Cumulative taxation

Cumulative taxation (합산과세/合算課稅) is, in general, referred to summing up taxation of each tax unit to prevent tax payers from dispersing taxable amounts to other person or other occasion in order to avoid cumulative tax or customs tariff. So cumulative taxation is applicable to the progressive tax rates (누진세율/累進稅率) on income tax, property tax, integrated real estate tax (종합부동산세), etc.

In particular, cumulative taxation of income from assets of spouses was held 'unconstitutional' by the Constitutional Court (2001Hun-Ba82) on August 29, 2002.

At that time, the issue was:
 * Is the increased assets resulted from concerted efforts of a married couple the reasonable ground to pay more tax than any other families?
 * Is it appropriate and proper for a married couple to pay more tax than other asset holders on account of marriage thus being coerced to the redistribution of income?
 * Isn't it possible to prevent fake dispersion of assets between spouses by means of the provisions of the Inheritance Tax and Gift Tax Act (상속세 및 증여세법)?

The Constitutional Court assessed that the disadvantage and cost imposed on the married couple via cumulative taxation of income from assets of spouses much more than the public interest gained by such cumulative taxation. The Court held that Article 61 (1) differentiating married couples from unmarried couples or singles could not be justified on the basis of the Constitution, and contrary to Article 36 (1) of the Constitution.

Summary of the Decision
1. Article 36 (1) of the Constitution stipulates that "Marriage and family life shall be entered into and sustained on the basis of individual dignity and equality of the sexes, and the State shall do everything in its power to achieve that goal." Article 36 (1) guarantees the freedom to marry and lead family life on one's own initiative as one of the basic rights of citizens, and protects the institution of marriage and family.

Article 36 (1) contains a constitutional principle or a fundamental rule that affects all areas of public and private laws regarding marriage and family: On the one hand, the provision affirmatively imposes on the State the duty to support marriage and family through appropriate means as well as protecting marriage and family from intrusion by a third party;  On the other hand, it levies on the State a duty not to discriminate against the institutions of marriage and family through restrictive regulations causing disadvantages. A ban on discriminatory measures against marriage and family, derived from the constitutional principle, is a more specific form of the principle of equality protected by Article 11 (1) of the Constitution, and it aims to provide better protection of marriage and family life from unjustified discrimination.

A statutory provision discriminating against a married person would not violate Article 36 (1) of the Constitution only when there is an important and reasonable basis justifying such differential treatment.

2. Dispersion of titles to assets between spouses or other disguised acts could be prevented through application of the constructive donation provisions of the Inheritance Tax and Gift Tax Act. It would not be justified to levy larger taxes on a married person assuming he can bear more tax because it is more likely that he can save more than a bachelor. It is unjustified to pursue income redistribution by levying more tax on a married couple among all persons with asset income just because they are married. The private interest being neglected through cumulative taxation of asset income of married individuals, namely, increase in taxes, is greater than the public interest of the society achieved through such practice.

Therefore, Article 61 (1) of the Income Tax Act discriminating against a married couple subject to cumulative taxation for asset income from other unmarried couples or bachelors is not constitutionally justified, and hence, is against Article 36 (1) of the Constitution.

3. If Article 61 (1) of the Income Tax Act providing the foundation for the cumulative taxation for asset income by calculating the tax amount through adding asset income of a resident or spouse to the global income of the principal income earner is unconstitutional, independent existence of ancillary provisions to Article 61 (1), Article 61 (2), (3), and (4), will be meaningless since they form an inseparable entity along with Article 61 (1).

Although these provisions are not provisions on review, the Court hereby declares them unconstitutional.

Provisions on Review
Article 61 (Cumulative Taxation of Income from Assets) of the Income Tax Act
 * (1) When a resident or the spouse of the resident earns interest income, dividend income, or real estate rental income (hereinafter referred to as "asset income"), one of them will be designated as the principal income earner by Presidential Decree (hereinafter referred to as "principal income earner"), and the principal income earner shall be considered to have earned asset income of the spouse (hereinafter referred to as "spouse subject to cumulative taxation of asset income") which would then be included in the global income of the principal income earner for tax calculation.
 * (2) - (4) omitted

Related Provisions
Article 55 (Tax Rates) of the Income Tax Act
 * (1) The income tax on the global income of a resident shall be the amount calculated by applying the following tax rates to the tax base of global income in the current year (hereinafter referred to as the "calculated global income tax amount"):


 * (2) The income tax on any retirement income of a resident shall be the amount calculated by multiplying the number of years of work by the amount calculated by applying the tax rate as referred to in paragraph (1) to the amount obtained when dividing the tax base of retirement income in the current year by the number of years of work (hereinafter referred to as the "calculated retirement income tax amount").
 * (3) The income tax on any forest income of a resident shall be the amount calculated by applying mutatis mutandis the provisions of paragraph (1) to the tax base of forest income in the current year (hereinafter referred to as the "calculated forest income tax amount").

Article 120 (Scope of principal income Earner) of Enforcement Decree of the Income Tax Act
 * The principal income earner by the Presidential Decree in Article 61 (1) of the Act refer to an individual falling under any of the following subparagraphs:
 * (ⅰ) Among a resident and a spouse, a person with more global income except asset income;
 * (ⅱ) If both spouses have no income except asset income or if amounts of global income except asset income are identical, the person with more asset income;
 * (ⅲ) If amounts of asset income and global income except asset income are identical, the person designated as the principal income earner on the final return on tax base of global income. If a principal income earner is not designated on the final return on tax base of global income or if the final return on tax base of global income is not submitted, the person designated by the director of the competent district tax office.