Through “interpretation letters” and other tools, tax offices often try to rewrite the laws rather than just applying them—violating the principle of separation of powers.
by Massimo Introvigne*
*A paper presented at the webinar “16th Anniversary of the Supreme Court Decision Recognizing the Tai Ji Men as Innocent,” co-organized by CESNUR and Human Rights Without Frontiers on July 13, 2023, 16th anniversary of the Supreme Court 2007 legal victory of Tai Ji Men.
Earlier this month, I participated in a session on violations of freedom of religion or belief and the Tai Ji Men case organized as part of the 37th Conference of the International Society for the Society of Religion, which this year took place in Taipei.
Another speaker in the session was Professor Tsai Cheng-An from Shih Chien University in Taipei. I was particularly impressed by a part of his lecture, where he explained that, while one would believe that in Taiwan what taxes citizens should pay is determined by the law, in fact this is not the case. The Ministry of Finance has issued more than 9,500 “interpretation letters,” which according to Professor Tsai are “beyond the law” and “dominate taxation administration.” Obviously, these “interpretation letters” are not laws and are not the outcome of a democratic discussion and vote by the Parliament, the Legislative Yuan.
In practice, it seems to me that tax authorities, which should be subject to the law, create their own law, which is against the basic democratic principle of the separation of powers. The legislative power should create the laws, the judiciary power should interpret them, and the executive power, including the tax administration, should apply them. Of course, the Ministry of Finance does not call its “interpretation letters” “laws.” But this is just a question of names. Professor Tsai tells us that, for all practical purposes, they function like laws.
I have two comments on this situation. First, we are at the core of the Tai Ji Men case. After the Supreme Court victory of July 13, 2007 that we are celebrating today the tax authorities should simply have applied the law, as interpreted by the highest court of the land, and let Tai Ji Men alone. It was clear that the content of the “red envelopes” given by dizi (disciples) to their Shifu (Grand Master) consisted of non-taxable gifts. This was confirmed by the interpretation of Taiwan’s law by the Supreme Court. Whatever the technicalities involved, tax authorities should simply have followed the law.
However, it seems that in Taiwan tax authorities have a dangerous habit of stepping beyond their boundaries and trying to create law rather than applying it. It was because of this bad habit that they continued to harass Tai Ji Men even after 2007. This behavior potentially destroys separation of powers. And whoever destroys separation of powers destroys democracy.
My second comment is that what happens in Taiwan is not new. Tax offices all over the world have a tendency to issue circular and interpretation letters and treat them like laws, even when they go beyond the law and sometimes against the law. Some of these circular letters may serve the useful purpose of explaining in simple terms to taxpayers what in the very technical text of some laws may be difficult to understand for ordinary citizens. Other interpretation letters, however, simply expand the powers of tax bureaucrats and are inconsistent with existing laws.
In the United States, in 1920s, several Supreme Court decisions obliged the tax authorities to follow judicial precedents even when their internal documents and interpretive letters said otherwise. What had happened was that, in the exceptional circumstances of having to get funds to finance the U.S. military effort in World War I, tax authorities had overstepped their normal boundaries. Courts were there to call them back to order.
I live in Italy, where taxpayers have to contend with a real jungle of circular, interpretive, and other administrative letters and documents, making it impossible for them to pay their taxes by themselves. They need specialized consultants, and even consultants may occasionally get confused.
However, even in Italy, where the situation is far from being ideal and has some similarities with Taiwan on this point, the Supreme Court of Cassation routinely intervenes to confirm that interpretive letters cannot create law. I would only mention one example.
Throughout the years, Italian governments for a variety of reasons have created incentives for the sale of certain products, from cars to eco-friendly heating systems, giving tax credits to those who purchase them. In 2017, the Supreme Court of Cassation ruled on the case of a taxpayer who had made a purchase clearly covered by a tax credit. However, the National Taxation Agency refused to acknowledge the tax credit. The Agency claimed that the invoice should have included the words “Product covered by the tax credit, according to Article 8, Law 388 of 2000,” and it didn’t.
The problem was that the law on tax credits did not require to mention the tax credit or Law 388 on the invoice. This requirement did not come from the law but from two interpretation letters of the National Taxation Agency. In 2017 (order 25905/2017) the Supreme Court of Cassation stated that these interpretation letters were not “interpreting” the law. They created something, in this case the need to include a specific statement in the invoices, which was not part of the law. Since the requirement went beyond the law, and the executive power cannot create new law, the Supreme Court of Cassation concluded that both the taxpayers and courts of law were entitled to ignore the requirement. The tax credit was due even if it was not mentioned on the invoice.
There are many similar cases in Italian and international case law. We cannot prevent tax authorities from issuing interpretation letters and they may sometimes be necessary. However, courts should be vigilant that they remain within the strict boundaries of real interpretation or explanation and do not create new law.
If this does not happen, cases such as Tai Ji Men are produced. The Tai Ji Men case is a clear example of the consequences of a system were tax authorities claim a power that they should not have and do not have, that of creating law rather than limiting themselves to apply it under the control of the courts.