A case has been initiated with regard to norms that provide for the liability of a board member for late tax payments of a legal person
On 29 December 2015 the 2nd Panel of the Constitutional Court initiated the case “On the Compliance of Section 60, Section 61 and Section 62 of the Law on Taxes and Fees with the First Sentence of Article 91, Article 92 and Article 105 of the Satversme of the Republic of Latvia”.
Contested Norms
Section 60 of the Law on Taxes and Fees defines the basis and the procedure of administrative proceedings regarding repayment of late tax payments of a legal person into the State budget by a person, who has been a member of the board of this legal person during the period, when the respective late tax payments formed.
Section 61 of the Law on Taxes and Fees establishes the procedure, in which the State Revenue Service adopts a decision on repayment of the late tax payments of a legal person by the board member of the respective legal person.
Whereas Section 62 of the Law on Taxes and Fees establishes the procedure, in which the decisions by the State Revenue Service on repayment of late tax payments of a legal person is to be enforced.
Norms of Higher Legal Force
The first sentence of Article 91 of the Satversme: “All human beings in Latvia shall be equal before the law and the courts.”
Article 92 of the Satversme: “Everyone has the right to defend his or her rights and lawful interests in a fair court. Everyone shall be presumed innocent until his or her guilt has been established in accordance with law. Everyone, where his or her rights are violated without basis, has a right to commensurate compensation. Everyone has a right to the assistance of counsel.”
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. Expropriation of property for public purposes shall be allowed only in exceptional cases on the basis of a specific law and in return for fair compensation.”
The Facts
The application to the Constitutional Court has been submitted by twenty members of the Saeima. The members of the Saeima hold that the contested norms place disproportional restrictions upon the right to own property established in Article 105 of the Satversme. Allegedly, the scope of Article 105 of the Satversme comprises also the right to engage in business activities in the form of legal persons; i.e., in the form of such company, which is liable for the commitments it assumes only with its own property (not with the property of natural persons involved in the company). Separation of material responsibility is to be considered as a mandatory feature of a legal person. Whereas pursuant to the contested norms, in particular cases the board members of a legal person and not the legal person itself are liable for late tax payments of the legal person.
Moreover, it is alleged that the contested norms are incompatible with the principle of equality included in the first sentence of Article 91 of the Satversme, since they allow differential treatment of persons, who are in similar situations: board members of a legal person, on the one hand, and other persons, who have the right to adopt decisions that influence the legal person and to assume liabilities on behalf of the legal person, on the other hand. Moreover, it is contended that the contested norms allow differential treatment of the legal persons’ creditors. The equal treatment of persons, who are in different situations, is also said to be incompatible with the principle of equality, for example, representatives of capital companies, on the one hand, and partnerships, on the other hand.
Finally, the applicants hold that the contested norms are incompatible also with Article 92 of the Satversme, since they envisage the presumption of a board member’s guilt regarding late tax payments of a legal person and the obligation of a board member to prove his innocence. Thus, disproportional restrictions are placed upon the principle of presumption of innocence, which is applicable also to cases to be heard in administrative procedure regarding collection of late tax payments of a legal person from members of the board.
Legal Proceedings
The Constitutional Court has asked the Saeima to provide a reply on the facts of the case and legal substantiation by 29 February 2016.
The term for preparing the case is 29 May 2016. The Court shall decide upon the procedure and the date for hearing the case after the case has been prepared.
Linked case: 2015-25-01