The Supreme Court has decided that a 1968 tax notice imposing inheritance as well as income taxes on the beneficiaries of life-insurance money paid in the form of a pension is illegal. The ruling was the culmination of a lawsuit filed against tax authorities in 2005 by a Nagasaki housewife. She deserves praise for her courage to take on tax authorities and for her perseverance to fight it out.
The 49-year-old woman’s husband died in October 2002. Because he held a life insurance policy with a pension contract, she obtained the right to receive a lump sum of ¥40 million and a pension payout of ¥2.3 million every year for 10 years. Tax authorities decided that the lump-sum payment and about 60 percent of the ¥23 million in annual payments should be regarded as inherited assets. After basic deductions, no inheritance tax was levied on the lump-sum payment; income tax, however, was to be imposed on the annual payment portion.
Thinking it strange that income tax would be levied on assets judged as inherited, the housewife filed suit with the Nagasaki District Court in August 2005. An income tax had been imposed on the first year’s ¥2.3 million pension payment. Tax authorities had decided that all of the first year’s pension constituted an inherited asset, although this “inherited asset” portion would decrease with each successive year.
In her lawsuit, she cited a provision in the Income Tax Law that stipulates that income tax will not be levied on inheritance, bequests, gifts or donations from an individual. In November 2006, the district court ordered the government to annul the income tax levy, but the Fukuoka High Court overturned the ruling in October 2007.
In a clear-cut ruling issued July 6, the Supreme Court said that since the Income Tax Law prohibits the imposition of income tax on inheritances, tax authorities were imposing double taxation. They should be ashamed of themselves for ripping people off in this way for more than 40 years. Many people must have suffered. Tax authorities and life insurance firms now must quickly set up a refund procedure.
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