A case initiated with respect to a norm that establishes the obligation for a landowner to pay the value added tax for enforced land lease
On 30 April 2020, the Constitutional Court initiated the case “On Compliance of Sub-para “c” of Para 14 of Section 1 of Value Added Tax Law, insofar it Applies to the Leasing of Land in Cases of Enforced Lease, with the First Sentence of Article 91 and the First, Second and Third Sentence of Article 105 of the Satversme of the Republic of Latvia”.
The Contested Norm
Sub-para “c” of Para 14 of Section 1 of the Value Added Tax Law:
“supply of services – a transaction which does not constitute the supply of goods; the following shall also be considered the supply of services:
c) the leasing of property.”
The Norms of Higher Legal Force
The first sentence of Article 91 of the Satversme of the Republic of Latvia (hereafter – the Satversme): “All human beings in Latvia shall be equal before the law and the courts.”
The first, second and third sentence of Article 105 of the Satversme: “Everyone has the right to own property. Property shall not be used contrary to the interests of the public. Property rights may be restricted only in accordance with law.”
The Facts
The case was initiated on the basis of an application by the joint stock company “Pilsētas zemes dienests” (hereafter – the applicant). The applicant is registered in the State Revenue Service’s register of the value added tax payers and notes that it owns land, on which a building owned by other persons is located, thus, creating the legal relationship of the enforced land lease. Pursuant to the contested norm, the value added tax must be paid for the service of leasing the land. Since the applicant could not reach an agreement with the owners of the building on the payment of the enforced land lease, it submitted a claim to a court regarding collection from the owners of the building the land lease payment, including the amount of calculated value added tax. The court dismissed the claim in the part regarding collecting the amount of the calculated value added tax from the owners of the building.
The applicant holds that it, as the landowner, cannot be set the obligation to pay the value added tax for the enforced land lease since, in this case, the contested norms significantly decrease the total income that the landowner gains by leasing its property, restricting the right to property disproportionally. It is maintained that this procedure violates also the principle of legal equality since those persons, who are not registered in the State Revenue Service’s register of value added tax payers, in comparable circumstances, do not have to pay the valued added tax for the enforced land lease. Allegedly, this differential treatment lacks objective and reasonable grounds and is not proportional.
Legal Proceedings
The Constitutional Court has requested the Saeima of the Republic of Latvia to provide a reply on the facts of the case and legal reasoning by 30 June 2020.
The term for preparing the case is 30 September 2020. The Court shall decide upon the procedure and the date for hearing the case after the case has been prepared.
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Linked case: 2020-24-01