One more case initiated with respect to a norm that sets out the obligation of a landowner to pay the value added tax for compulsory land lease
On 8 October 2021, the 2nd Panel of the Constitutional Court initiated the case “On Compliance of Sub-para “c” of Para 14 of Section 1 of the Value Added Tax Law, insofar it Applies to Cases of Compulsory Land 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”.
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.”
Norms of Higher Legal Force
The first sentence 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.”
Facts of the Case
The case was initiated on the basis of an application by the share company “ZEMES ĪPAŠNIEKU ĢILDE” (hereafter – the Applicant). The Applicant owns land, on which a water supply structure, owned by a municipal capital company, is located. Since the Applicant could not reach an agreement with the owners of the building on the compulsory land lease payment it submitted a claim to the court regarding collection of land lease payment, including the amount of value added tax to be calculated. The court dismissed the claim in the part regarding colleting the amount of value added tax to be calculated from the owner of the building.
During the period, with respect to which the Applicant submitted its claims to the court, it had been registered in the Register of Value Added Tax Payers of the State Revenue Service. Whereas, pursuant to the contested norm, value added tax must be paid for the provision of land lease services.
The Applicant holds that it, as the landowner, cannot be imposed an obligation to pay the value added tax for the compulsory land lease because, in such a case, the contested norm significantly decreases the total income that the landowner gains from leasing the property in its ownership and restricts its right to property disproportionally. It is alleged that this procedure also violates the principle of legal equality because those persons, who are not registered in the Register of Value Added Tax Payers of the State Revenue Service, do not have to pay the value added tax for compulsory land lease in comparable circumstances. It is alleged that this differential treatment lacks objective and reasonable grounds, and it is said to be disproportional.
Legal Proceedings
The Constitutional Court has requested the institution, which issued the contested act, i.e., the Saeima, to submit to the Constitutional Court its written reply presenting the facts of the case and legal reasoning by 8 December 2021.
The term for preparing the case is 8 March 2022.
The Court shall decide on the procedure and date for hearing the case after the case is prepared.
- The decision on initiation of the case is available here.
Press release in PDF available here.
Linked case: 2021-39-01