By Article 19 of the Constitution, all citizens have the duty to pay taxes in accordance with the law. It means that the State must impose the obligation to pay tax or provide preferential tax deduction or exemption treatment to its people based on laws or regulations having clear authorization of a given law, taking into consideration such conditions as the subject, subject matter, tax base or tax rates. The related interpretations by the competent authority shall abide by the principles of the Constitution and the meanings and purposes of the relevant statutes, and comply with the general rules of legislative interpretation. Any interpretation that exceeds the scope of legal interpretation that creates tax obligations not provided under the statutes is forbidden by the principle of taxation by law under Article 19 of the Constitution (see J.Y. Interpretation Nos. 620, 622, 640 and 674).
The twice-amended Item 2, Subparagraph 1, Paragraph 1, Article 17 of the Income Tax Act, as amended and promulgated on January 3, 2001 and June 25, 2003, reads: The net consolidated income of an individual shall be the gross consolidated income as computed in accordance with the preceding three Articles less the following exemption and deductions: 1. Exemption: Taxpayers may deduct a prescribed amount of exemption for themselves, their spouses, and dependents that meet any of the conditions below… (2) Children of the taxpayer … who are over twenty years of age, and are being supported by the taxpayer by reason of being in school." (the "Income Tax Act") However, Administrative Letter Tai-cai-shui-zi No. 841657896 ("Letter"), issued on 15 November 1995 by the Ministry of Finance, still applicable to date, states: "If a taxpayer in Taiwan has children who are twenty years old and studying at the universities in mainland China that are not recognized by the Ministry of Education, the taxpayer may not claim the tax exemption for supporting dependents when filing a final consolidated income tax return."
According to the Income Tax Act, if a taxpayer has children who are over twenty years old and are being supported by the taxpayer for being in school, the taxpayer may claim deduction when declaring individual consolidated income. The deduction is not limited to children who are studying in school in the Taiwan area. As to the criterion of "being in school," there is no definition of it in the Income Tax Act. People who study in Taiwan and are admitted to schools accredited by the educational authority of the R.O.C. and hold a student ID are regarded as students. If they attend school in accordance with the school calendar or drop out of school while being registered as students for the rest of the school year, they shall be deemed as students for "being in school" (see The Ministry of Education Administrative Letter No. Tai She Zi-27756, issued on 30 May 1994) However, since we cannot expect schools in mainland China area to report the student status of people studying in the mainland China area to the educational authority of the R.O.C., the standards to determine whether the student are "being in school" in the mainland China area cannot be the same as the standards applied in determining "being in school" in Taiwan area, and should be consistent with the legislative intent of the Income Tax Act and be interpreted by the general legal interpretation methods in accordance with the principle of taxation by law aforementioned. The legislative intent of the aforementioned Income Tax Act is to preserve the national tradition of valuing children*s education, taking into consideration the fact that taxpayers* ability to pay income tax is hampered by the extra expenditure from raising children. When applying the abovementioned criterion of "being in school" in the Taiwan area to taxpayers whose children attend schools in the mainland China, whether the children meet the requirement of "being in school" should depend on the fact of school attendance and whether the school the children are enrolled is officially recognized as a school by the local government authority. If a child drops out of school while his/her school registration is still valid for the rest of the school year, he/she shall be deemed "being in school" and fulfilling the Income Tax Act requirements. Given the differences between the Taiwan and mainland China areas and other standards may be adapted to determine whether a student "is in school," that the determination shall rest on whether the student is in school and not defy the abovementioned intent of the Income Tax Act to uphold the principle of taxation by law.
Given the educational systems and curricula of the Taiwan and mainland China areas are different, Article 22 of the Act Governing Relations between the People of the Taiwan Area and the Mainland Area ("Act") as amended and promulgated on 29 October 2003, authorizes the Ministry of Education ("MOE") to enact measures to recognize the mainland China area high school*s research and teaching quality and to announce a list of the schools recognized to facilitate the recognition of the degree granted by mainland Chinese schools. In recognizing the mainland China school degrees, Students may be deemed to have a degree granted by a comparable school in Taiwan. However, the subject and legislative purpose of Article 22 of the Act are obviously different from the Income Tax Act and the two provisions are not reasonably related. Such degree recognition is also irrelevant to whether taxpayers can afford to pay tax. Therefore, the MOE cannot determine whether a mainland China area student is "being in school" on the basis of whether his/her mainland China area school*s degree is recognized by the MOE. The Letter, which arbitrarily considered the recognition of the mainland China area Schools* degrees by the MOE as the standard for determining whether certain students are "in school" is inconsistent with the legislative purpose of the Income Tax Act, and exceeds the scope of legal interpretation and restricts people*s right to enjoy tax deduction for supporting dependents. The Letter therefore creates tax obligation not provided by law and violates the principle of taxation by law under Article 19 of the Constitution. The Letter shall no longer be applied as of the issuance date of this Interpretation.
The petitioner further argues that Ministry of Finance Administrative Letter Tai-cai-shui-zi No. 831602325 dated 27 July 1994, invoked in Taipei High Administrative Court Judgment 95 Jian-zi No. 576 (2006) and Judgment 96 Jian-zi No. 83 (2007), is unconstitutional. According to his submission, the petitioner only disputes the legal opinion expressed in Judgment 95 Jian-zi No. 576 (2006) regarding the Ministry of Finance Administrative Letter without specifically indicating how such letter violates the Constitution. With regard to Judgment 96 Jian-zi No. 83 (2007), the court did not invoke the administrative letter and therefore the relevant part of the petition does not met the standards set forth in Subparagraph 2, Paragraph 1, and Paragraph 3, Article 5 of the Constitutional Interpretation Procedure Act. The Court therefore will not review this part of the petition.
Translated by Nigel N. T. Li and Jeffrey J. F. Li, both attorneys at Lee and Li, Attorneys-at-Law.