Article 19 of the Constitution provides that the people shall have the duty to pay tax in accordance with law. If the competent authority, by its statutory authorities and powers, issues necessary directives in applying various provisions of the tax laws without contradicting the general methodologies in legal construction and such directives are in line with the applicable constitutional principles and the legislative purposes of the respective laws, there is no violation of the principle of taxation by law as embodied in Article 19 of the Constitution, nor is there any violation of the constitutional guarantee of the people’s property right under Article 15 thereof .
Succession commences with the death of the deceased. An heir succeeds at the commencement of the succession to all the rights and obligations pertaining to the estate of the deceased (See Articles 1147 and 1148 of the Civil Code). As such, an heir’s obligation to pay estate tax pursuant to the applicable laws shall also commence hence. By the same token, it is provided in the first part of Article 10-I of the Estate and Gift Taxes Act that the estate of the decedent shall be valued according to the prevailing value at the time of his or her death. In respect of the valuation of the shares of a company limited by shares that are neither listed nor traded over the counter, it is provided in Article 29-I of the Enforcement Rules of the Estate and Gift Taxes Act that they shall be valued based on the net asset value of the company on the date when the succession commences, namely, the margin between the profitseeking enterprise’s gross assets and gross liabilities. Even if the tax authority, in calculating the stock value of the aforesaid company limited by shares that are neither listed nor traded over the counter, includes undistributed revenues among the profit-seeking enterprise’s gross assets so as to assess the stock value among the decedent’s estate and levies estate tax on an heir accordingly, it is not to be considered a levy on the company’s gross assets or undistributed revenues for purposes of collecting estate tax, whether in form or in essence. For an heir who receives any estate due to the occurrence of inheritance, such estate is certainly a type of income.
Nevertheless, for reasons of taxation policies, it is not to be taxed as ordinary income, but instead subject to estate taxation as otherwise provided by law. The first part of Article 4 (xvii) of the Income Tax Act as amended and promulgated on January 27, 1995, provides that income tax on properties received by way of inheritance shall be exempted because estate tax shall be levied on any properties received by way of inheritance and thus income tax will no longer be levied. An heir becomes a shareholder of a company limited by shares that are neither listed nor traded over the counter after he or she succeeds to the shares of the company. Upon the company’s distribution of revenues, the dividend received by the heir due to his or her shareholding shall, pursuant to Category I under Article 14-I of the Income Tax Act as amended and promulgated on December 30, 1997, be considered as the individual’s income from profit seeking, which shall be included in the gross amount of his or her individual consolidated income and thus subject to consolidated income taxation, rather than any properties received by way of inheritance, which should be subject to estate taxation. Therefore, the provisions of Article 4 (xvii) of the Income Tax Act regarding income tax exemption simply do not apply. In addition, the shares of a company limited by shares that are neither listed nor traded over the counter as received by an heir due to inheritance and the stock dividend distributed to the heir subsequent to the occurrence of the inheritance are distinct taxable objects, in respect of which estate tax and consolidated income tax will be levied, respectively. Thus, no issue of double taxation shall arise and hence the fundamental question as to whether double taxation is unconstitutional becomes moot.
The Directive Reference No. TTS-36761 issued by the Ministry of Finance on October 5, 1978, read, “Any stock dividend received by an heir subsequent to the occurrence of inheritance shall be the heir’s income rather than the decedent’s estate, in respect of which consolidated income tax should be imposed on the heir.” The said directive was ex officio issued by the competent authority to clarify whether the stock dividend received by an heir subsequent to the occurrence of inheritance should be subject to estate or consolidated income taxation, which is in line with the intents of the aforesaid provisions of the Estate and Gift Taxes Act and the Income Tax Act and thus does not give rise to any issue of double taxation. Therefore, there is no violation of the principle of taxation by law as embodied in Article 19 of the Constitution, nor is there any violation of the property right guaranteed to the people under Article 15 thereof.
*Translated by Vincent C. Kuan.