The Norms that Establish the Obligation to Pay the Subsidized Energy Tax are Compatible with the Satversme
On 3 July 2015 the Constitutional Court passed the judgement in Case No. 2014-12-01 “On Compliance of Para 1 and Para 2 of Section 3 and Para 1 and Para 5 of Section 4 of the Subsidized Energy Tax Law with Article 1 and Article 105 of the Satversme of the Republic of Latvia”.
The subsidized energy tax cannot be recognised as being a disproportional burden to the taxpayers.
The Contested Norms
Para 1 and Para 2 of Section 3 of the Subsidized Energy Tax (SET) Law provide: “Tax shall be applicable to revenue gained from: 1) the electricity sold in the framework of mandatory electricity procurement; 2) guaranteed payment received for the electric capacity installed in a cogeneration unit or power plant;
Whereas Para 1 of Section 4 of the Subsidized Energy Tax Law provides: “Tax-payers are the producers of electricity, who have the right to: 1) sell electricity in the framework of mandatory procurement.”
Section 5 of SET Law establishes the tax rates.
The Norms of Higher Legal Force
Article 1 of the Satversme: “Latvia is an independent democratic republic.”
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 in the basis of a specific law and in return for fair compensation.”
The Limits of the Claim
The Constitutional Court examined the contested norms as a unified legal regulation. [13] The Constitutional Court examined the compatibility of the contested norms with the first three sentences in Article 105 of the Satversme. [14] Whereas the compatibility of the contested norms with the principle of legal certainty that follows from Article 1 of the Satversme was examined in interconnection with Article 105 of the Satversme. [14.2]
The Facts
On 6 November 2013 the Saeima passed the SET Law, which entered into force on 1 January 2014. Tens of producers of subsidized energy turned to the Constitutional Court with regard to the constitutionality of the contested norms. The applicants expressed the opinion that the tax was an excessive burden upon taxpayers, moreover, that it had been introduced by violating the principle of legal certainty.
The Court Findings and Ruling
On the restriction upon the right to own property
The Constitutional Court, in examining, whether the contested norms restricted the applicants’ right to own property, first and foremost reminded that in a democratic state the right to own property was not absolute. [14.3]
The obligation to pay a tax always means restricting the right to own property. [14.3]
In examining, whether the restriction upon the right to own property is justifiable, the Constitutional Court examines:
- whether the restriction upon fundamental rights has been established by law,
- whether the restriction has a legitimate aim,
- whether the restriction is proportional. [15]
The restriction has been established by law
The Constitutional Court concluded that it did not follow from the case materials and the explanations provided by the participants of the case that the contested norms had not been adopted in due procedure, had not been properly promulgated or were not clearly understandable. Thus, the Constitutional Court concluded that the restriction upon the fundamental rights had been established by law. [16]
On the legitimate aim of the contested norms
The Constitutional Court noted that regulation, which envisaged paying a tax, had to be examined as a restriction that had been established to ensure that the State budget and local government budgets were formed. The Constitutional Court recognised that the contested norms had the legitimate aim to protect the welfare of society. [17]
On the proportionality of the restriction upon fundamental rights
In examining the proportionality to the restriction upon fundamental rights, the Constitutional Court examines:
- whether the norm is appropriate for reaching its legitimate aim;
- whether such action is necessary;
- whether the benefit gained by society exceeds the damage inflicted upon a person’s rights and legitimate interests. [18.1]
As regards the compatibility of the contested norms with the principle of legal certainty, the Constitutional Court recognises that it demands balancing the legal certainty of persons regarding the previously acquired rights with the interests of society; i.e., also with regard to this issue it is decisive, whether the principle of proportionality has been complied with. [18]
The Constitutional Court noted that in examining a restriction upon the right to own property that followed from the obligation to pay a tax, it had to take into consideration the legislator’s discretion. Thus, the Constitutional Court must predominantly examine, whether the payment of the tax is not an excessive burden upon its addressee. [18.2]
The Constitutional Court stated that it could not verify, whether the measures chosen by the legislator were economically sound. To establish, whether the contested norms were appropriate for reaching the legitimate aim, the Constitutional Court verified, whether objective and rational considerations had been provided for introducing the tax; i.e., whether the tax had not been introduced arbitrarily and whether the procedure for calculating the tax was such that allowed calculating mathematically the payable tax. [19] The Constitutional Court, taking into consideration that the tax could be accurately calculated, as well as the fact that the Saeima had examined both the impact of SET upon the sector, as well as different tax rates, concluded that the chosen measures were appropriate for reaching the legitimate aim. [19.2] Likewise, the Court, in examining possible existence of other measures, established that the chosen measures had been necessary for reaching the legitimate aim. Other solutions should be recognised as such that could prohibit reaching the legitimate aim in at least the same quality. [20]
The Constitutional Court noted that the case materials did not confirm that SET were a disproportional burden upon a taxpayer. Thus, the Court recognised that the benefit that society gained from the contested norms exceeded the damage inflicted upon persons’ rights and legitimate interests. [21]
Thus, the contested norms comply with the principle of proportionality.
Hence, the Constitutional Court recognised that the contested norms complied with Article 1 and Article 105 of the Constitutional Court.
The judgement by the Constitutional Court is final and not subject to appeal, and it has entered into force.
Linked case: 2014-12-01