The Norm on Reduction of a Fine in Tax Matters is Incompatible with the Satversme
On 15 April 2013 the Constitutional Court passed the judgement in Case No. 2012-18-01 “On Compliance of Words included in Section 333 (1) of the Law “On Taxes and Fees” “if the taxpayer agrees to the additional amount of estimated tax, fee or other State-established payment [including a late charge that is calculated for the period of tax payment delay starting from the following day after the setting in of the term of payment of the tax up to the starting date of a tax audit] and, within 30 days as from the day when a decision of the tax administration on results of the tax audit is received, pays the total sum of calculated tax, fee or other State-established payment into the budget at the amount of 15 per cent of the basic tax debt” of the wording that was effective before 8 November 2011 with Article 1 of the Satversme of the Republic of Latvia” (with amendments to the title of the case, as the Judgment established an occurrence of a technical error). [7]
The norm, which denies the possibility to reduce the amount of fine applied by the tax administration, unless the payer pays within 30 days following the receipt of the decision the additional calculated tax and part of the fine, imposes disproportional restrictions to a person’s rights.
The Contested Norm (in italics)
Section Section 333 (1) of the Law “On Taxes and Fees: “The head of the highest institution of the tax administration or its authorised official shall take a decision to reduce the fine in respect to tax payers imposed in the result of tax audit at the amount established in the present section, “if the taxpayer agrees to the additional amount of estimated tax, fee or other State-established payment [including a late charge that is calculated for the period of tax payment delay starting from the following day after the setting in of the term of payment of the tax up to the starting date of a tax audit] and, within 30 days as from the day when a decision of the tax administration on results of the tax audit is received, pays the total sum of calculated tax, fee or other State-established payment into the budget at the amount of 15 per cent of the basic tax debt.”
The contested norm was in force until 8 November 2011.
The Legal Norm of Higher Legal Force
Article 1 of the Satversme: “Latvia is an independent democratic republic.”
The Facts
The Applicant – the Department of Administrative Cases of the Supreme Court Senate of the Republic of Latvia – is examining a case, in the framework of which a merchant registered abroad contests the proportionality of the fine calculated by the tax administration.
The Applicant notes that the contested norm prohibits the tax administration to reduce the fine, if the taxpayer disagrees to the amount of the additional calculated tax and the amount of late charge. Thus, the private person is forced to wave its right to appeal against the decision on audit results adopted by tax administration.
The applicant holds that the contested norm is incompatible with the principle of proportionality.
Court Findings and Rulings
On compliance of the norm with the principle of proportionality
The Constitutional Court noted that it is the obligation of the State to establish an effective system for tax collection in the interests of public welfare; however, at the same time the State has the obligation to protect persons against disproportional penalties, even if these are imposed due to violations of tax laws. [17]
The Constitutional Court established that the contested norm did not restrict a tax-payer’s right to appeal against the decision on audit results adopted by the tax administration, however, it created a situation, in which the fine could be reduced only if the tax-payer within 30 days following the day of receiving the decision by tax administration had paid into the State budget the additional calculated tax and the fine in the amount of 15 per cent of the basic tax debt. If the taxpayer did not immediately have at its disposal this, perhaps, at the concrete moment, rather substantial sum of money, later on it no longer had the possibility to achieve reduction of the fine. [12]
The Constitutional Court held that the contested norm had a legitimate aim – protection of public welfare [15], however, it was not suitable for reaching the legitimate aim [18] and there were more lenient means for reaching this aim [19]. The contested norm does not ensure individualisation of penalty, nor does it reach the legitimate aim, thus, it must be recognised incompatible with the principle of proportionality.
On becoming invalid
The Constitutional Court takes into consideration that revoking a norm as of the moment of its adoption or entering into force should not create serious damage or threat to significant interests of the State and society. Thus, the court recognised that in this legal situation the most appropriate solution would be revoking the contested norm only with regard to those cases, which are still being adjudicated. [22]
The Constitutional Court decided to recognise with regard to cases that are still being adjudicated the words and the numbers of Section 33.3(1) of the law “On Taxes and Fees” “if the taxpayer agrees to the additional amount of estimated tax, fee or other State-established payment [including a late charge that is calculated for the period of tax payment delay starting from the following day after the setting in of the term of payment of the tax up to the starting date of a tax audit] and, within 30 days as from the day when a decision of the tax administration on results of the tax audit is received, pays the total sum of calculated tax, fee or other State-established payment into the budget at the amount of 15 per cent of the basic tax debt” of the wording that was effective before 8 November 2011 incompatible with Article 1 of the Satversme of the Republic of Latvia”
The Judgement is final and not subject to appeal, it comes into force as of the day of its pronouncement.
Linked case: 2012-18-01