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  • Interpretation
  • No.615
  • Date
  • 2006/07/28
  • Issue
    • Are the provisions of Article 25-II of the Enforcement Rules of the Income Tax Act and its related directives unconstitutional?
  • Holding
    •        Article 25-II of the Enforcement Rules of the Income Tax Act provides that a taxpayer who has opted for standard deductions may not file a request for a change to itemized deductions once his or her final income tax return is assessed by the tax collection authority as to his or her tax liabilities.  The said provision does not overstep the scope of Article 17-I (ii) of the Income Tax Act as amended and promulgated on January 3, 2001.  The Directive Ref. No. TTS-801799973 issued by the Ministry of Finance on February 11, 1992, and Directive Ref. No. TTS-871934606 issued by same on March 19, 1998, are interpretations made under said ministry’s statutory authorities and powers with respect to the aforesaid provisions and do not impose any additional restriction that is not stated in said provisions.  As such, they are not contrary to the principle of taxation by law under Article 19 of the Constitution.
      
  • Reasoning
    •        The Petitioner has petitioned for interpretation of the Constitution in respect of Article 25 (Paragraph II) of the Enforcement Rules of the Income Tax Act and Directive Ref. No. TTS-801799973 issued by the Ministry of Finance on February 11, 1992, and Directive Ref. No. TTS-871934606 issued by same on March 19, 1998, which were applied in Judgment C.T. No. 733 (Taipei H. Ad. Ct., 2003), as well as Ruling C.T. No. 01365 (Sup. Ad. Ct., 2005).  The said Supreme Administrative Court ruling was issued to dismiss the appeal filed by the Petitioner against the aforesaid judgment rendered by the Taipei High Administrative Court by means of summary proceedings, on the ground that the appeal was procedurally illegal since it did not meet the requirement that the legal opinion involved in a legal action be of a matter of principle, and thus the ruling did not apply the foregoing provisions and directives.  It should be noted that the aforesaid judgment of the Taipei High Administrative Court should be the final and conclusive judgment and an interpretation should be made in respect of the abovementioned provisions and directives as applied by said judgment because the Petitioner has exhausted the means of judicial hierarchical relief and has petitioned for interpretation as to whether the foregoing provisions and directives, rather than the opinions expressed by the court in its judgment, are unconstitutional.
      
    •        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 State shall, in imposing duty on the people to pay tax or granting tax abatements or exemption to the people, prescribe by law such requisite elements of taxation as taxpaying bodies, taxable objects, tax bases, tax rates and so forth.
      
    •        Article 17-I (ii) of the Income Tax Act as amended and promulgated on January 3, 2001 provides that, in subtracting the deductions from the gross consolidated income of an individual so as to calculate his or her net consolidated income, a taxpayer may select either the "standard deduction" or "itemized deduction."  What the legislators intended is that the selection of the filing method for deduction allows a taxpayer to participate in the tax collection procedure for purposes of collection accuracy and collection expediency, whereby he or she may select a less onerous or more convenient deduction method for the collection authority to assess his or her tax liabilities.  Nevertheless, in order to avoid any uncertainty of legal relationship under tax law due to the taxpayer’s selection of filing method for deduction, thus defeating the aforesaid purpose, reasonable restrictions should be imposed.  The Ministry of Finance, under the authority of Article 121 of the Income Tax Act, amended and announced as Article 25-II of the Enforcement Rules of said Act, which provides, “A taxpayer who has opted for standard deductions or who is deemed to have opted for standard deductions pursuant to the preceding paragraph, may not file a request for a change to itemized deductions once his or her final income tax return is assessed by the tax collection authority as to his or her tax liabilities.”  The said provision has set the collection authority’s assessment of a taxpayer’s tax liabilities as the time limit for his or her selection as mentioned above.  It is a reasonable method to effectively preserve the stability of taxation, which has harmonized such principles as collection accuracy, economic effect of collection procedure and stability of taxation.  As such, it does not overstep the scope of the aforesaid Article 17-I (ii) of the Income Tax Act, nor is it contrary to the principle of taxation by law under Article 19 of the Constitution.
      
    •        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 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.  The Directive Ref. No. TTS-801799973 issued by the Ministry of Finance on February 11, 1992 read, “…since the taxpayer xx had opted for the standard deductions in filing his consolidated income tax return for the year 1988, for which the tax collection authority made assessment, no request for change to itemized deductions should be made in accordance with the provisions mentioned above even if an application for correction of assessment had been made due to inaccuracy.”  The Directive Ref. No. TTS-871934606 issued by same on March 19, 1998, further read, “Where a taxpayer failed to file his or her consolidated income tax return by the deadline but made a deferred filing before the collection authority assessed his or her tax liabilities, he or she may claim itemized deduction for campaign expenditures of a candidate or an individual’s contribution to campaign expenditures of candidates and a legally founded political party under Article 45-4 of the Public Officials Election and Recall Act and Article 38 of the Presidential and Vice Presidential Election and Recall Act; where the taxpayer has filed the tax return by the deadline and opted for the standard deduction or is deemed by the collection authority to have selected the standard deduction, the same shall apply if a deferred filing is made prior to the collection authority’s assessment; however, where the collection authority has made an assessment, the foregoing provisions concerning the deferred filing for itemized deductions shall not be applicable.”  The foregoing directives are interpretations made by the competent authority under its statutory authorities and powers with respect to the aforesaid Article 17-I (ii) of the Income Tax Act and Article 25-II of the Enforcement Rules of the Income Tax Act, which opined that a previously selected filing method for deduction may not be changed once an assessment of tax liabilities is made by the tax collection authority.  Thus, no additional restriction is imposed other than those set forth in the Income Tax Act and its Enforcement Rules.  As such, they are not contrary to the principle of taxation by law under Article 19 of the Constitution.
      
    •        As for the petition made by the Petitioner that the abovementioned ruling issued by the Supreme Administrative Court and the judgment rendered by the Taipei High Administrative Court be declared unconstitutional and hence revoked, a court judgment is not subject to constitutional review under the current legal system, nor is this Court allowed to revoke same.  Therefore, said petition is inconsistent with Article 5-I (ii) of the Constitutional Interpretation Procedure Act and, under Paragraph III of said article, shall be dismissed.
      
    • *Translated by Vincent C. Kuan.
      
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