Article 19 of the Constitution provides that the people shall have the duty to pay tax in accordance with law, which should be so construed as to mean that the people have the duty to pay tax pursuant to statutory provisions in respect of such requisite elements of taxation as taxpaying bodies, taxable objects, tax bases, tax rates and so forth. In addition, the respective contents of applicable laws shall not conflict with the principle of the ability to pay tax, as well as the principle of equality. However, it is impossible to specify all the details in the law. For technical and detailed matters, necessary interpretations should be made by means of administrative orders. Accordingly, if the competent authority, when in doubt about implementing the applicable provisions of law within its authorities and powers, has elaborated on the applicable provisions based on its statutory authorities, there is no violation of the principle of taxation by law to the extent that its interpretations are in line with the legislative purposes of the respective laws, the economic purposes of taxation, and the principle of equality under substantive taxation (See J. Y. Interpretations Nos. 420, 460 and 519).
Article 1-I of the Estate and Gift Taxes Act provides that all property of a decedent who was an ROC citizen and resided in the ROC regularly shall be subject to estate tax under the said Act; furthermore, Article 13 of the Income Tax Act, as well as Category 4 under Article 14-I of the same Act prior to the amendment thereof on December 30, 1997, provides that any and all income generated from interest should be included among the consolidated income tax of an individual for the purpose of levying consolidated income tax on the individual. In addition, the first half of Article 4 (xvii) of the Income Tax Act prior to the amendment thereof on June 20, 1998, provided that properties received by way of inheritance, bequest or gift shall be exempted from income tax.
In addition to having the right to the principal, an inheritor who inherits a time deposit bearing a pre-agreed interest will merely inherit the basic right to the pre-agreed interest and the interest already accrued at the time of inheritance as far as the interest attendant on the right to the principal is concerned. In light of the above, Article 27 of the Enforcement Rules of the Estate and Gift Taxes Act provides that the value of a debt in respect of the time deposit inherited by an heir at the time of inheritance shall equal its amount, and that for debts bearing a pre-agreed interest rate, the amount of interest accrued for the period to the date of death of the decedent shall be added in determining the value of the debt. As regards the interest received by the inheritor subsequent to the inheritance under the contract of time deposit entered into by the decedent for the period from the day following the death of the depositor till the expiry date of the deposit, the law is silent on whether it should be included among the decedent’s estate and thus subject to estate taxation or it should be deemed as the inheritor’s personal income generated from interest and hence subject to consolidated income taxation for the individual inheritor. As stated above, where an inheritor inherits a time deposit bearing a pre-agreed interest, he or she will merely inherit the basic right to the pre-agreed interest and the interest already accrued at the time of inheritance, but not the interest realized due to the lapse of time upon the occurrence of inheritance. Therefore, even if the basic right to interest has any property value, it is completely different in nature from the interest accrued from such basic right to interest. Consequently, the interest accrued from the time deposit for the period from the day following the death of the depositor till the expiry date of the deposit should be interest received by the inheritor upon occurrence of inheritance after the lapse of time that has accrued from the principal of the time deposit inherited by the inheritor, as well as the abstract basic right to interest attendant thereon. As a result, the interest at issue should not be deemed as part of the decedent’s estate upon his or her death, and, as such, should not be subject to estate tax under Article 1-I of the Estate and Gift Taxes Act, nor should it be considered as the property received by an inheritor due to inheritance, bequest or gift and thus be exempted from income tax under the first half of Article 4 (xvii) of the Income Tax Act prior to the amendment thereof on June 20, 1998. Instead, it is the inheritor’s personal income generated from interest and hence should be subject to consolidated income taxation for the individual inheritor under Article 13 of the Income Tax Act and Category 4 under Article 14-I of the Income Tax Act prior to the amendment thereof on December 30, 1997, so as to fit in with the substantive correlation between the withholding tax and taxable objects. The Directive Reference No. TTS-861893588, as issued by the Ministry of Finance on April 23, 1997, stating to the effect that any interest accrued after the death of a decedent should be included among the income of an inheritor, is a necessary interpretative administrative rule made by the competent authority based on its statutory authorities, which is not only in line with the legislative intents of the aforesaid Estate and Gift Taxes Act and Income Tax Act, as well as with the economic purposes of taxation, but also consistent with the principle of taxation by law as embodied in the Constitution and the aforesaid statutory provisions. Therefore, it does not go beyond the justifiable and reasonable sphere of taxation that may be imposed on the people. There is no violation of the property right guaranteed to the people under Article 15 of the Constitution. As an additional note, since there is no taxation imposed twice on the same taxable object, there is no double taxation.