Case News
The TCC delivers its Judgment 113-Hsien-Pan-11 (2024)
The Taiwan Constitutional Court (TCC) delivered its judgment on the "Case on the Calculation of Adjusted Taxable Gift in Estate Tax" (TCC Judgment 113-Hsien-Pan-11) on October 28, 2024.
Facts, Issues, and Procedure of the Case
Under Article 15, Paragraph 1, Subparagraph 1 of the Estate and Gift Tax Act (EGTA), any gifts made to the surviving spouse by the decedent within two years prior to the decedent's death are considered part of the decedent's gross estate. Such gifts (i.e., adjusted taxable gifts) are therefore subject to estate tax. Per Article 1030-1 of the Civil Code, the surviving spouse in a statutory marital property regime may declare his/her right to claim distribution of the remainder of the decedent's property. The design of this distribution claim is to reflect the surviving spouse's economic contribution to their marriage. Under Article 17-1, Paragraph 1 of the EGTA, the taxpayer may file an estate tax return to deduct the distributed property from the gross estate, which should consequently lower the net taxable estate. According to the Ministry of Finance, because the adjusted taxable gift given to the surviving spouse is already discounted under Article 1030-1 of the Civil Code, it is not included in the distribution claim, thus should not be deducted under Article 17-1, Paragraph 1 of the EGTA.
Petitioner I consisted of a panel of three judges from the Taipei High Administrative Court. In a particular court case, the panel believed that Article 15, Paragraph 1, Subparagraph 1 of the EGTA (hereinafter "the Provision") was unconstitutional. In the case that the panel was hearing, the spouse of the decedent (defendant) was gifted nearly 300 million NTD in stock by the decedent within two years prior to the decedent's death. When the decedent died, the defendant and their marital children waived their right to inheritance, leaving nearly 12 million NTD to the remaining heir. The sole heir left was the nonmarital child (a minor, plaintiff of this case) of the decedent. Because the 300 million NTD stock value was deemed as part of the gross estate under the Provision, the plaintiff was faced with a nearly 57 million NTD estate tax—which largely exceeded what the plaintiff had inherited. Petitioner I believed that the Provision was unconstitutional because it failed to account for circumstances similar to those in this case, consequently violating the equality principle and the ability-to-pay principle of taxation.
Group Petitioner II was the surviving spouse and son of a decedent in an estate tax case. The surviving spouse in this case was gifted a piece of land (valued at nearly 130 million NTD) within two years prior to the decedent's death. In accordance with the Provision, the National Taxation Bureau of the Northern Area, Ministry of Finance added the value of said gift to the gross estate and subsequently taxed the heirs nearly 14 million NTD. Group Petitioner II contested the tax authorities' decision. After unsuccessful administrative litigation and appeal, Group Petitioner II filed a constitutional complaint arguing that: (1) it was unfair for the gift, although part of the property acquired in marriage, to be included in the gross estate but not deductible under Article 17-1, Paragraph of the EGTA; (2) the Provision and their final court decision violated the constitutional principle of proportionality for not distinguishing tax-evading gifts from the others that were genuine.
The two petitions were consolidated and decided together. Judgment 113-Hsien-Pan-11 (2024) was announced on October 28, 2024. Chief Justice Tzung-Li HSU authored this Judgment. Justice Hui-Chin YANG filed an opinion dissenting in part (joined by Justice Po-Hsiang YU).
Decision of the Court
The TCC declared the Provision partly unconstitutional on two grounds:
Firstly, the TCC pointed out that, in situations where the heir faces increased estate tax due to adjusted taxable estates, the challenged Provision lacked specific instructions on how estate tax should be fairly levied. Furthermore, the TCC pointed out that the Provision also lacked specific instructions on how the spouse receiving an adjusted taxable gift should share the burden of estate taxes with other heirs. Due to the lack of an upper limit, the lack of instructions may result in disproportionate estate tax, which could substantially diminish or even offset the estate's value. Within said scope, the Provision violated the equality principle and people's right to property under the Constitution.
Secondly, the TCC stressed that the surviving spouse's economic contribution to the marriage should be considered when calculating estate tax. It should not be distinguished whether this contribution is represented by the remaining property or by gifts that the decedent gave before their death. The TCC pointed out that the adjusted taxable gifts received by the surviving spouse, though added to the gross estate of the decedent under the Provision, are not deductible like the distributed remainder of the decedent's property under Article 17-1 of the EGTA. The TCC ruled that the Provision violated the equality principle insofar as it lacked such a deduction mechanism to equally recognize the surviving spouse's economic contribution to the marriage in the adjusted taxable gifts.
Consequently, the TCC declared the final court decision in Group Petitioner II's case unconstitutional and quashed the decision (along with its relevant ruling). The case was remanded to the Taipei High Administrative Court.
The legislature was given a two-year grace period to amend relevant laws as appropriate.
Notes:
- The full texts of the TCC Judgment as well as the concurring and dissenting opinions of individual Justices are available on the TCC website in Traditional Chinese. An English summary of this Judgment will be available later on the TCC English website.
- The TCC’s Case News is prepared by the Department of Clerks for the Constitutional Court (Judicial Yuan) for information only and does not constitute as a part of the decision.
- In case of any conflict of meaning between the Traditional Chinese version and the translated English version, the Traditional Chinese version shall prevail.