What Defines a "Spouse" for Tax Deductions? A Japanese Supreme Court Ruling on De Facto Marriages

Date of Judgment: September 9, 1997
Case Name: Income Tax Reassessment Invalidation Lawsuit (平成8年(行ツ)第64号)
Court: Supreme Court of Japan, Third Petty Bench

On September 9, 1997, the Supreme Court of Japan delivered a concise yet impactful judgment concerning the definition of a "spouse" for the purposes of spousal deductions under the Japanese Income Tax Act. The core issue was whether an individual in a de facto marital relationship (a common-law marriage, known in Japan as naien 内縁) qualifies for these deductions, or if they are strictly limited to legally registered spouses. This decision has had lasting implications for how marital status is recognized in the Japanese tax system, highlighting a formalistic approach that contrasts with evolving social norms and legal treatment in other areas.

Background of the Dispute

The appellant, whom we will refer to as X, was living with a partner, A, in a relationship that was, for all practical purposes, a marriage, though they had not officially registered it with the authorities. When filing his income tax returns for the years 1990, 1991, and 1992 (referred to as the "tax years in question"), X applied for the spousal deduction and the special spousal deduction (hereinafter collectively "spousal deductions"), asserting his relationship with A.

The head of the Y tax office, the defendant (hereinafter Y), reviewed X's declarations and determined that the spousal deductions were not applicable because X and A were not legally married. Consequently, Y issued a corrective assessment (reassessment) for the income tax owed and imposed administrative penalties for underpayment. X challenged this decision through an administrative objection and then an appeal for review, both of which were dismissed.

X then initiated a lawsuit, arguing that:

1. The purpose and spirit of the spousal deductions should extend to individuals with de facto spouses.
2. The legal requirement of formal registration as the sole method of marriage (as stipulated by law) infringes upon Article 24 of the Constitution of Japan, which pertains to marriage and family equality.
3. Differentiating the applicability of spousal deductions based solely on the presence or absence of a marriage registration, despite couples living substantially similar lives, violates Article 14 of the Constitution (equality under the law).
4. This differential treatment imposes undue hardship on those who choose de facto marriage, potentially undermining their right to maintain minimum standards of wholesome and cultured living, as guaranteed by Article 25 of the Constitution.
5. The denial of deductions also contravenes the International Covenant on Civil and Political Rights (specifically, "B Covenant" provisions regarding the protection of the family).

Y, representing the tax authority, countered that the term "spouse" eligible for spousal deductions under the Income Tax Act refers exclusively to a spouse legally registered under the Japanese Civil Code. This status is determined based on the circumstances as of December 31 of the relevant tax year. Since A was not X's legally registered spouse on these dates, Y argued that the spousal deductions could not be granted.

The court of first instance (Nagoya District Court, judgment dated September 27, 1995) ruled against X. It held that while the Income Tax Act does not explicitly define "spouse," the Civil Code, as the fundamental law governing family relations, stipulates that a marriage takes effect upon official registration (Article 739, paragraph 1). Therefore, "spouse" under the Income Tax Act should be interpreted as a legally registered spouse. The court also found the requirement of registration for marriage to be reasonable and thus not in violation of Article 24 of the Constitution. Consequently, it concluded that differential treatment for tax deduction purposes based on this reasonable system did not constitute unreasonable discrimination under Article 14. Furthermore, it stated that denying the deduction to a de facto spouse does not immediately make it impossible to maintain a minimum standard of living, and the denial was not without rational basis, thus not violating Article 25. The court also dismissed the argument based on the International Covenant, stating it could not be interpreted to require identical status for de facto families and legally registered married couples.

The appellate court (Nagoya High Court, judgment dated December 26, 1995) upheld the first instance decision. It reiterated that Article 14 of the Constitution prohibits unreasonable discrimination. However, since the Civil Code's requirement for marriage registration is sufficiently reasonable, the Income Tax Act, by basing spousal and child deductions on registered marriage status and not extending them to de facto spouses or children from such unions, does not constitute unreasonable discrimination. This, the High Court reasoned, was an unavoidable consequence of adopting a system requiring registration for marriage.

The Legal Landscape: Marriage and Taxation in Japan

Understanding this case requires some context on Japanese family law and tax principles.

Legal Marriage in Japan: The Japanese Civil Code mandates that a marriage becomes legally effective only upon its official registration in the family register system (koseki) (Civil Code, Article 739, paragraph 1). Without this registration, a relationship, no matter how stable or marriage-like in practice, is considered a naien (de facto marriage) and does not have the full legal status of a marriage.

Spousal Deductions: The Income Tax Act provides for certain personal deductions, including the spousal deduction (配偶者控除 - haigūsha kōjo) under Article 83 and the special spousal deduction (配偶者特別控除 - haigūsha tokubetsu kōjo) under Article 83-2. These deductions reduce the taxpayer's taxable income, thereby lowering their tax burden. The purpose of these deductions is multifaceted: they acknowledge the reduced tax-bearing capacity of a taxpayer supporting a spouse with little or no income, aim to ensure that families can maintain a minimum standard of living (reflecting principles related to Article 25 of the Constitution), and consider the spouse's contribution to overall household income generation and balance tax burdens between dual-income and single-earner households.

Contrasting Treatment of Naien Relationships: While legal formalism dominates in certain areas like tax, naien relationships are not entirely without legal recognition in Japan. Civil law jurisprudence has developed theories of "quasi-marriage" (junkon - 準婚), offering some protections analogous to legal marriage, particularly concerning matters like social security benefits or damages in tort cases. For instance, social security laws often explicitly include individuals in "circumstances similar to a de facto marital relationship" within their definition of "spouse" (e.g., National Pension Act, Article 5, paragraph 7). This creates a situation where a couple might be recognized as spouses for pension purposes but not for income tax deductions.

The Supreme Court's Decision

The Supreme Court, in its judgment of September 9, 1997, dismissed X's final appeal. The Court's reasoning was remarkably brief:

"It is appropriate to interpret that the term 'spouse' as used in Articles 83 and 83-2 of the Income Tax Act is limited to a person who is in a legal marital relationship with the taxpayer. The judgment of the lower court, which is to the same effect, can be affirmed as just, and there is no illegality in the said judgment as asserted in the argument. The arguments, including the points alleging unconstitutionality, merely criticize the lower court's interpretation of laws and regulations from a differing viewpoint and cannot be adopted."

In essence, the Supreme Court affirmed the lower courts' stance: for the purposes of spousal deductions under the Income Tax Act, "spouse" means a legally registered spouse, and this interpretation does not violate any constitutional provisions.

The key elements underlying this conclusion, elaborated upon in the lower court judgments and legal commentary, are:

• Absence of a Tax-Specific Definition: The Income Tax Act itself does not provide a unique definition for "spouse."
• Primacy of the Civil Code for Borrowed Concepts: In Japanese law, when a specialized law (like tax law) uses a term fundamental to private law (like "spouse") without defining it, the term is generally understood to carry the same meaning as in the basic law (in this case, the Civil Code). This principle of using "borrowed concepts" (shakuyō gainen) is considered important for maintaining legal stability and consistency across different legal fields.
• Civil Code Requires Registration: The Civil Code is unequivocal that marriage registration is a prerequisite for legal recognition.
• No Constitutional Violation: The courts consistently found that requiring official registration for marriage is a reasonable system. Therefore, differentiating tax treatment based on this reasonable legal formality does not amount to unconstitutional discrimination or a violation of the right to a cultured life. The argument that this system forces hardship on those choosing de facto marriage was not seen as outweighing the state's interest in a clear and administrable definition of marriage for legal purposes.

Implications and Analysis

This Supreme Court decision solidified a formalistic approach to defining "spouse" within Japanese income tax law.

• Legal Formalism: The ruling prioritizes the formal legal status (registered marriage) over the substantive reality of a de facto marital relationship. This means that even if a couple lives together, shares finances, and considers themselves married, they cannot claim spousal deductions if their union is not registered. This was the first time the Supreme Court had made such a clear pronouncement on this specific issue in the context of income tax.
• Divergence with Social Reality and Other Legal Fields: The decision highlights a significant gap between the tax law's strict definition and the increasing social acceptance and partial legal recognition of de facto relationships in other spheres, such as social security or some aspects of civil liability. While social security law often adopts a broader definition of spouse to include those in similar circumstances to marriage, the Income Tax Act (unless explicitly stated for specific narrow provisions, such as in certain articles of the Income Tax Law Enforcement Order which are not applicable to the general spousal deduction) adheres to a narrower concept tied to Civil Code registration.
• Policy vs. Interpretation (Legislative Reform Needed?): Legal commentators have pointed out that while interpreting "spouse" in the current Income Tax Act to include naien partners is difficult due to the statutory language and the principle of borrowed concepts, there's a valid policy concern. The spousal deduction aims to account for the reduced tax-bearing capacity of individuals supporting a dependent. Denying this to those in stable, supportive de facto relationships seems to run counter to this underlying policy objective. However, many scholars suggest that resolving this discrepancy likely requires legislative change (rippōron) rather than judicial reinterpretation (kaishakuron) of the existing law.

Developments and Broader Context

While the core definition of "spouse" established by this 1997 ruling remains influential, the landscape of personal deductions in Japan has seen changes.

• Reforms to Spousal and Basic Deductions: Since 1997, there have been several reforms to the spousal deduction and the basic personal deduction. For example, the amount of spousal deduction now varies based on the taxpayer's total income, and taxpayers with income exceeding a certain threshold (e.g., ¥10 million for full spousal deduction eligibility) are excluded. Similarly, the basic deduction has been modified to vary with the taxpayer's income, with very high earners no longer eligible. These changes aim to refine the fairness and impact of the deduction system but do not alter the fundamental definition of "spouse."
• Evolving Family Structures and Ongoing Debates: The issue of who qualifies as a "spouse" for tax and other legal benefits remains a topic of societal discussion, especially considering the increasing diversity of family structures. For instance, same-sex couples in Japan currently cannot legally marry at the national level. Consequently, they are also unable to claim spousal deductions, regardless of the nature or duration of their relationship. This exclusion, stemming from the linkage of "spouse" to legally registered marriage, is a significant point of contention in discussions about legal equality for LGBTQ+ individuals. The commentary notes that many Western countries have moved towards providing similar tax rights to same-sex couples as to heterosexual couples through legal reforms.

The purpose of the spousal deduction, rooted in ensuring a minimum standard of living (linked to Article 25 of the Constitution) and fairness in tax burden, continues to be debated in light of these evolving societal values. How the tax system should adapt to changing family forms while maintaining clarity and fairness remains a challenge.

Conclusion

The 1997 Supreme Court decision firmly established that, for Japanese income tax spousal deductions, a "spouse" is defined strictly by legal registration under the Civil Code. This adherence to legal formalism has significant consequences for individuals in de facto marital relationships and, by extension, other relationships not currently recognized by Japan's marriage registration system. While providing clarity from a legal-technical standpoint, the ruling also underscores the tension between a static legal definition and the dynamic realities of family life and evolving social norms. Any future broadening of the definition to include unregistered partners or other family configurations for tax purposes appears to be a matter for the legislature rather than the courts under the current legal framework.