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Content updated: 19-05-2021 13:29

The Constitutional Court: only the need to approve the state budget is not a constitutionally justifiable circumstance substantiating the immediate entry into force of tax laws

13-05-2021

In its ruling of 13 May 2021, the Constitutional Court held that the provisions consolidated in the laws amending tax laws, which were impugned by the petitioner and which established an extremely short time limit for the entry into force of the amended tax laws (on corporate income tax, lottery and gaming tax, excise duty, immovable property tax, and personal income tax) were in conflict with the Constitution.

The Constitutional Court examined not only the procedure for the entry into force of the tax laws establishing new (higher) rates of excise duty for ethyl alcohol, unleaded petrol, some gas oils and incandescent tobacco products, new (higher) tax rates applicable for the lottery and gaming tax base and higher fixed amount of lottery and gaming fee for the respective gaming device, substantially amending the legal regulation of immovable property tax and personal income tax, and establishing a new additional corporate income tax of credit institutions, but also the content of some of these laws. The Constitutional Court decided that the tax laws establishing higher rates of excise duty, a higher lottery and gaming tax for gaming, and a new corporate income tax applicable only for banks and credit unions were not in conflict with the Constitution in terms of their content.

In the ruling, the Constitutional Court noted that a sufficient vacatio legis in the sphere of tax law is an important guarantee that persons (first of all, taxpayers) would be able not only to familiarise themselves with new requirements of tax laws in advance, but also to adapt their property interests and perspectives of economic activity to the said requirements. Therefore, in adopting other laws that establish duties or limitations with respect to persons, the legislature is obliged to provide for a proper vacatio legis for the entry into force of such laws. The time period that should be established for the adaption in each concrete situation must be assessed in view of a number of circumstances: the purpose of a law in the legal system and the nature of the social relations regulated by that law, the circle of subjects to whom it is applied and their possibilities of preparing for the entry into force of the new legal regulation, as well as other important circumstances. In the ruling, it is emphasised that the immediate entry into force of laws establishing duties or limitations with respect to persons should be an exception, based and justified on the grounds of special objective circumstances, rather than a rule;

The Constitutional Court emphasised that, under the Constitution, among others, Paragraph 2 of Article 5 and Paragraph 1 of Article 70 thereof, as interpreted in conjunction with the constitutional principles of a state under the rule of law and responsible governance, the constitutional duty of the state to draw up the draft state budget and the constitutional duty of the Seimas to approve it may not in itself be interpreted as creating the preconditions for deviating from the requirement arising from the Constitution to provide for a proper vacatio legis for the entry into force of tax laws, which establish duties or limitations with respect to persons. In other words, only the need to draw up and approve the state budget is not a constitutionally justified, particular and objective circumstance substantiating the immediate entry into force of tax laws. In the opposite case, if the legislature were permitted to deviate from the constitutional requirement to provide for a proper vacatio legis for the entry into force of tax laws in the absence of a very difficult economic and financial situation due to special circumstances each time when the state budget is prepared, considered, and approved, the preconditions would be created for a permanent practice of the immediate entry into force of tax laws and, therefore, the legitimate interests and legitimate expectations of taxpayers would not be protected and respected.

Under the Constitution, the requirement to provide for a proper vacatio legis for the entry into force of tax laws may be waived, where the tax laws do not impose additional duties or limitations with respect to persons, but facilitate the situation of taxpayers.

The Constitutional Court assessed the exception to the general rule of the entry into force of tax laws not earlier than six months after the date of their official publication, which is consolidated in the Law on the Legislative Framework and the Law on Tax Administration, under which the tax laws related to the state budget of the year concerned could have entered into force sooner. The Constitutional Court decided that such a legal regulation had created preconditions, in the course of consideration and adoption of the state budget of each year, for establishing the extremely short time limit for the entry into force of tax laws also in the cases where a very difficult economic and financial situation has not occurred in the state due to special circumstances. The Constitutional Court declared such a legal regulation to be in conflict with the Constitution.

On the basis of similar arguments, i.e. the fact that the establishment of a very short time limit for the entry into force of tax laws in the absence of a very difficult economic and financial situation having occurred due to special circumstances does not comply with the constitutional requirement to provide for a proper vacatio legis for the entry into force of tax laws, inter alia, in order that taxpayers could adapt to changes in tax laws, the Constitutional Court also declared the tax laws establishing specific higher taxes incompatible with the Constitution in terms of the procedure for their adoption.

It was also held that the content itself of the amendments to the specified tax laws was in line with the Constitution. It was emphasised that the Constitutional Court did not assess the expediency and validity of the aforementioned amendments to tax laws, including the extent to which they have achieved the objectives of the economic and social policy of the state, since such an assessment of laws is not a matter of constitutional review. It was noted that there were no grounds for holding that the provisions of the impugned laws would clearly deny the values consolidated, defended, and protected by the Constitution.

The Constitutional Court has held on more than one occasion that any legal act (part thereof) adopted by the Seimas that is declared by a ruling of the Constitutional Court to be in conflict with the Constitution is removed from the legal system of Lithuania and may no longer be applied.

In view of the above, the Constitutional Court also noted that, if this ruling of the Constitutional Court were officially published right after its public pronouncement at the hearing of the Constitutional Court, not only regulatory gaps and uncertainties of the legal regulation established in the said tax laws would appear but also the collection of estimated revenue from the fixed taxes into the state budget of 2021 could be disrupted and the ability of the state to perform the functions assigned to it would be restricted. In view of this, as well as the specific nature of the planning and preparation of the state budget, this ruling of the Constitutional Court will be officially published in the Register of Legal Acts and will come into force on 1 July 2022.