THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

Transcription

1 THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA DECISION ON RETURNING THE PETITION OF THE VILNIUS REGIONAL ADMINISTRATIVE COURT, THE PETITIONER, REQUESTING AN INVESTIGATION INTO THE COMPLIANCE OF THE PROVISIONS OF THE REPUBLIC OF LITHUANIA S LAW ON PERSONAL INCOME TAX WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA 16 January 2015, No. KT5-S4/2015 Vilnius The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Elvyra Baltutytė, Vytautas Greičius, Danutė Jočienė, Pranas Kuconis, Gediminas Mesonis, Vytas Milius, Egidijus Šileikis, Algirdas Taminskas, and Dainius Žalimas The court reporter Daiva Pitrėnaitė The Constitutional Court has, in its procedural sitting, considered a petition (No. 1B- 58/2014) of the Vilnius Regional Administrative Court, the petitioner, requesting an investigation into whether Paragraph 2 (wording of 23 December 2008, Official Gazette Valstybės žinios, 2008, No ) of Article 17 of the Republic of Lithuania s Law on Personal Income Tax, insofar as it prescribes that the relief provided for in Item 32 of Paragraph 1 of this article does not apply where the respective income of an individual is received from individuals whose permanent place of residence is in a target territory, is not in conflict with the provision <...> childhood shall be under the <...> care of the State of Paragraph 2 of Article 38 and Paragraph 1 of Article 29 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law. The Constitutional Court has established: The Constitutional Court has received petition No. 1B-58/2014 of the Vilnius Regional Administrative Court requesting an investigation into the compliance of Paragraph 2 of Article 17 (wording of 23 December 2008) of the Republic of Lithuania s Law on Personal Income Tax (hereinafter also referred to as the LPIT), insofar as it prescribes that the relief provided for in Item

2 2 32 of Paragraph 1 of this article does not apply where the respective income of an individual is received from individuals whose permanent place of residence is in a target territory, with Paragraph 1 of Article 29 and the provision <...> childhood shall be under the <...> care of the State of Paragraph 2 of Article 38 of the Constitution and the constitutional principle of a state under the rule of law. The Constitutional Court holds that: 1. The Vilnius Regional Administrative Court, the petitioner, requests an investigation, to the specified extent, into the compliance of Paragraph 2 of Article 17 (wording of 23 December 2008) of the LPIT with the Constitution Article 17 Tax-Exempt Income (wording of 23 December 2008) of the LPIT, inter alia, prescribes: 1. The following income shall be exempt from tax: <...> 32) maintenance awarded by court or received under an agreement; <...> 2. The reliefs provided for in Items 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 23, 24, 27, 28, 29, 30, 32, 33, 34, 36, 39, 40, 42, 44, 46, and 53 of Paragraph 1, as well as the relief applicable, under Item 26, to income received by gift from persons other than a spouse, children (adopted children), parents (adoptive parents), brothers, sisters, and grandparents, shall not apply where the respective income of an individual is received from foreign entities registered or otherwise organised in the target territories, or from individuals whose permanent place of residence is in a target territory. Thus, Paragraph 1 of Article 17 (wording of 23 December 2008) of the LPIT specifies the types of tax-exempt income, and Paragraph 2 lays down certain exceptions to the general rule established in Paragraph 1 the conditions under which personal income tax is considered to be payable on certain income, although, according to the general rule, such income falls under the regulation of Paragraph 1 of the same article, i.e. is categorised as non-taxable income. In the context of the petition, it should be noted that the income indicated in Item 32 of Paragraph 1 of Article 17 (wording of 23 December 2008) of the LPIT, inter alia, maintenance received under an agreement, is not categorised as income exempt from personal income tax where this income is received, inter alia, from an individual whose permanent place of residence is in a target territory It should be noted that, under Paragraph 21 of Article 2 The Main Notions of the Law of the LPIT, a target territory means a foreign country or zone that is included in the List of Target Territories, established by the Minister of Finance, and satisfies at least two of the criteria set in this paragraph: inter alia, the rate of profit tax or equivalent tax in that territory is below 75 percent of

3 3 the corresponding rate set in the Republic of Lithuania s Law on Profit Tax; different rules for levying profit tax or equivalent tax apply in that territory; there is no effective exchange of information and/or there is no financial and administrative transparency in that territory, i.e. the rules for the administration of profit tax or equivalent tax are not completely clear and the procedure for the application of these rules is not communicated to the tax administrators of other countries. Thus, in terms of taxation, target territories are specific territories where not only different rates of certain taxes and/or different taxation rules may be applied, but also where such rules for the administration of taxes may be applied that are not clear and not known to the authorised institutions of other countries; also there may be reasonable doubts regarding financial and administrative transparency in these territories The List of Target Territories was approved by the Decision (No. 344) On Approving the List of Target Territories of the Minister of Finance of the Republic of Lithuania of 22 December 2001; this list includes, inter alia, Hong Kong as a target territory It should be noted that the petition of the Vilnius Regional Administrative Court, the petitioner, and the material of the administrative case considered by the petitioner make it clear that the dispute in that administrative case arose in relation to the administrative acts based on which the applicant in the said administrative case owed tax arrears as a result of her default on, among other things, personal income tax levied on the income received from a Hong Kong citizen during the period from 1 January 2007 to 31 December According to the applicant in the administrative case, the income from the Hong Kong citizen was received during the indicated period for the maintenance of her and that citizen s child (under an oral agreement with that citizen) Thus, in substance, in its petition, the Vilnius Regional Administrative Court, the petitioner, has raised doubts regarding the compliance of Paragraph 2 of Article 17 (wording of 23 December 2008) of the LPIT with the Constitution only to the extent that it is prescribed that the relief provided for in Item 32 of Paragraph 1 of the said article (based on which, in the opinion of the petitioner, tax-exempt income includes, among other things, child maintenance received from the child s father under the respective agreement) does not apply where child maintenance income is received from the child s father whose permanent place of residence is in a target territory. 2. Under Item 5 of Paragraph 2 of Article 67 of the Law on the Constitutional Court of the Republic of Lithuania, a ruling of a court, by means of which an application is made to the Constitutional Court, must specify the legal arguments presenting the court s opinion on the conflict of a legal act with the Constitution. The Constitutional Court has held on more than one occasion that courts, when applying to the Constitutional Court with a petition requesting an investigation into whether a law or another legal act (part thereof) is not in conflict with the Constitution and when presenting their arguments

4 4 concerning their opinion (which is expressed in their petition) on the conflict of the law or another legal act (part thereof) with the Constitution, may not limit themselves only to general reasoning or statements, or to the fact that the law or another legal act (part thereof) is, in their opinion, in conflict with the Constitution, but must clearly indicate which impugned articles (paragraphs, items thereof) of legal acts and to what extent are, in their opinion, in conflict with the Constitution and must substantiate their position on the compliance of every impugned provision of the legal act (part thereof) with the Constitution by clearly formulated legal arguments (inter alia, the Constitutional Court s ruling of 12 December 2005 and its decisions of 14 October 2008, 10 November 2011, and 2 September 2014). Otherwise, the petition of a court requesting an investigation into the compliance of a law or another legal act (part thereof) with the Constitution should be considered not to comply with the requirements of Article 67 of the Law on the Constitutional Court (inter alia, the Constitutional Court s rulings of 12 December 2005 and 16 January 2006 and its decisions of 5 July 2007, 14 October 2008, and 16 November 2010). It should be noted that, if a petition requesting an investigation into the compliance of a legal act (part thereof) with the Constitution in view of the content of norms and/or the scope of regulation indicates neither any concrete articles (parts thereof) or items of the legal act, the compliance of which with the Constitution is doubted by the petitioner, nor any concrete provisions norms and/or principles of the Constitution, with which, in the opinion of the petitioner, the concretely indicated articles (parts thereof) or items of the impugned legal act are in conflict in view of the content of norms and/or the scope of regulation, nor the legal reasoning grounding the doubt of the petitioner concerning each concretely indicated article (part thereof) or item of the impugned legal act (part thereof), the compliance of which with the concretely indicated provisions of the Constitution in view of the content of norms and/or the scope of regulation is doubted by the petitioner, and if such a petition were accepted at the Constitutional Court and a case were commenced subsequent to it, the rights of the party concerned the state institution that has passed the impugned legal act would be restricted, since it would be more difficult for the party concerned to provide explanations concerning the arguments of the petitioner and to prepare for judicial consideration (inter alia, the Constitutional Court s decisions of 16 April 2004, 19 March 2010, 12 December 2012, 8 January 2013, and 28 August 2014). 3. As mentioned before, the petitioner requests an investigation, to the specified extent, into the compliance of the legal regulation laid down in Paragraph 2 of Article 17 (wording of 23 December 2008) of the LPIT with Paragraph 1 of Article 29 and the provision <...> childhood shall be under the <...> care of the State of Paragraph 2 of Article 38 of the Constitution and the constitutional principle of a state under the rule of law The position of the petitioner, in terms of the aforementioned aspect, regarding the

5 5 compliance of the impugned legal regulation, inter alia, with the provision <...> childhood shall be under the <...> care of the State of Paragraph 2 of Article 38 of the Constitution, is, among other things, substantiated by the fact that, in the opinion of the petitioner, Item 32 of Paragraph 1 of Article 17 (wording of 23 December 2008) of the LPIT consolidates a form of childhood social security; therefore, child maintenance income received by the child s mother from the child s father under their agreement should be exempt from personal income tax. In other words, in the opinion of the petitioner, child maintenance may not at all be categorised as income on which personal income tax is payable Seeking to substantiate the aforementioned and other statements, the petitioner, among other things, cites the provisions of the official constitutional doctrine in relation to the obligation of the state to ensure that childhood, as a constitutional value, is fostered and protected in every possible way; however, the petitioner has neither pointed out nor considered that the impugned legal regulation governs specifically the legal relations in connection with taxing, i.e. this legal regulation establishes the types of income exempt from personal income tax and lays down the exceptions where the relief from personal income tax is not applicable to certain income categorised, according to the general rule, as tax-exempt income. Nor does the petitioner points to the official constitutional doctrinal provisions that are particularly relevant in the context of its petition, i.e. the provisions in relation to the constitutional competence of the legislature to establish taxes: inter alia, that the establishment of taxes is an exceptional constitutional competence of the legislature (Articles 67 and 127 of the Constitution), as well as that taxable objects may be very varied (the Constitutional Court s ruling of 22 December 2006) Thus, in its petition, the petitioner does not provide any arguments substantiating that the legislature, while following the Constitution, is unable to implement its exceptional constitutional competence to establish taxes, among other things, in the event of the legal regulation under which income on which personal income tax is payable also includes child maintenance received under the respective agreement from an individual whose permanent place of residence is in a target territory The petitioner substantiates its doubts regarding the compliance of the impugned legal regulation with, inter alia, Paragraph 1 of Article 29 of the Constitution and the constitutional principle of a state under the rule of law by contending that, according to it, the legislature not only has unjustifiably differentiated income, but also has, in certain terms, differently treated children (citizens of the Republic of Lithuania) supported by maintenance income received from territories other than target territories, if compared to children supported by maintenance income received from target territories. In other words, in the opinion of the petitioner, through the impugned legal

6 6 regulation, the legislature, having established that income on which personal income tax is payable also includes child maintenance received under the respective agreement from the child s father whose permanent place of residence is in a target territory, has at the same time unjustifiably singled out one group of children from other children receiving maintenance the group whose maintenance income is received from the parents whose permanent place of residence is in target territories, as well as has unjustifiably differentiated maintenance income received to support a child As mentioned before, Paragraph 1 of Article 17 (wording of 23 December 2008) of the LPIT specifies the types of tax-exempt income, and Paragraph 2 lays down certain exceptions to the general rule established in Paragraph 1 the conditions under which personal income tax is considered to be payable on certain income, although, according to the general rule, such income falls under the regulation of Paragraph 1 of the same article, i.e. is categorised as tax-exempt income. It has also been mentioned that, in view of the petition of the petitioner, it is clear that the relevant exception laid down to the aforementioned general rule in Paragraph 2 of Article 17 (wording of 23 December 2008) of the LPIT is the one under which certain income, i.e. child maintenance received under the respective agreement, is considered to be income on which personal income tax is payable in cases where such income is received from an individual (in the context of the petition from the child s father) whose permanent place of residence is in a target territory. While clarifying the legal regulation consolidated in Paragraphs 1 and 2 of Article 17 (wording of 23 December 2008) of the LPIT, in the context of the petition, it should be noted that certain income is categorised as non-exempt or exempt from personal income tax according to the territory of residence of a person from whom the respective income is received. Thus, the relief from personal income tax, as established under the impugned legal regulation in Paragraph 1 of Article 17 (wording of 23 December 2008) of the LPIT, is applicable or non-applicable to particular income child maintenance received under the respective agreement in view of the source of that income, i.e. depending on whether the income is received from an individual permanently resident in a target territory or another territory. Consequently, although it is, among other things, maintained by the petitioner that one group of children those whose maintenance income is received from the parents whose permanent place of residence is in target territories is unjustifiably singled out under the impugned legal regulation from other children receiving maintenance, and, thus, a worse situation is created with regard to children (citizens of the Republic of Lithuania) who receive maintenance from target territories, if compared to children (citizens of the Republic of Lithuania) who receive maintenance from territories other than target territories, nevertheless, the petitioner does not consider that the impugned legal regulation lays down such rules for levying personal income tax that differ

7 7 depending not on persons for whose maintenance particular income is received, but on sources from which such income is received As mentioned before, in terms of taxation, target territories are specific territories where not only different rates of certain taxes and/or different taxation rules may be applied, but also where such rules for the administration of taxes may be applied that are not clear and not known to the authorised institutions of other countries; also there may be reasonable doubts regarding financial and administrative transparency in these territories. It should be noted that the petitioner, in maintaining that the income in question is unjustifiably differentiated under the impugned legal regulation, does not provide any arguments to substantiate that the indicated types of income maintenance received to support a child under the respective agreement from an individual whose permanent place of residence is in a target territory and income received for an analogous purpose under the respective agreement from a person resident in another territory do not differ to the extent making it impermissible for the legislature to establish different legal regulation regarding the imposition of personal income tax on these types of income. In addition, the petitioner takes no account of the specific status of target territories in terms of the imposition, among other things, of personal income tax and provides no arguments to substantiate that, from the point of view of taxation, no special legal regulation may apply to income received from these territories Thus, it should be held that, in its petition, the petitioner provides no legal arguments substantiating its position regarding the compliance of the legal regulation laid down in Paragraph 2 of Article 17 (wording of 23 December 2008) of the LPIT with the articles of the Constitution indicated by the petitioner, insofar as, under this legal regulation, the relief provided for in Item 32 of Paragraph 1 of Article 17 (wording of 23 December 2008) of the LPIT (based on which taxexempt income includes, among other things, child maintenance received from the child s father under the respective agreement) does not apply where child maintenance income is received from the child s father whose permanent place of residence is in a target territory. Consequently, the petition does not comply with the requirements established in Item 5 of Paragraph 2 of Article 67 of the Law on the Constitutional Court. Under Article 70 of the Law on the Constitutional Court, in the case that a petition (part thereof) fails to comply with the requirements set forth in Article 67 of the Law on the Constitutional Court, the petition is returned to the petitioner. The return of a petition does not take away the right of the petitioner to reapply to the Constitutional Court according to the general procedure once the deficiencies of the petition have been removed. 4. In view of what has been stated above, the conclusion should be drawn that there is a ground to return the petition of the Vilnius Regional Administrative Court, the petitioner, requesting

8 8 an investigation into whether Paragraph 2 of Article 17 (wording of 23 December 2008) of the LPIT, insofar as it prescribes that the relief provided for in Item 32 of Paragraph 1 of this article does not apply where the respective income of an individual is received from individuals whose permanent place of residence is in a target territory, with Paragraph 1 of Article 29 and the provision <...> childhood shall be under the <...> care of the State of Paragraph 2 of Article 38 of the Constitution and the constitutional principle of a state under the rule of law. Conforming to Paragraphs 3 and 4 of Article 22, Paragraph 2 of Article 25, Article 28, Item 5 of Paragraph 2 of Article 67, and Article 70 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania adopts the following decision: To return the petition of the Vilnius Regional Administrative Court, the petitioner, requesting an investigation into whether Paragraph 2 (wording of 23 December 2008, Official Gazette Valstybės žinios, 2008, No ) of Article 17 of the Republic of Lithuania s Law on Personal Income Tax, insofar as it prescribes that the relief provided for in Item 32 of Paragraph 1 of this article does not apply where the respective income of an individual is received from individuals whose permanent place of residence is in a target territory, is not in conflict with the provision <...> childhood shall be under the <...> care of the State of Paragraph 2 of Article 38 and Paragraph 1 of Article 29 and of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law. This decision of the Constitutional Court is final and not subject to appeal. Justices of the Constitutional Court: Elvyra Baltutytė Vytautas Greičius Danutė Jočienė Pranas Kuconis Gediminas Mesonis Vytas Milius Egidijus Šileikis Algirdas Taminskas Dainius Žalimas