Lietuviškai
THE CONSTITUTIONAL COURT OF
THE REPUBLIC OF LITHUANIA
RULING
On the compliance of the Government of the
Republic of Lithuania resolution No 872 "On
partial amendment to the Government of the
Republic of Lithuania resolution No 773 of 16
October 1992", adopted 23 November 1993, with the
second part of Article 14 of the Law on
Enterprises and the Law "On the Procedure for
Promulgation and Enforcement of Laws and Other
Legal
Acts of the Republic of Lithuania
16 March 1994, Vilnius
The Constitutional Court of the Republic of Lithuania,
composed from the Justices of the Constitutional Court Algirdas
Gailiūnas, Zigmas Levickis, Vladas Pavilonis, Pranas Vytautas
Rasimavičius, Teodora Staugaitienė, Stasys Šedbaras and Juozas
Žilys,
the secretary of the hearing - Rolanda Stimbirytė,
representatives of the party concerned - Anicetas Ignotas,
Deputy Minister of Industry and Trade, and Genovaitė
Kraujelienė, Deputy Director of the Department of Enterprise
Finance, Ministry of Finance,
pursuant to Part 1, Article 102 of the Constitution of the
Republic of Lithuania and Part 1, Article 1 of the Law on the
Constitutional Court of the Republic of Lithuania, in its
public hearing of 8 March 1994 conducted the investigation of
Case No 3/94 subsequent to the petitions submitted to the Court
by a group of the Seimas of the Republic of Lithuania members
requesting to investigate if the Government of the Republic of
Lithuania resolution No 872 "On partial amendment to the
Government of the Republic of Lithuania resolution No 773 of 16
October 1992", adopted 23 November 1993, is in compliance with
the second part of Article 14 of the Law on Enterprises and the
Law "On the Procedure for Promulgation and Enforcement of Laws
and Other Legal Acts of the Republic of Lithuania".
The Constitutional Court
has established:
On 23 November 1993, the Government of the Republic of
Lithuania passed resolution No 872 "On partial amendment to the
Government of the Republic of Lithuania resolution No 773 of 16
October 1992 (Official Gazette "Valstybės Žinios", No 64 (49) -
1221, 1993) by which item 8 of the Government resolution "On
currency funds and the procedure for contributions to the State
budget of the Republic of Lithuania" (Official Gazette
"Valstybės Žinios", No 32 - 994, 1992; No 2- 37, No 9 - 228,
1993) has been amended. Now it is formulated in the following
way:
"8. To establish that enterprises, institutions and
organizations of the Republic of Lithuania:
8.1. in book accounting, shall recalculate income and
expenditures in foreign currency into litas according to
official exchange rate that existed on the day of receiving
income or bearing expenditures;
8.2. since 1 October 1993, shall incalculate into earned
income (sales revenues) foreign currency, obtained from
production (goods) that have been exported and from rendered
service, in the following procedure:
8.2.1. convertible currency - on the income day according
to the official exchange rate;
8.2.2. non convertible currency - only after buying litas,
convertible currency, material values for it and after paying
for rendered service as well selling goods obtained through
exchange in kind;
8.3. shall evaluate material values obtained for foreign
currency and rendered service by their acquisition value
according to the official exchange rate on the day of payment,
and material values obtained through exchange in kind on the
day of their debiting according to the official exchange rate
of foreign currency;
8.4. at the end of accounting period, shall include the
results of reappraisal of convertible currency residues into
taxable profit (losses);
8.5. earned income in non convertible currency for the
first-third quarters of 1993, shall recalculate according to
item 8.2.2. of this resolution, adjust financial results of
this period, computation of general excise and debt to the
budget.
If after the recalculation of said income, funds to be
returned from the budget are formed, they are incalculated as
advance instalments of fourth quarter;
8.6. shall include into taxable profit (losses) the
results of reappraisal of foreign currency residues of
first-third quarters of 1993, adjust computation of taxable
profit (losses) and debt to the budget".
The petitioner requests the Constitutional Court to
recognize that resolution No 872 of the Government of the
Republic of Lithuania, adopted 23 November 1993, is not
consistent with the laws of the Republic of Lithuania. The
petitioner bases his request on the fact that the Government in
items 8.4 and 8.6 of said resolution established its
retroactive validity since 1 January 1993, because it
commissioned enterprises, institutions and organizations to
reappraise currency residues which existed in first-third
quarters of 1993 and to impute the difference ensuing from the
change in the exchange rate into the taxable profit.
In the opinion of the petitioner, because of such
administrative decision of the Government, not all the
enterprises can enjoy equal legal-economic conditions of
business activity which could not be foreseen as this
resolution of the Government has retroactive validity. Hereby,
the second part of Article 14 of the Law on Enterprises of the
Republic of Lithuania is violated, because some of the
enterprises acquired unearned profit, whereas others
groundlessly bore losses.
During preliminary investigation of the case the
petitioner's representative, while responding to the statements
of representatives of the party concerned, submitted the
following additional arguments and motives:
1. The Government is not entitled to the right to freely
interpret the law and provide for a new basis for assessment of
taxable profit not relating to the category of income, namely,
the result of reassessment of currency funds. By said
resolution, the Government expanded Article 3 of the Law on
Taxes on Profits of Legal Persons.
2. The interpretation of representatives of the party
concerned that advance payments by applying the instalment rate
are determined in Article 12 of the Law on Taxes on Profits of
Legal Persons, is also groundless. In the above mentioned
Article it is stipulated that the instalment rate shall be
computed by dividing the total profit tax assessed for the
preceding taxable year by the amount of earned income received
during the preceding taxable year. By resolution in dispute the
Government, disregarding the law, retroactively established a
new basis for taxation in accordance with the principles and
procedure of accounting not ascribed to income. Enterprises
could not forecast it, therefore legal - economic conditions of
their business activity have groundlessly become unequal.
3. Said resolution of the Government is applied to all
business entities, personal enterprises - factual economic
communities without the rights of a legal person - among them.
Their taxation is regulated by the Provisional Law on Income
Tax of Natural Persons in which such general income as the
result of reappraisal of currency residue, is not provided for.
Since, due to ex post facto resolution of the Government,
different legal - economic conditions for the business activity
of enterprises have been provided, it may be not be applied to
those business entities who suffer unforeseen losses.
Representatives of the party concerned have explained that
the petitioner's request is groundless because of the following
motives:
1. Requirements set forth in item 8.6 of this resolution
did not have any influence upon the financial results of
enterprises, i.e. the inclusion of the results of reappraisal
of foreign currency residue of first - third quarters of 1993
into the taxable profit did not change the amount of balance
profit, did not increase balance profit and did not cause
balance losses in any enterprise. The purpose of this
resolution is to achieve that enterprises gaining profit due to
the change in the rate of exchange would be taxed and those
incurring losses would decrease payments into the budget.
2. The financial year of an enterprise lasts 12 calendar
months. Accountants, while computing the factual debt to the
budget which has formed during financial year, shall conform to
general principles of accounting declared in the Republic of
Lithuania by the Law on Accounting Principles, and procedures
of accounting established in International Standards of
Accounting, at the end of accounting period shall adjust
records of this debt.
3. Fluctuations of the foreign currency exchange rates is
one of risk factors in the activities of an enterprise and
exerts influence on the profit of an enterprise irrespective of
its economic activities.
4. Enterprises, conforming to the requirements set forth
in the resolution of the Government of the Republic of
Lithuania "On partial amendment to resolution No 773 of the
Government of the Republic of Lithuania of 16 October 1992",
adopted 23 November 1993, adjusted records of the debt to the
budget in November and December of 1993, i.e. after the day of
enforcement of this resolution.
5. This resolution does not contradict the Law on Taxes on
Profits of Legal Persons, since in Article 13 of this Law it is
specified that advanced payments for a year shall be made and
the amount of advance payments shall be computed by applying
the instalment rate. The instalment rate shall be estimated by
dividing the total amount of the profit tax paid for the
preceding taxable year by the amount of sales revenue received
during the preceding taxable year.
6. Resolution No 872 of the Government of the Republic of
Lithuania "On partial amendment to resolution No 773 of the
Government of the Republic of Lithuania of 16 October 1992",
adopted 23 November 1993, did not provide for unequal
conditions of business activity for industrial enterprises.
These conditions were dependant on the factual residues in
foreign currency accounts and exchange fluctuations during
accounting period.
The Constitutional Court
holds that:
In the second part of Article 14 of the Law on Enterprises
it is established that "All enterprises shall have equal
legal-economic conditions".
One of legal prerequisites to ensure such conditions of
business activity are provisions determined in the Law on Taxes
on Profits of Legal Persons: equal computing of taxable profit
for all legal persons (Articles 3 and 4), the same tax rates
(Article 7), uniform procedure for computation and payment of
tax (Articles 11, 12, 13 and 14).
The establishment of uniform conditions for business
activity means equality before the law of business entities but
not equality of the results of economic activities. Cases, when
legal regulation of activities is more favourable for some
business entities and less favourable for others, are possible.
Therefore, not only the contents of legal norms but also their
temporal validity is important for legal subjects, especially
if, due to a newly adopted or amended legal act, they must be
prepared to correct their activities. In order legal subjects
could organize their activities in compliance with the
requirements of legal norms, the procedure for promulgation and
enforcement of laws and other legal acts is determined.
In the second part of Article 7 of the Constitution of the
Republic of Lithuania it is specified: "Only laws which are
promulgated shall be valid", and in Articles 70 and 72 the
procedure for promulgation and enforcement of laws is
regulated.
Conforming to the provisions of the Constitution, the
procedure for promulgation and enforcement of laws and other
legal acts is specified in detail. In Article 4 of the Law on
the Procedure for Promulgation and Enforcement of Laws and
other Legal Acts of the Republic of Lithuania it is
established: "Laws of the Republic of Lithuania shall become
effective only after the signing and official promulgation
thereof in Official Gazette "Valstybės Žinios" by the President
of the Republic, unless the laws themselves establish a later
enforcement date".
In Article 8 of this Law it is stipulated: "Resolutions of
the Government of the Republic of Lithuania in which legal
norms are established, amended or recognized null and void,
shall become effective the day following the signing thereof by
the Prime Minister and official promulgation thereof by
appropriate Minister in Official Gazette "Valstybės Žinios".
Resolutions of the Government of the Republic of Lithuania
in which legal norms are not established, amended or declared
null and void along with directives of the Prime Minister,
shall become effective from the day of their signing thereof,
unless the resolutions and directives themselves provide for a
later enforcement date".
Conforming to the Constitution and Law "On the Procedure
for Promulgation and Enforcement of Laws and Other Legal Acts
of the Republic of Lithuania", the conclusion can be drawn that
the date of enforcement of a legal act which has been
promulgated shall be:
1) for laws: a) the day of their promulgation in Official
Gazette "Valstybės Žinios"; b) a later enforcement date
established in the law itself;
2) for resolutions of the Government - the day following
their promulgation in Official Gazette "Valstybės Žinios".
The power of a law or other legal act is prospective. It
is not possible to require from the person to keep to the rules
that did not exist in the time of his activities and,
therefore, he was not likely to know future requirements. A
legal subject must be sure that his acts committed in
compliance with legal rules that were in effect in the time of
their commitment shall be considered lawful. In contrary case,
the law itself would lose its authority and that would prevent
from establishing a stable legal order.
Jurisprudence and legal traditions allow us to draw the
conclusion that in the sphere of legal regulation a general
rule is valid: a law has no retroactive validity. The essence
of this rule is that laws, except some particular cases,
usually "do not go to the past" i.e. they are not applied to
legal facts, that have already occurred, and legal consequences
that existed prior to the enforcement of a newly adopted
normative act.
While investigating this case, it is important to
determine whether the Government of the Republic of Lithuania
by its resolution No 872 of 23 November 1993 has exerted
influence on legal relations which existed prior to the
adoption of this resolution.
The material gathered for this case as well as
circumstances established during court investigation confirm
the fact that, by the Government resolution in dispute, the
computation of currency income has been changed. Conforming to
it, enterprises had to estimate the income from the sale of
currency, excises, profit and profit tax in the other way.
Pursuant to currency income, financial results of
enterprises, the computation of general excise, profit tax and
debt to the budget have been readjusted. Exchange rate of
convertible currency fluctuated considerably over a year (until
the introduction of litas it rose and after that it fell),
therefore, upon changing the taxation of the results of
reappraisal of the currency residue of the first-third quarters
of 1993 from non-taxable profit into taxable one, a larger
profit was calculated for enterprises having a considerable
convertible currency turnover, and, accordingly, their profit
tax also increased.
On the basis of resolution No 872 of the Government,
adopted 23 November 1993, the amount of profit tax and debt to
the budget has changed not since 23 November 1993 but since the
beginning of that year. Thus, by the Government resolution, the
regulation of lasting legal relation has been changed. However,
such change did not have to exert influence on legal relations
that existed prior to the enforcement date of this resolution.
The statement of representatives of the party concerned
that the Government resolution in dispute has no retroactive
validity, is groundless. Real increase or decrease in profit
taxes of enterprises appeared not due to economic activities of
enterprises but because the Government established other
computation of income. Thus, the Government by its resolution
actually changed the taxation of enterprises and established
its retroactive validity.
The fact that enterprises, conforming to the Government
resolution No 872, adopted 23 November 1993, made records
adjusting the debts in November - December of 1993, i.e. after
the enforcement date of said resolution, and in Article 13 of
the Law on Taxes on Legal Persons it is determined that payment
for given taxable year shall be made in instalments, in
advance, and the amount of a given instalment shall be computed
by applying the instalment rate, does not change the essence of
the matter.
The Government resolution is an executive act. "Norms of
the law are realized by it, however, such an act may not
replace the law itself and create new legal rules of general
nature which in their power would compete with the norms of
law. It is an act of application of norms of law irrespective
of the fact whether this act is of temporary (ad hoc) or
permanent validity" (19 January 1994 Ruling of the
Constitutional Court of the Republic of the Lithuania). Thus,
the Government resolution which has been adopted applying the
norms of law and establishing their retroactive power, in all
cases is not consistent with the law, since it interferes into
the scope of law validity, and its supremacy over executive
acts is violated.
Upon the material gathered for the case and findings
established during the court hearing of the Constitutional
Court, a conclusion can be drawn that the Government by its
resolution since 1 January 1993 having changed the imputation
of the results of revaluation of currency residues from
non-taxable profit into taxable one, was striving towards
implementation of necessary measures of stabilization of
Lithuania's industry and market. The result of said resolution
is that, conforming to it, the profit computed for the majority
of enterprises decreased and alongside decreased profit tax and
debt to the budget. The resolution predetermined the situation
when due to the results of established reappraisal of currency
residue, a number of enterprises computed a larger profit and
also had to pay bigger taxes. The circumstance that, in the
opinion of representatives of the party concerned, there were
very few such enterprises, is of no relevance. This fact allows
to maintain that, because of the Government of the Republic of
Lithuania resolution No 872 "On Partial Amendment to the
Government of the Republic of Lithuania resolution No 773 of 16
October 1992", adopted 23 November 1993", enterprises found
themselves in unequal position. Because of retroactive validity
of this resolution, a number of enterprises could not foresee
that a greater profit would be calculated and they would have
to pay a bigger profit tax.
Conforming to Article 102 of the Constitution of the
Republic of Lithuania and Articles 53, 54, 55 and 56 of the Law
on the Constitutional Court of the Republic of Lithuania, the
Constitutional Court of the Republic of Lithuania has passed
the following
ruling :
To recognize that sub-items 8.4 and 8.6 of item 8 of the
Government of the Republic of Lithuania resolution No 773,
adopted 16 October 1992, newly formulated by the Government of
the Republic of Lithuania resolution No 872, adopted 23
November 1993, contradict the second part of Article 14 of the
Law on Enterprises of the Republic of Lithuania and the Law of
the Republic of Lithuania "On the Procedure for Promulgation
and Enforcement of Laws and Other Legal Acts of the Republic of
Lithuania".
This Constitutional Court ruling is final and not subject
to appeal.
The ruling is promulgated on behalf of the Republic of
Lithuania.