Lietuviškai
THE CONSTITUTIONAL COURT OF
THE REPUBLIC OF LITHUANIA
R U L I N G
On the compliance of Sub-item 1.14 of 9 May 1996
Government of the Republic of Lithuania Resolution
No. 546 "On Value-Added Tax" with the Constitution
of the Republic of Lithuania, Articles 15 and 16
of the Republic of Lithuania Law on Value-Added
Tax, as well as Part 4 of Article 4 and Article 9
of the Republic of Lithuania Law on the Principles
of Accounting
Vilnius, 15 March 2000
The Constitutional Court of the Republic of Lithuania,
composed of the Judges of the Constitutional Court Egidijus
Jarašiūnas, Egidijus Kūris, Zigmas Levickis, Augustinas
Normantas, Vladas Pavilonis, Jonas Prapiestis, Vytautas
Sinkevičius, Stasys Stačiokas, and Teodora Staugaitienė,
with the secretary of the hearing-Daiva Pitrėnaitė,
in the presence of:
the representative of the party concerned-the Government
of the Republic of Lithuania-Birutė Černiuvienė, a deputy head
of the State Tax Inspectorate under the Ministry of Finance of
the Republic of Lithuania,
pursuant to Part 1 of Article 102 of the Constitution of
the Republic of Lithuania and Part 1 of Article 1 of the
Republic of Lithuania Law on the Constitutional Court, on 24
February 2000 in its public hearing conducted the investigation
of Case No. 22/98 subsequent to the petition submitted to the
Court by the petitioner-the Court of Appeal of
Lithuania-requesting to investigate if Sub-item 1.14 of 9 May
1996 Government of the Republic of Lithuania Resolution No. 546
"On Value-Added Tax" was in compliance with Items 2 and 7 of
Article 94 and Part 3 of Article 127 of the Constitution of the
Republic of Lithuania, Articles 15 and 16 of the Republic of
Lithuania Law on Value-Added Tax, as well as Part 4 of Article
4 and Article 9 of the Republic of Lithuania Law on the
Principles of Accounting.
The Constitutional Court
has established:
I
The petitioner- the Court of Appeal of Lithuania-was
investigating a civil case under the procedure of appeal
wherein it was requested to repeal an inspection act of the
State Tax Inspectorate under the Ministry of Finance of the
Republic of Lithuania concerning payment of value-added tax and
penalties and a decision concerning payment of value-added tax.
By its ruling, the said court suspended the investigation
of the case and appealed to the Constitutional Court with a
petition requesting to investigate whether Sub-item 1.14 of 9
May 1996 Government Resolution No. 546 "On Value-Added Tax"
(Official Gazette Valstybės žinios, 1996, No. 44-1081;
hereinafter referred to as the Resolution) was in compliance
with Items 2 and 7 of Article 94 and Part 3 of Article 127 of
the Constitution, Articles 15 and 16 of the Law on Value-Added
Tax, as well as Part 4 of Article 4 and Article 9 of the Law on
the Principles of Accounting.
The request of the petitioner is based on the following
arguments.
Part 3 of Article 127 of the Constitution indicates as for
by what form of a legal act taxes, other budgetary payments,
and dues must be established: "taxes, other budgetary payments,
and dues shall be established by the laws of the Republic of
Lithuania", while the common principles of the competence of
the Government are provided for in Article 94 of the
Constitution. The main powers of the Government in the area of
enforcement of laws and resolutions of the Seimas concerning
implementation of laws are established in the Law on the
Government of the Republic of Lithuania.
The petitioner maintains that under the Constitution and
the Law on the Government, the Government is not entitled to
establish taxes, other payments, and dues. Nor is the
Government granted the right to establish a different procedure
for their payment than provided for in the law. Although the
Government is empowered to adopt substatutory acts by the Law
on Value-Added Tax in order to regulate relations in the sphere
of value-added tax (hereinafter referred to as VAT), however it
is not commissioned to regulate the relations occurring when
VAT is calculated, paid to the budget or when accounting of VAT
is kept. Meanwhile, in Sub-item 1.14 of the Resolution the
Government established a requirement for the taxpayer that
after a smaller sum of VAT for sale has been computed for goods
sold (in case the sale price of the goods is less than that of
their purchase or the taxable value when the goods are
imported), the sum of VAT for purchase (import) must be
deducted, while in the VAT declaration the form of which shall
be established by the Minister of Finance, the sum of VAT for
the goods sold must correspondingly be specified more precisely
(increased by the size of VAT for purchase (import)); under the
same procedure the sum of VAT shall be specified more precisely
(increased) for the goods the sum of VAT whereof has been
included into the deduction in case it becomes clear that these
goods will not be sold or used for the production of goods or
rendering of services subject to VAT (in case of damage,
burning etc. of the goods). Therefore, the petitioner is of the
opinion that Sub-item 1.14 of the Resolution conflicts with
Items 2 and 7 of Article 94 and Part 3 of Article 127 of the
Constitution, as well as Articles 15 and 16 of the Law on
Value-Added Tax.
The petitioner points out that the basis for payment of
VAT into (or its refunding from) the budget is declarations of
VAT which may be based on initial accounting documents, i.e.
invoices of VAT or other documents. Only upon the basis of the
initial documents the size of VAT for sale or purchase may be
determined. As by making the sum of VAT for sale more precise
(increasing) under Sub-item 1.4 of the Resolution no primary
documents are required which might provide the basis for the
increased VAT for sale, then such a provision conflicts with
Part 4 of Article 4 and Article 9 of the Law on the Principles
of Accounting.
The petitioner is also of the opinion that the Government,
by establishing additional requirements for the taxpayer to
increase payable VAT in the absence of the documentation
grounds, actually demands that VAT be paid twice for the same
goods. The petitioner points out that the purchaser, on
acquisition of goods, pays VAT to the vendor, while in case of
damage or other destruction of the goods the sum of VAT for
sale must be increased to that of VAT for purchase, i.e. the
purchaser must pay VAT for the same goods for the second time.
II
The representatives of the party concerned V. Latvienė, a
Vice-minister of Finance of the Republic of Lithuania, and B.
Černiuvienė, a deputy head of the State Tax Inspectorate under
the Ministry of Finance of the Republic of Lithuania, explained
in writing that Sub-item 1.14 of the Resolution is in
compliance with Items 2 and 7 of Article 94 and Part 3 of
Article 127 of the Constitution, Articles 15 and 16 of the Law
on Value-Added Tax as well as Part 4 of Article 4 and Article 9
of the Law on the Principles of Accounting and presented the
following arguments.
The Resolution was adopted pursuant to the Law on
Value-Added Tax. By the Resolution no new taxes are introduced:
it merely particularises the procedure of computation and
payment of VAT. Therefore the Government, adopting this
Resolution, was exercising its powers granted to it by Article
94 of the Constitution, the Law on the Government, Article 6 of
the Law on Tax Administration and the Law on Value-Added Tax,
particularly Article 40 thereof.
According to the representatives of the party concerned,
Sub-item 1.14 of the Resolution is in conformity with Article
15 of the Law on Value-Added Tax wherein the common procedure
of computation of VAT is established. The said item is also in
compliance with Article 16 of the Law on Value-Added Tax. Under
the provisions of the Law on Value-Added Tax, the taxpayer who
has acquired goods (received services) may deduct all the sum
of VAT for sale (for import paid) already during the same tax
period. To the payers of VAT who have acquired goods and
services, VAT for sale (for import paid) shall be refunded from
the budget in case the purchased goods (services) are used for
the purpose of the activities subject to VAT during the same or
other tax periods. The representatives of the party concerned
maintain that taxpayers, as a rule, at the moment of
acquisition of goods still do not know if these goods
(services) will be used for the activities subject to VAT,
therefore the Government, by the provisions of Sub-item 1.14
regulated such cases when the purchased goods (services) are
not used for the activities subject to VAT, while all the sum
of VAT of their purchase has been groundlessly deducted.
The representatives of the party concerned pointed out
that the statement of the petitioner that the provisions of
Sub-item 1.14 of the Resolution commissioning the taxpayers to
pay VAT twice for the same goods is also totally groundless.
Only the sum of VAT (or portion thereof) is returned to the
budget which was refunded from the budget to the taxpayer in
advance on the condition that the acquired goods (services)
would be used for the activity subject to VAT.
In the opinion of the representatives of the party
concerned, Sub-item 1.14 of the Resolution is in compliance
with Part 4 of Article 4 and Article 9 of the Law on the
Principles of Accounting as Part 4 of Article 4 of the said law
provides that "business transactions which cannot be confirmed
by accounting documents shall be confirmed by accounting
documents for other transactions related to the said
transactions", while such documents may be documents of
purchase of goods.
III
In the course of the preparation of the case for the
judicial investigation written explanations of the
representatives of state institutions-E. Žilevičius, a
Vice-minister of Finance of the Republic of Lithuania, E.
Kunevičienė, Chairwoman of the Budget and Finance Committee of
the Seimas, G. Švedas, a Vice-minister of Justice of the
Republic of Lithuania, and V. Vadapalas, Director General of
the Department of European Law under the Government of the
Republic of Lithuania, as well as those of the
specialists-Assoc. Prof. Dr. I. Čepienė, Head of the Department
of Finance and Credit of the Faculty of Economics of Vilnius
University, J. Miškinytė, Director of the Audit and
Consultation Centre of the private company Pačiolis, R.
Vainienė, Vice-president of the Lithuanian Free Market
Institute, Assoc. Prof. Dr. A. Miškinis, Head of the Finance
and Tax Law Department of the Law Faculty of the Law Academy of
Lithuania and J. Kabašinskas, an auditor from the audit company
J. Kabašinskas ir partneriai, were received.
IV
The representative of the party concerned B. Černiuvienė,
a deputy head of the State Tax Inspectorate under the Ministry
of Finance of the Republic of Lithuania virtually reiterated
the arguments set down in her written explanations.
The specialists-J. Miškinytė, J. Kabašinskas, as well as
Assoc. Prof. Dr. P. Puzinauskas who works at the Department of
Finance and Credit of the Faculty of Economics of Vilnius
University-spoke at the court hearing.
The Constitutional Court
holds that:
I
On the compliance of Sub-item 1.14 of 9 May 1996
Government Resolution No. 546 "On Value-Added Tax" with Items 2
and 7 of Article 94 of the Constitution, Articles 15 and 16 of
the Law on Value-Added Tax.
1. On 22 December 1993, the Seimas passed the Law on
Value-Added Tax. Article 15 of the said law provides: "Upon
expiration of the tax period, the payers of VAT must transfer
into the budget the difference between the computed sum of VAT
for goods sold and services rendered and the deductible sum of
VAT." Article 16 of the said law reads: "The deductible sum of
VAT shall be the sum of VAT recorded in the accounts for goods
delivered by the suppliers and services rendered and the sum of
VAT paid for imported goods which shall be used for the
production and sale of goods subject to VAT and for the
rendering of services subject to VAT. This sum shall be
determined taking into account the provisions of Articles 18,
19 and 20" (wording of 14 October 1997 of the law).
On 9 May 1996, the Government adopted Resolution No. 546
"On Value-Added Tax". Sub-item 1.14 thereof provides:
"<
> after a smaller sum of VAT for sale has been computed
for goods sold (in case the sale price of the goods is less
than that of their purchase or the taxable value when the goods
are imported), all the sum of VAT for purchase (import) shall
be deducted, while in the VAT declaration the form of which
shall be established by the Minister of Finance, the sum of VAT
for the goods sold shall correspondingly be specified more
precisely (increased by the size of VAT for purchase (import)).
This provision shall not be applicable in cases when goods are
sold from the state reserve.
Under the same procedure the sum of VAT shall be specified
more precisely (increased) for the goods the sum of VAT whereof
has been included into the deduction in case it becomes clear
that these goods will not be sold or used for the production of
goods or rendering of services subject to VAT (in case of
damage, burning etc. of the goods).
The sum of VAT subject to the specification by the size of
which in the cases provided for in this Item the sum of VAT is
increased in the VAT declaration shall be ascribed to the
expenditure, while the taxable income (revenues) are computed"
(wording of 24 December 1998 of the Resolution).
2. The petitioner-the Court of Appeal of
Lithuania-requests to investigate whether Sub-item 1.14 of the
Resolution is in compliance with Items 2 and 7 of Article 94
and Part 3 of Article 127 of the Constitution as well as
Articles 15 and 16 of the Law on Value-Added Tax.
The request is motivated on the fact that under Part 3 of
Article 127 of the Constitution, "taxes, other budgetary
payments, and dues shall be established by the laws of the
Republic of Lithuania". Under Items 2 and 7 of Article 94 of
the Constitution, the Government shall only implement laws and
resolutions of the Seimas concerning the implementation of
laws, discharge other duties prescribed to the Government by
the Constitution and other laws. Therefore, in the opinion of
the petitioner, the Government may not establish any taxes, the
procedure of their payment other than provided for by the law,
nor additional restrictions which are not provided for by laws,
etc., in case the Government is not commissioned to perform it
by the law, a Seimas resolution or the Constitution.
The petitioner maintains that by the Law on Value-Added
Tax the Government is commissioned to adopt substatutory acts
to regulate the legal relations. In the opinion of the
petitioner, this list of assignments is final. Sub-item 1.14 of
the Resolution contains a requirement to increase the sum of
VAT for purchase to that of VAT for sale in case the goods are
sold cheaper than the price of their acquisition or their
customs value or upon the loss, disappearance or damage of the
goods. In the opinion of the petitioner, the Law on Value-Added
Tax does not grant the right to the Government to establish
such requirements, as they are absent in the law itself,
therefore the Government is not empowered independently to
establish such a procedure for and conditions of such taxation.
Having summarised the arguments set down in the petition,
it is possible to assert that the petitioner doubts whether the
norms of Sub-item 1.14 as to their form are in conflict with
the Constitution, as, according to the petitioner, the
Government was not commissioned to regulate these relations by
the Law on Value-Added Tax, although the said relations have
not been regulated in the law itself. In addition, the
petitioner is of the opinion that the provisions of the
disputed act actually obligated the taxpayer to pay VAT twice
for the same goods: the first time to the vendor of goods on
purchasing of the goods, while for the second time-upon loss,
damage, etc. of the goods when the sum of VAT is specified more
precisely by increasing it to the sum of VAT for purchase.
3. Taxes are an essential part of the financial system of
the state. They constitute the major part of state budget
revenues. Taxes are defined as obligatory payments of natural
and legal persons which are not subject to individual
compensation into the state (municipal) budget by indicating
their size and term of payment.
Part 3 of Article 127 of the Constitution provides:
"Taxes, other budgetary payments, and dues shall be established
by the laws of the Republic of Lithuania." The Constitutional
Court has held that these and other norms of the Constitution
not only establish the prerogative of the Seimas to establish
taxes but also the form of the legal act this legal regulation
is to be performed. Thus taxes may be established by laws only
(Constitutional Court rulings of 15 March 1996, 10 July 1997, 9
October 1998).
Article 2 of the Law on Tax Administration defines a tax
as "a monetary obligation owed by the taxpayer to the state in
order that funds may be obtained to fulfil state (municipal)
functions". Tax relations are legal relations of obligation
between the state and the taxpayer. Taxes, as an obligation,
may be established (introduced) only by the law as a legal act
of the supreme power. However, it is not sufficient merely to
establish a tax as an obligation so that taxes would be
properly paid and collected. It is also necessary to regulate
the procedure for their payment wherein not only the content of
the tax but also organisational issues of tax administration,
methods of computation of payment of actual taxes etc. must be
established. Thus, legal regulation of taxes is not only their
establishment by laws but the procedure of their implementation
as well which may be regulated by substatutory acts. Therefore,
in the course of establishment of taxes it is of utmost
importance to differentiate as to what relations must be
regulated by laws and what may be regulated by substatutory
acts as well.
It needs to be noted that such essential elements of the
tax as the object of the tax, subjects of tax relations, their
rights and duties, tax rates (tariffs), term of payment,
exceptions and advantages must be provided for by the law.
4. Article 94 of the Constitution provides:
"The Government of the Republic of Lithuania shall:
<
> 2) implement laws and resolutions of the Seimas
concerning the implementation of laws, as well as the decrees
of the President of the Republic;
<
> 7) discharge other duties prescribed to the Government
by the Constitution and other laws."
From the standpoint of the case at issue, the fact is of
essential importance in the course of the construction of these
constitutional provisions whether the Government may regulate
certain issues of calculation and payments of taxes by
substatutory acts only in cases when it is directly
commissioned to do so by the law or whether it may do it
independently by carrying out its constitutional duty to
implement laws.
Under Item 2 of Article 94 of the Constitution, the
Government may adopt substatutory acts independently of the
fact that such an assignment was established to it by the law
or not. Under Item 7 of Article 94 of the Constitution, it is
obligated to adopt a substatutory act in order to discharge its
duty commissioned to it by the Constitution and other laws. In
the context of the case at issue it is important that under
Part 2 of Article 6 of the Law on Tax Administration, in the
course of implementing tax laws, the Government shall establish
appropriate methods and regulations ensuring tax
administration. In all cases, however, the legal act adopted by
the Government may not be in conflict with the law, and,
furthermore, it may not contain any new legal norms competing
with those of the law. In addition, the legislator may not
commission the Government in such a way which would, by its
content, violate the constitutional principle of the supremacy
of law.
Thus, on the ground alone when the law commissioned the
Government additionally to regulate a certain question of the
implementation of the law or when it did not commissioned the
Government to do so, it is impossible to decide whether the
substatutory act adopted by the Government is in conflict with
the Constitution and the laws or whether it is in conformity
with them. In every particular case the relation between the
content of the norms of the adopted substatutory act of the
Government and that of the norms of the laws for the
implementation of which the said substatutory act was adopted
must be assessed.
Therefore, the Constitutional Court emphasises that in the
course of the investigation of the request of the petitioner
one has to assess in a systematic manner the legal regulation
of VAT and the nature and peculiarities of this tax.
5. Part 1 of Article 5 of the Law on Tax Administration
contains the list of taxes in the Republic of Lithuania. Among
the 16 administered taxes, VAT is established in Item 1 of Part
1 of the said article. The said tax is regulated in detail in
the Law on Value-Added Tax. This law provides for the subjects
that are to pay VAT, the object of the tax, the list of the
goods not subject to VAT, the taxable value, the time for the
computation of VAT, the rates, the procedure for the
computation of VAT, VAT accounting, the procedure for payment
of VAT into the budget, control of the tax, economic sanctions
for violations etc.
VAT shall be calculated and paid into the budget by: legal
persons, enterprises without the rights of a legal person,
sub-units of foreign economic entities operating in the
Republic of Lithuania, and natural persons (Part 1 of Article 5
of the Law on Value-Added Tax), which is in line with the
provisions of Article 6 of the Law on Value-Added Tax. It needs
to be noted that persons who are not payers of VAT shall not
have the right to charge this tax to their customers (Article 8
of the Law on Value-Added Tax).
Under the provisions of Article 1 of the Law on
Value-Added Tax, "the object of the value-added tax shall be
the value added to the product and services at each stage of
production, distribution and sales, as well as imported goods",
while Article 2 thereof provides that "a good, as the object of
tax, shall include things, coins meant for numismatics, energy
of all types, and real property (with the exception of land).
Imported goods as the object of tax are not Lithuanian goods,
therefore, under the Customs Code of the Republic of Lithuania,
import liability appears before customs". It is established in
Article 3 that "services, as the object of the tax, shall
include services of all types and other activities provided for
a consideration of money, excluding those provided by the
employees to their employers under employment contract". The
provisions of Article 4 of the Law on Value-Added Tax provide
for the list of goods exempt from VAT.
VAT is an indirect tax. It is paid from the value added
(or imported goods) and is not linked with the property or
income of the payer. VAT is of multi-stage nature: a good
(service) is taxed in every transaction of purchase and sale,
as well as during import of goods. The tax payer, after he has
paid the sum of VAT to the provider (vendor) of goods or
services in the course of their purchase, charges the sum of
VAT for his goods or services.
6. Under the provisions of Article 15 of the Law on
Value-Added Tax, the size of VAT which is paid into the budget
by the payers of VAT for the tax period is calculated from the
difference between the computed sum of VAT for goods sold and
services rendered and the deductible sum of VAT. Article 16 of
the Law on Value-Added Tax stipulates that "the deductible sum
of VAT shall be the sum of VAT recorded in the accounts for
goods delivered by the suppliers and services rendered and the
sum of VAT paid for imported goods which shall be used for the
production and sale of goods subject to VAT and for the
rendering of services subject to VAT". Thus, under the
provisions of the law, the payers of VAT are entitled to deduct
the sum of VAT for purchase only of such goods and/or services
which will be used for the production and sale of goods subject
to VAT and for rendering of services subject to VAT. Therefore,
it needs to be emphasised that the notion of VAT for purchase
of goods is not identical to that of deductible VAT. VAT for
purchase of goods is a sum which subjects pay to the other
subjects in the course of purchase of goods or services, while
deductible VAT is the sum of VAT for purchase paid only for the
goods and services which will be used for the production and
sale of goods subject to VAT and for rendering of services
subject to VAT. It needs to be noted that the deductible sum of
VAT may be smaller than the sum of VAT for purchase in cases
when not all goods (services) are used for the production and
sale of goods subject to VAT or for the rendering of services
subject to VAT. And, in general, the size of the deductible VAT
becomes known and clear only after the purchased goods
(services) have actually been used for the production and sale
of goods subject to VAT and for the rendering of services
subject to VAT, i.e. upon expiration of a certain period which
may exceed the tax period, meanwhile the size of the sum of VAT
for purchase becomes clear at the moment of purchase of goods
(services). Even though the rule of the computation of the tax
established in Article 15 of the Law on Value-Added Tax permits
the tax payers to deduct only the deductible sum of VAT,
however, after all the content of the norms of the Law on
Value-Added Tax has been analysed (especially that of the
provisions of the first sentence of Part 4 of Article 17 of the
Law on Value-Added Tax), it is to be concluded that the
taxpayer is entitled to subtract all sum of VAT for purchase
(not deductible yet, as it is impossible to know that at the
moment) from the sum of VAT for sale, i.e. by this sum to
decrease the sum of VAT to be paid into the budget at the same
tax period when he purchases goods (services) in case the
acquired goods (services) are, during the same or another tax
period, used for the activities subject to VAT. Meanwhile, in
case it becomes clear that the taxpayer will not use the
purchased goods (services) for the production and sale of goods
subject to VAT or for rendering of services subject to VAT, the
extent of the deducted sum of VAT for purchase must
respectively be made more precise.
Thus, Article 15 of the Law on Value-Added Tax provides
for the common procedure of computation of VAT, while Article
16 defines the notion of the deductible sum of VAT, as well as
the principle of the computation of this sum and the common
procedure, by pointing out that "the deductible sum of VAT
shall be determined taking into account the provisions of
Articles 18, 19 and 20".
7. Sub-item 1.14 of the Resolution particularises the
procedure of determination of the deductible sum of VAT by
taking account of various situations of determination of the
deductible sum of VAT and by establishing the procedure for
making more precise the deductible sum of VAT recorded in the
accounts (in fact, that of VAT for purchase). This sub-item of
the Resolution provides for the procedure for making more
precise of the deductible VAT in the situations when "after a
smaller sum of VAT for sale has been computed for goods sold
(in case the sale price of the goods is less than that of their
purchase or the taxable value when the goods are imported)",
and also "in case it becomes clear that these goods will not be
sold or used for the production of goods or rendering of
services subject to VAT (in case of damage, burning etc. of the
goods)".
In all the situations provided for in the Resolution the
taxpayers do not create any value added, nor do they use the
goods (services) for the activities subject to VAT, therefore,
according to the meaning of Articles 1 and 16 of the Law on
Value-Added Tax, to that extent they do not have the right to
deduct VAT. In such cases the deductible sum of VAT will be
smaller than the sum of VAT for purchase, therefore it must be
specified as to what extent the sum of VAT for purchase
deducted in advance must be returned to the budget.
8. It needs to be noted that in the Resolution, as an act
regulating the procedure for the implementation of the Law on
Value-Added Tax, a clear wording should be used which would not
lead to ambiguities. In the context of the case at issue a
possibility of such an ambiguous interpretation occurs due to
the wording used in Sub-item 1.14 of the Resolution which is
different from that set down in the Law on Value-Added Tax. The
wordings employed in the law are "computed sum of VAT",
"deductible sum of VAT", meanwhile the wordings "sum of
purchase to be increased" and "sum of VAT to be made more
precise" employed in Sub-item 1.14 of the Resolution may be
interpreted in a different manner. However, due to the
above-mentioned arguments in this Ruling, these inaccuracies
may not be recognised as a sufficient ground to admit that they
are in conflict with Articles 15 and 16 of the Law on
Value-Added Tax, Items 2 and 7 of Article 94 and Part 3 of
Article 127 of the Constitution.
Alongside, the Constitutional Court notes that the Law on
Value-Added Tax should more precisely define the criteria of
the computation of the deductible sum of VAT, directly point
out the exceptions to such computation and the procedure for
carrying them out. In such a way the principles of clearness
and explicitness of legal regulation of taxes, as well as those
of legal precision, which are of utmost importance when taxes
and procedures for their computation are established, would be
guaranteed in a better way.
9. The assumption that the taxpayers are forced to pay VAT
twice, i.e. at the moment of purchase of goods (services) they
pay VAT (paid for import) for purchase to the vendor, while at
the moment of sale of the goods (rendering services) they pay
VAT for sale into the state budget, is groundless. It is only
the difference between the sum of VAT for sale and the
deductible sum of VAT which is paid into the budget, in other
words it is only the sum of VAT (portion thereof) which is
returned to the budget by which the taxpayers have been funded
from the budget in advance.
10. Taking account of the arguments set forth above, it is
to be concluded that Sub-item 1.14 of 9 May 1996 Government
Resolution No. 546 "On Value-Added Tax" is in compliance with
Items 2 and 7 of Article 94 and Part 3 of Article 127 of the
Constitution and Articles 15 and 16 of the Law on Value-Added
Tax.
II
On the compliance of Sub-item 1.14 of 9 May 1996
Government Resolution No. 546 "On Value-Added Tax" with Part 4
of Article 4 and Article 9 of the Law on the Principles of
Accounting.
1. On 18 June 1992, the Supreme Council of the Republic of
Lithuania adopted the Law on the Principles of Accounting. Part
4 of Article 4 of the said law provides: "All business and
financial transactions shall be confirmed by accounting
documents. Business transactions which cannot be confirmed by
accounting documents shall be confirmed by accounting documents
for other transactions related to the said transactions."
Article 9 of this law provides:
"Accounting documents shall be the basis for records of
business transactions in accounting registers. They shall be
recorded clearly and legibly, either by hand or technical
means. Records into accounting registers shall also be entered
clearly and legibly, either by hand or technical means.
Business transactions data must be entered into accounting
registers chosen by the enterprises not later than within 30
days after the end of the calendar month save the data of
documents concerning permanent or long-term service contracts
(energy, gas, communications, lease and other data under
agreements).
Enterprises shall confirm the performed business
operations (save rendering of telecommunications services for
mass consumers) with special accounting documents. The
operations, including rendering of telecommunications services
for mass consumers, which, under the procedure established by
the Government of the Republic of Lithuania, do not need to be
confirmed by special accounting documents, shall be confirmed
either by exemplary documents or free form documents."
2. The petitioner-the Court of Appeal of
Lithuania-requests to investigate whether Sub-item 1.14 of the
Resolution is in compliance with Part 4 of Article 4 and
Article 9 of the Law on the Principles of Accounting.
The petitioner points out that invoices of VAT or other
documents provided for in the law serve as the basis to
determine the sum of VAT for purchase and that of VAT for sale
(Part 1 of Article 18 of the Law on Value-Added Tax). The Law
on Value-Added Tax does not commission the Government to
establish another way or procedure for determination of the sum
of VAT. In such a case, according to the petitioner, when the
sum of VAT for sale is increased under Sub-item 1.14 of the
Resolution, there exist no documents certifying the increase of
VAT for sale and there are no grounds to keep records of VAT
and fill in the declaration of VAT. Therefore, in the opinion
of the petitioner, this conflicts with Article 9 of the Law on
the Principles of Accounting stipulating that "accounting
documents shall be the basis for records of business
transactions in accounting registers" and Part 4 of Article 4
of the same law which reads that "all business and financial
transactions shall be confirmed by accounting documents".
3. It needs to be noted that all the persons pointed out
in Part 1 of Article 1 of the Law on the Principles of
Accounting must keep their financial accounting under the
provisions of the said law. Financial accounting is consistent
registration and analysis of economic-financial operations
performed by an entity.
Documentation is one from many elements of financial
accounting. Its essence is disclosed in Part 4 of Article 4 of
the Law on the Principles of Accounting: "All business and
financial transactions shall be confirmed by accounting
documents. Business transactions which cannot be confirmed by
accounting documents shall be confirmed by accounting documents
for other transactions related to the said transactions." The
accounting (or initial) documents must be drawn up in
accordance of the requirements set down in Article 10 of the
Law on the Principles of Accounting and other legal acts so
that they might acquire juridical validity. Article 10 of the
said law provides for the mandatory requisites for all
accounting documents.
On the basis of the initial documents the registers of
financial accounting are filled in (Part 1 of Article 9 of the
Law on the Principles of Accounting), which are accounts,
sub-accounts, balances etc.
4. Financial accounting the procedure of keeping whereof
is established by the Law on the Principles of Accounting is
different from tax records on the grounds whereof taxes are
computed. The record of VAT is regulated by provisions of the
Law on Value-Added Tax.
All economic-financial operations linked with dispatch of
goods subject to VAT or rendering of services subject to VAT
must also be documented, i.e. confirmed by accounting
documents, while the procedure of filling in these initial
documents (invoices of VAT or other accounting documents) is
established by the provisions of Article 10 of the Law on the
Principles of Accounting (Article 26 of the Law on the Law on
Value-Added Tax).
However, the payers of VAT must keep an individual record
of purchase and sale of taxable goods and services, according
to which VAT shall be computed (Article 30 of the Law on
Value-Added Tax). The registers of this accounting are
accounts, sub-accounts, declarations of VAT; the latter may be
rectified under the procedure established by legal acts of
taxes (by providing for common situations in tax laws
commissioning taxpayers to accomplish it).
5. The Law on the Principles of Accounting does not
regulate the relations of conducting of the procedure of VAT
recording, therefore it is to be recognised that Sub-item 1.14
of Resolution No. 546 "On Value-Added Tax" is in compliance
with Part 4 of Article 4 and Article 9 of the Law on the
Principles of Accounting.
Conforming to Article 102 of the Constitution of the
Republic of Lithuania and Articles 53, 54, 55 and 56 of the
Republic of Lithuania Law on the Constitutional Court, the
Constitutional Court has passed the following
ruling:
To recognise that Sub-item 1.14 of 9 May 1996 Government
of the Republic of Lithuania Resolution No. 546 "On Value-Added
Tax" is in compliance with the Constitution of the Republic of
Lithuania, Articles 15 and 16 of the Republic of Lithuania Law
on Value-Added Tax, as well as Part 4 of Article 4 and Article
9 of the Republic of Lithuania Law on the Principles of
Accounting.
This Constitutional Court ruling is final and not subject
to appeal.
The ruling is promulgated on behalf of the Republic of
Lithuania.