The principle of equality prescribed by Article 7 of the Constitution does not mean absolute and mechanical equality in formality, but is for the protection of substantive equal status under the law, which requires matters identical in nature be treated and handled identically without being subjected to differential treatment arbitrarily or for no proper justification. (See J.Y. Interpretation Nos. 547, 584, 596, 605, 614, 647, 648, 666 and 694.) For a statute or regulation to meet the equal protection requirement, the purpose of the differential treatment must be constitutional, and a sufficient degree of nexus must exist between the classification set out in the regulation and the objectives that the regulation seeks to achieve. (See J.Y. Interpretation Nos. 682 and 694.)
Article 15, Paragraph 1, of the Income Tax Act as amended on December 30, 1989 (hereinafter “the provision at issue”) provided that, where the spouse of a taxpayer and/or a dependent whose support deduction may be made in accordance with Article 17 of this Act has any income as provided in the preceding Article, the taxpayer shall include such income in his/her income tax return. (The provision at issue was later amended on June 25, 2003, although the requirement that a married couple files a tax return and pays the tax liability jointly was not amended.) The anterior of Article 15, Paragraph 2, of the Income Tax Act, as amended on December 30, 1989, provided that the tax liability on the salary income of a taxpayer’s spouse may be computed separately and then a tax return filed and the tax paid jointly by the taxpayer. (On June 25, 2003, this provision was further amended as follows: the tax liability on the salary income of a taxpayer or his/her spouse may be computed separately and then a tax return filed and paid jointly by the taxpayer.) Based on the above provisions, a married couple must file a joint tax return therein stating the husband and wife’s aggregate non-salary income and compute the joint tax liability accordingly.
Insofar as the procedure for filing the joint return is concerned, J.Y. Interpretation No. 318 has pointed out that the provisions are essential to the furtherance of the public interest and are not in conflict with the Constitution. Nevertheless, when tax is imposed on the basis of such a joint return, if the tax payable by a taxpayer as computed in conjunction with the income of his or her spouse and other dependents exceeds the amount payable if it were separately computed, thereby increasing his or her taxation, the situation is contrary to the principle of fair taxation. Under progressive marginal tax rates, the tax liability computed based on a married couple’s aggregate net non-salary income, as requested by the provision at issue, would exceed the sum of each party’s separate tax liabilities computed individually based on each party’s non-salary income. In this respect, the provision at issue constitutes tax discrimination based on marital status.
Marriage and family serve as the foundation on which our society takes its shape and develops and are thus institutionally protected by the Constitution (See J.Y. Interpretation No. 554.) Tax discrimination based on marital status, which imposes heavier economic burdens on married couples, is equivalent to a marriage penalty and thus contravenes the intent of the Constitution to protect the institutions of family and marriage. For this reason, whether such discrimination under the provision at issue violates the principle of equality shall be subject to stricter scrutiny. For the discrimination to comply with the principle of equality, it must aim at constitutional objects and bear a substantial relation to the accomplishment of such objects. The objects of the provision at issue are, inter alia, to reflect the saving effect of a household unit, to avoid illegitimate income splitting, to lower the cost of taxation and to generate sufficient fiscal revenue. (See the Legislative Yuan Gazettes, 79th Session, Vol. 59, p. 28 and p. 31, opinions of delegates of the Taxation Agency, Ministry of Finance, before this Court on September 21, 2010 and the Ministry of Finance Letter Reference No. TTS-10000190810 dated May 30, 2011, p 13.) However, the saving effect of a household unit, if any, does not necessarily occur when a couple live together, since people’s life styles and spending habits vary. Even if there is such a saving effect, it is not a legitimate basis to impose heavier income tax liability. Moreover, although the legislature might adopt a joint taxation scheme to prevent the husband and wife from illegitimate income splitting, for such a scheme to have been in line with the principle of substantial fairness, the legislator should have taken auxiliary measures to eliminate the additional burden of computing the tax payable based on a couple’s aggregate income, on which a higher tax bracket would apply. Also, the object of reducing taxation costs could be achieved by improving taxation procedures. In any event, measures that would impair tax equality must not be an option for the legislature to lower taxation costs. Finally, maintaining the desired level of fiscal revenue is indeed crucial to the public interest. Yet, such a goal must not be met through disfavored differential treatment of marriage and family. Conclusively, insofar as tax is imposed on the basis of such a joint return, if a taxpayer’s liability as computed in conjunction with the non-salary income of his or her spouse exceeds the amount payable if it were separately computed, thereby increasing his or her taxation, the situation is contrary to the principle of equality as provided by Article 7 of the Constitution, since the tax burden thereby increased bears no substantial relation to the achievement of the aforesaid objects.
It would take an extensive period of time for the competent authority to redress the aforesaid unconstitutional provisions, given the wide impact of the amendment of such law and the complexity of taxation schemes. Under such circumstances, the unconstitutional provisions must cease to apply no later than two years after this Interpretation is made public.
The Directive Reference No. TTS-7519463 as issued by the Ministry of Finance on March 4, 1987 (hereinafter the “Directive at issue”) stipulated as follows: The husband and wife of a separated couple may each file a consolidated tax return with the tax authority at the place of each one’s household registration, stating therein the name and ID No. of the spouse and the fact that they are separated. In this event, the ratio of a party’s tax liability to the couple’s joint tax liability shall be computed based on the percentage that the party’s consolidated income represents as compared to the couple’s aggregate consolidated income. Upon either party’s application, a separate tax assessment notice for each one’s outstanding tax liability (i.e. the individual’s tax liability minus the amounts withheld and paid) may be issued. (The Directive at issue is no longer valid according to the Directive Reference No. TTS-09804558680 as issued by the Ministry of Finance on September 14, 2009.) By allowing a separate tax notice, the Directive at issue was meant by the authority in-charge to be a flexible solution for separated couples’ practical difficulty in filing a joint return and paying the tax together. However, as to how the joint tax liability is to be apportioned between the separated husband and wife, the formula promulgated in the Directive was based on the proportion of one party’s individual consolidated income as compared to the couple’s aggregate consolidated income. If the husband and wife’s incomes are disparate, the party earning less income will bear tax liability disproportionate thereto. In this regard, the Directive did not comply with tax equality and shall not be applicable.
With regard to the Petitioner’s claim that the Directive Reference No. TTS-770653347 as issued by the Ministry of Finance on March 25, 1988 violates Articles 7, 15 and 23 of the Constitution, it is found that the said Directive was only mentioned by the Taipei High Administrative Court decision No. 90-Su-Tzu-1982 in the summary of facts without being applied in the judgment. Hence, this part of the petition is not in conformity with Article 5, Paragraph 1, Sub-paragraph 2 of the Constitutional Interpretation Procedure Act and is hereby dismissed in accordance with Sub-paragraph 3 of the same Article.
Translated by Ya-Wen Yang/ Ching-Yuan Huang.