price back to the purchaser, within a specified period, he may cancel the contract and take the property back (for more explanation see Maliyat, No 26, PP 7 and 8).

Before touching upon detailed provisions of DTA in respect of the tax on transfer of real property, it is worth noting that no separate capital gains tax is envisaged under the Iranian tax system, and most of such gains are dealt with under the general heading of income tax.

The gains derived from transfer of real property and goodwill are also considered as taxable income.

A delicate point is that under the Iranian tax law, the tax on transfer of real property or goodwill has the same meaning as the tax on income derived from disposal of such properties, and no other separate tax on this type of income does exist.

As far as the European countries are concerned, the tax on transfer of immovable property is something separate from, and in addition to, the tax on gains derived from such type of transferring.

It should also be taken into consideration that while the tax on transfer of real property is assumed to be a kind of income tax, but not all cases of such transferring evidence the realization of profit. The base of taxation is taxable value of the property, whether the transaction produces loss or profit.

The term goodwill is defined as the right of making business, the right of possession of a place, or the right arising from the market position of the place of business (Note 4 to the Article 59, DTA).



The rates of taxation that are applicable on the taxable value of real property or goodwill are as follows:

up to IRR 20,000,000           4%

up to IRR 60,000,000           8% of the excess over IRR 20,000,000

over IRR 60,000,000          12% of the excess over IRR 60,000,000




If a taxpayer sells more than one immovable property or goodwill during a single year, he will become liable to taxation with regard to the aggregate of such transactions at the above rates. The frequency of similar transactions can be considered as a badge of trade. The persons who frequently buy and sell one type of property are more likely to be trading than those doing so only once, and that is why a heavier tax burden is imposed on them by the law.


Special cases

As it was mentioned earlier, the transaction subject to the Article 59, DTA is the final transfer of real property. There are, however, some other kinds of transferring of real property that might not be categorized under the heading of "final transfer" as is understood under the Iranian legal jargon. The expression "final transfer of real property" in a context like the one used in the Article 59, DTA, conveys the idea of unconditional selling and purchasing of the property.

Nevertheless, those other types of transactions are also subject to the rule of the Article 59, DTA. Such cases include:

1. where the transfer of the property takes place under arrangements other than those of the sale contract (Article 63). One common example of such non-sale transferring is the contract of agency. The owner may appoint a person as his agent or proxy and empower him to transfer the property in question to whom he may chose, including himself. Transfer of a property under such arrangement shall also be subject to the ruling of the said Article 59, DTA.

Another case of non-sale transfer is the exchange of real properties. In these cases, each of the parties has to pay the tax of the Article 59, DTA, applicable to his own transferred property.

However, the case of gratuitous transfer of real properties is not subject to the Article 59 or any other part of the chapter under review. Previsions of a separate chapter of DTA (related to the tax on incidental income) are applicable in such cases. It will be examined in a later stage.

2. Sometimes the people, who are not legal owners of real properties, possess and exploit them by virtue of special rights recognized under local customary law. The right in question is somehow similar to the notion of beneficial ownership in some European countries.

Transfer of this type of rights is considered to have the same result and effect as the transfer of real properties, and thus is subject to the taxation of the Article 59, DTA (Art. 74).



Several cases of transfer of real properties are exempted from taxation. They are as follows:

1. Transfer of real properties to banks in connection with the banking facilities granted through civil partnership (Note 4 to the Article 59). Those in need of finance for buying houses or other real properties may borrow money from banks. In such cases a partnership contract may be concluded between the bank and the borrower, according to which the borrower becomes the co-owner of the property. When the loan is totally repaid, the property is relinquished and transferred to the borrower. Such transferring is exempt from the tax on transfer of real properties.

2. Transfer of real properties to people on basis of land reform laws and regulations is also exempt from taxation (Article 65, DTA).

3. Housing cooperative companies enjoy a number of incentives, including tax exemption in respect of transferring of the houses built by them to their members.

4. When a transaction on real property is terminated or cancelled, the property is relinquished and given back to the former owner. This process might be considered as a new transferring of the property and thus be taxed for the second time. To prevent such interpretation, the Article 67, DTA, provides:

Article 67. Termination of final transactions on real properties that takes place on basis of judicial authorities' decisions, shall not, as a general rule, be considered as a new transaction, and thus shall not be subject to the taxation of this chapter. The same rule shall apply to cancellation of final transactions on real properties by mutual consent of the parties, or termination of the same in other cases, provided that such actions take place not later than two months from the date of the original transaction.

As it can be understood from the above text, the exemption granted in this case is conditioned on the requirement that the interval between the original transferring and its termination would not exceed a period of two months. Otherwise, the event of termination shall be considered as a new transaction, and thus subject to further taxation.

It is worth nothing that even within the said interval, the tax paid for original transferring is not refundable, although the transaction is cancelled and terminated. Refund of tax takes place only when the tax is paid but the transaction is not effected. In such cases:

the relevant tax assessment office shall, upon request of the taxpayer and confirmation of the notary public about non-registration of the transaction, refund the collected tax pertaining to such aborted transaction out of the current collections within 15 days from the notary public's announcement and in conformity with the regulations of the present Act. The rule of this Article shall apply to the rebate of taxes pertaining to goodwill... as well (Article 72, DTA).

Reference in the above article to the notary public is due to the common practice that transfer of real properties is usually registered by a notary public, and only in this way its validity as an official transaction is secured.

5. Article 69, DTA, pertains to the low and medium price residential units that are built within ten years from the date of approval of the law (DTA) in accordance with certain criteria, and are transferred to buyers within one year thereafter. The first transfer of such residential units shall be exempted from the tax on transfer of real properties, provided that all the relevant criteria and aforesaid timing are observed.

Since the exemption can be applied only for the first transfer of the property, and about 13 years has passed from the approval date of DTA, the exemption provided under the said article has no more opportunity of application at the present.

6. Some government organizations and municipalities are authorized under the law to buy or take lands and other real properties for public utilities, such as construction or extension of roads and streets, pipelining of water, oil and gas, etc. The price of taken properties is to be paid or allocated to the original owners. This type of transferring of real properties is also exempt from taxation (first part of the Article 70).

7. When the real properties that are registered in the list of national monuments, are transferred to the State Organization of Cultural Heritage, such transferring shall be exempt from the applicable transfer tax (second part of the Article 70, DTA).

The regulations concerning the taxable value and its determination will be examined in the next issue.





An English translation of the circular letter No. 30/4/1616/52726 dated 11/06/1377 [January 26, 1999] of the Iranian Tax Administration was printed in Maliyat journal No. 25, pp. 7 to 14. Certain guidelines were included in the circular letter regarding the salary income tax of expatriate employees working in Iran. It had been pointed out in paragraph 2 of the part A of the circular that such expatriates are, as a result of working in Iran, liable to taxation on the amounts received by them as salary and fringe benefits. The tax authorities were also instructed to observe the regulations of the tax law regarding salary tax exemptions and abatements, and to take into account the relevant provisions of double taxation agreements concluded between the Iranian government and governments of respective countries. Later the tax administration issued another circular letter to clarify the above ruling in respect of double taxation treaties. English translation of the latter circular is given below.


CIRCULAR LETTER NO. 30/4 - 9533/49524

DATED 10/04/1378 [DECEMBER 25, 1999]


For the purpose of implementation of the paragraph 2 of the part A of the circular letter No. 30/4/1616/52726, dated 11/06/1377 [January 26, 1999] with regard to the salary tax of residents of the states that have concluded double taxation agreements with the Iranian government, and the relevant agreements have become enforceable, it is hereby declared that:

The exemption from salary tax provided under the paragraph 2 of the Article 15 of the said agreements, is conditioned exclusively on realization of all requirements of the subparagraphs of the same paragraph, namely:

A. the period or periods of presence of the recipient of salary in the Islamic Republic of Iran for one or more occasions, should not exceed in the aggregate 183 days in the fiscal year concerned*, and

B. the remuneration is paid by, or on behalf of, an employer who is not a resident of the Islamic Republic of Iran, and

C. the remuneration is not borne by a permanent establishment or a fixed base, which the payer of remuneration has in the Islamic Republic of Iran.

Since verification of fulfillment of the above conditions requires that certain valid and certified records and documents be examined and investigated, therefore, and before the realization of the aforesaid conditions, the tax applicable to the salary of such persons should be calculated and collected according to the relevant regulations. If thereafter it becomes clear that the case had not been subject to the tax of the government of the Islamic Republic of Iran, then the tax deducted for this purpose shall be refundable in accordance with the Article 242 of the Direct Taxes Act, without observance of the legal time limit envisaged under the Article 87 of the same Act.

Aliakbar Arabmazar

Vice Minister for Taxation


* The first condition agrees with the text of some double taxation treaties concluded before the amendment of subparagraph a) of the paragraph 2, Article 15 of the OECD Model Convention. Therefore, the first condition of the circular letter refers to "the fiscal year concerned". More recent tax treaties of Iran are based on the amended text of the OECD Model, and refer to "any twelve month period commencing or ending in the fiscal year concerned".



Abstracts of Persian Articles



In many  countries two levels of appeal are available in respect of tax disputes: administrative and judicial. In Iran, however, these stages are merged in one and the same forum. The editorial touches upon this subject in both the Persian and English sections of the journal.


Tax Regulations of the Law on Third Development  Plan

Third development plan was approved by the parliament few months ago. Taxation is one of the main problems dealt with in the plan. A separate chapter of the relevant law is devoted to taxation and budget and many other parts of the law also contain one or more provisions with regard to taxes.  But the plan does not provide forecasting about the amounts of tax revenue collectible during the relevant years (March 2000 to March 2005).  These and other aspects of tax regulations of the third development plan are examined in the article.


Taxation in the 20th Century

This is a Persian translation of the article printed in the IBFD Bulletin regarding the developments in the field of taxation during the last century with prospects for 21st century. First part of the translation was provided in the last issue of this journal and the second and last part is given in the present issue.


Iranian International Tax Regulations

The author comments on a circular letter of the tax administration regarding the taxation of salary income of expatriate employees working in Iran. The circular deals with the citizens of the countries that have concluded double taxation treaties with the Iranian government. It emphasizes on the conditions mentioned under the paragraph 2 of the Article 15 of tax treaties, which is similar to the relevant part of the OECD Model Convention.  A translation of the same circular letter is printed in the English section of the journal (under the heading “Tax News”).


Tax Avoidance Trick of  Article 138

Article 138 of the Direct Taxes Act rules that any part of the profit of companies derived from industrial and mining activities and reserved for development and completion of the units engaged in the same activities, is exempted from taxation. The funds allocated to such reserves must be used for those purpose , otherwise, the applicable tax plus a fine equal to 20% of the same shall be collected from the failing companies. This provision has created an opportunity for companies to use such reserves for purposes other than industrial and mining activities, which produces much more profits for them. The cost they have to pay for their failure is only 20% of the amount of the reserved taxes after expiry of 5 years. This is a very cheap price in comparison with the much higher rates of interest they would otherwise pay in free market for securing needed finances. This subject and measures taken in this regard are reviewed in the article. .


Inheritance and Gift Tax Treaties

The 6th part of this series of articles is provided in the present issue. The regulations of the OECD Model regarding the methods of elimination of double taxation (Articles 9A and 9B) are examined.


Transfer Pricing

This is also a continuation of the study undertaken in the field of transfer pricing. The fourth part of the study, which is provided in this issue, pertains to “cost plus method”. 


Tax Exemption of Booksellers and Publishing Houses for the Sake of Writers

A bill of law has been submitted to the parliament for approval. In the course of debate in the parliament it has been said that the bill is prepared with the aim of assisting the writers and authors. But, the exemption envisaged is solely pertaining to publishing houses and booksellers. The authors and writers will remain subject to taxation as before. This matter is examined and criticized in the article.


Tax Penalties around the World

A new study is undertaken by this journal in respect of penalties applicable to tax offences in different countries. In this issue the regulations of France concerning administrative and criminal tax offences and penalties are reviewed.


Appeal in Tax System of Selected Countries

The system of appeal against decisions of tax authorities is studied in this article. The study is focused on four countries, namely Germany, Canada, Mexico and  People’s Republic of China.