Tiffany Hsiao
The Supreme Administrative Court rendered the 108-Tai-Shang 2528 Decision of February 27, 2020 (hereinafter, the “Decision”), holding that an inheritor does not assume the tax liability for inheritance tax until the death of the inheritee, and that the tax liability is inherent to the inheritor and was not incurred and left behind when the inheritee was alive.
According to the facts underlying this Decision, after Individual A, not a party to this lawsuit, died, the Appellant (the National Taxation Bureau of Taipei under the Ministry of Finance) referred the real estate at issue left behind by Individual A to the Taipei Branch of the Administrative Enforcement Agency of the Ministry of Justice for auction (hereinafter, the “Enforcement at Issue”) since the inheritors, i.e., Individuals B, C, D, E, F, G, H, I and J (hereinafter collectively, “Individual B and Others”), who were not parties to this lawsuit, had defaulted the inheritance tax (hereinafter, the “Inheritance Tax at Issue”). The proceeds of the auction were NT$50,148,000. Inheritance tax takes precedence over ordinary claims for repayment. However, the Enforcement at Issue included the Appellee’s common claims over Individual A (hereinafter, the “Claims at Issue”) in the distribution table (hereinafter, the “Distribution Table at Issue”) with distribution priority over the claim over the Inheritance Tax at Issue. The Appellant asserted that since the above distribution was obviously inappropriate, the Appellant sought a decision that assigned the distribution priority of the claim over the Inheritance Tax at Issue over the Claims at Issue in accordance with Article 26 of the Administrative Enforcement Law, to which the first part of Article 41, Paragraph 1 of the same law applies.
According to this Decision, since the property which was previously owned by the inheritee shall pass on to the inheritor when the fact of inheritance occurs, the inheritor enjoys a gain. Therefore, Article 6, Paragraph 1 of the Inheritance and Gift Tax Law provides that the taxpayer of the inheritance tax shall be the executor if there is one or, in the absence of an executor, the inheritor or devisee. Under Articles 13 and Article 17, Paragraph 1, Subparagraph 9 of the Inheritance and Gift Tax Law, unpaid debts shall be deducted from the total amount of the inheritance and shall be exempt from inheritance tax. This shows that inheritance tax is a tax liability for the inheritor only when the inheritee is deceased and is a liability inherent to the inheritor, not a debt that took place and was left behind when the inheritee was alive.
It was further indicated in this Decision that the real estate at issue which was auctioned during the Enforcement at Issue was Individual A’s estate. Since Individual B and Others were heirs in tail, the Claims at Issue were claims over Individual A and were known to Individual B and Others. Since the Inheritance Tax at Issue was a liability inherent to Individual B and Others, the proceeds from the auction of the real estate at issue should be used to repay the inheritee’s debt and deliver the bequest to the devisee before they may be used to repay the inheritor’s debt in accordance with Article 1154, Paragraphs 1 and 2 and Article 1159 and Article 1160 of the Civil Code before amendment. This means that the Claims at Issue shall take precedence over the claim over the Inheritance Tax at Issue. The original trial court held that it was not legally inappropriate that the Distribution Table at Issue gave priority to the Claims at Issue over the claim over the Inheritance Tax at Issue and assign lower priority to the claims over the inheritance tax and its interest and delinquency charges. The gist of the appeal, which criticized the impropriety of the original decision and sought to reverse it, was not valid.