A case on procedures for calculation and payment of surcharge of enterprise income tax and application of this tax to flow-through dividends has been initiated
A case was initiated in the Constitutional Court on compliance of paragraphs 1, 2 and 4 of Section 4.1 and paragraph 7.1 of Section 17 of the Law on Enterprise Income Tax with the first and third sentences of the Article 105 of the Constitution.
The applicant is a consumer crediting service provider and payer of the enterprise income tax. It is a part of a group of companies and has several foreign subsidiaries, as well as a parent company. The applicant receives flow-through dividends from its subsidiaries which are divided with the parent company, among others. In accordance with Section 6(1) of the Law on Enterprise Income Tax such flow-through dividends are not taxable with enterprise income tax.
The applicant states that the contested provisions provide for a duty to make a surcharge of the enterprise income tax; the sums of flow-through dividends accumulated in previous taxation years and divided in the pre-taxation year are not deducted from the surcharge calculation base. At the same time, the contested provisions prohibit reduction of the volume of the payable enterprise income tax for the sums of flow-through dividends accumulated in the previous taxation years. Thus, while one of the aims of implementing the contested provisions had been to stipulate an advance payment of the enterprise income tax, the contested provisions actually had introduced a new object of the enterprise income tax, namely, the flow-through dividends.
The Constitutional Court invited the institution that has issued the contested law – the Saeima – to submit to the Constitutional Court a reply with the explanation of the actual circumstances of the case and the legal basis by 9 September 2024. The deadline for the preparation of the case is 08 December 2024. The Court will decide on the procedure and date for hearing the case once the case is prepared.
The related Case No. 2024-19-01
Linked case: 2024-19-01