Lietuviškai
Case No. 47/03
THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA
RULING
ON THE COMPLIANCE OF ITEM 1 (WORDING OF 29 SEPTEMBER
1998) OF PARAGRAPH 1 OF ARTICLE 2 OF THE REPUBLIC OF
LITHUANIA PROVISIONAL LAW ON INCOME TAX OF NATURAL
PERSONS WITH THE CONSTITUTION OF THE REPUBLIC OF
LITHUANIA
22 December 2006
Vilnius
The Constitutional Court of the Republic of Lithuania,
composed of the Justices of the Constitutional Court Armanas
Abramavičius, Toma Birmontienė, Egidijus Kūris, Kęstutis
Lapinskas, Zenonas Namavičius, Ramutė Ruškytė, Vytautas
Sinkevičius, Stasys Stačiokas, and Romualdas Kęstutis Urbaitis,
with the secretary of the hearingDaiva Pitrėnaitė,
pursuant to Articles 102 and 105 of the Constitution of
the Republic of Lithuania and Article 1 of the Law on the
Constitutional Court of the Republic of Lithuania, in its public
hearing on 21 December 2006 heard case No. 47/03 subsequent to
the petition of the Lithuanian Supreme Administrative Court, the
petitioner, requesting to investigate whether the provision
"Income tax shall not be levied on: (1) pensioners' pensions <
>
paid by foreign states, which are taxed in those states" of
Paragraph 1 (wording of 29 September 1998) of Article 2 of the
Republic of Lithuania Provisional Law on Income Tax of Natural
Persons was not in conflict with Paragraph 1 of Article 29 of the
Constitution of the Republic of Lithuania.
The Constitutional Court
has established:
I
The Supreme Administrative Court of Lithuania, the
petitioner, was considering an administrative case. By its
ruling, the said court suspended the consideration of the case
and applied to the Constitutional Court with a petition
requesting to investigate whether the provision "Income tax shall
not be levied on: (1) pensioners' pensions <
> paid by foreign
states, which are taxed in those states" of Paragraph 1 (wording
of 29 September 1998) of Article 2 of the Provisional Law on
Income Tax of Natural Persons (hereinafter also referred to as
the Law) was not in conflict with Paragraph 1 of Article 29 of
the Constitution.
II
The petition of the petitioner is based on the fact that
the pension of the pensioners who receive pensions from the
Republic of Lithuania state social insurance funds and state and
municipal budgets is not taxed by income tax of natural persons,
while the pension of the pensioners who receive pension from
foreign states is not taxed with this tax only in the case when
it was taxed in those foreign states. However, old age pensions
received by both groups of pensioners are the income of the same
kind, they are intended to ensure the minimum standard of living
for the persons who are unable to work due to their old age,
thus, if some of them are taxed, while others are not, the groups
of persons having the same features find themselves in different
positions. In the opinion of the petitioner, such legal
regulation discriminates the recipients of pensions from foreign
states in comparison with pensioners, who receive pensions from
the Republic of Lithuania state social insurance funds and state
and municipal budgets, and thus, Paragraph 1 of Article 29 of the
Constitution, wherein it is established that all persons shall be
equal before the law, the court, and other state institutions and
officials, is violated.
III
In the course of the preparation of the case for the
Constitutional Court hearing, written explanations were received
from A. Butkevičius, the representative of the Seimas, the party
concerned, wherein it is stated that the disputed provision of
the Law is not in conflict with the Constitution. The position of
the representative of the party concerned is based on the
following arguments.
1. The Lithuanian tax system virtually coincides with the
tax systems of most states of the world where taxation is
established according to the place of residence: the state has
the right to tax all the income of its permanent residents
irrespective of the place of its source, taking account of the
taxes paid in foreign states and other circumstances. While
deciding whether the situation of the tax payers is the same, one
is to take account of the fact whether their income is the same
or whether it is different. Income is grouped according to its
kind and source. It is considered to be the same, if it coincides
under both of these criteria.
In the discussed situation, the income coincides
according to its kind (pensions) but not according to its source
(it is either paid by Lithuania or by a foreign state). Thus, it
is impossible to state that the situation of the tax payer who
receives a pension from Lithuania is equal to the situation of
the one who receives a pension from a foreign state.
2. Taxation according to the place of residence means
that permanent residents of a state pay taxes from the income
received not only in the said state (state of residence), but
also abroad (state of the source of income). Foreign states can
also tax such income, thus, it may be taxed twice. The disputed
provision established equal taxation for the tax payers who
receive the same incomepensions from Lithuania or pensions from
a foreign statethus, it did not permit to tax the pensions
received from foreign states with which Lithuania has not signed
international treaties concerning the avoidance of double
taxation.
IV
In the course of the preparation of the case for the
Constitutional Court hearing, written explanations were received
from D. Grybauskaitė, the Minister of Finance of the Republic of
Lithuania, P. Koverovas, State Secretary of the Ministry of
Justice of the Republic of Lithuania, D. Kriaučiūnas, Director
General of the European Law Department under Ministry of Justice
of the Republic of Lithuania, J. Gurauskas, the First Deputy Head
of the State Tax Inspectorate under the Ministry of Finance of
the Republic of Lithuania and B. Černiuvienė, Deputy Head of the
same inspectorate and V. Valeckaitė, Deputy Director of the Law
Institute.
The Constitutional Court
holds that:
I
1. The petitioner requests to investigate whether the
provision "Income tax shall not be levied on: (1) pensioners'
pensions <
> paid by foreign states, which are taxed in those
states" of Paragraph 1 (wording of 29 September 1998) of Article
2 of the Provisional Law on Income Tax of Natural Persons was not
in conflict with Paragraph 1 of Article 29 of the Constitution.
2. The petitioner doubts, whether the legal regulation
when the pension of the pensioners who receive pensions from the
Republic of Lithuania state social insurance funds and state and
municipal budgets is not taxed by income tax of natural persons,
while the pension of the pensioners who receive pension from
foreign states is not taxed with this tax only in the case when
it was taxed in those foreign states does not discriminate the
recipients of pensions from foreign states, in comparison with
the pensioners who receive pensions from the Republic of
Lithuania state social insurance funds and state and municipal
budgets, and whether it was not in conflict with Paragraph 1 of
Article 29 of the Constitution.
While disputing the compliance of the said provision with
the Constitution, the petitioner doubts only as regards its
compliance with Paragraph 1 of Article 29 of the Constitution and
does not dispute its compliance with other provisions of the
Constitution.
3. While deciding whether the disputed provision was not
in conflict with Paragraph 1 of Article 29 of the Constitution,
it is to be noted that under Article 52 of the Constitution, the
state shall guarantee to citizens the right to receive old age
and disability pensions as well as social assistance in the event
of unemployment, sickness, widowhood, loss of the breadwinner,
and in other cases provided for by laws. Lithuanian residents may
receive pensions and various other benefits also from other
states, however, if there are no corresponding agreements between
states, they are not considered as benefits which are paid while
implementing the duties to the state which arise from Article 52
of the Constitution. The basis for granting such benefits, inter
alia pensions, and payment thereof is established by legal acts
of other states. From the standpoint of the Constitution of the
Republic of Lithuania, they are of different nature than the
pensions and other benefits paid to the Lithuanian residents
while implementing the provisions of Article 52 of the
Constitution.
4. Establishment of taxes is the exceptional
constitutional competence of the legislator (Articles 67 and 127
of the Constitution). The taxed objects may be very different.
The legislator, who has the duties arising from the Constitution
to establish what is taxed, also has discretion to decide whether
to tax various benefits received from foreign states, inter alia
pensions. Taking account of the Constitution, the legislator also
has the right to amend the established legal regulation on taxes.
While establishing taxes, the legislator must heed the norms and
principles of the Constitution, inter alia the constitutional
principles of justice, reasonableness and proportionality. While
establishing taxes, the legislator is also bound by the state
obligations arising from the international treaties of the
Republic of Lithuania (inter alia from the bilateral and
multilateral agreements on avoidance of double taxation of income
and/or capital), as well as by the requirements arising from the
Lithuanian membership in the European Union.
5. Having held that benefits from other states, inter
alia pensions, if there are no corresponding agreements between
states are, from the standpoint of the Constitution of the
Republic of Lithuania, of different nature than the pensions and
other benefits paid to the Lithuanian residents while
implementing the provisions of Article 52 of the Constitution and
that the legislator has discretion to decide whether to tax
pensions received from foreign states, one is also to hold that
there are no legal grounds to state that the provision "Income
tax shall not be levied on: (1) pensioners' pensions <
> paid by
foreign states, which are taxed in those states" of Paragraph 1
(wording of 29 September 1998) of Article 2 of the Law was in
conflict with Paragraph 1 of Article 29 of the Constitution.
6. Taking account of the arguments set forth, one is to
conclude that the provision "Income tax shall not be levied on:
(1) pensioners' pensions <
> paid by foreign states, which are
taxed in those states" of Paragraph 1 (wording of 29 September
1998) of Article 2 of the Provisional Law on Income Tax of
Natural Persons was not in conflict with Paragraph 1 of Article
29 of the Constitution.
Conforming to Articles 102 and 105 of the Constitution of
the Republic of Lithuania and Articles 1, 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 the provision "Income tax shall not be
levied on: (1) pensioners' pensions <
> paid by foreign states,
which are taxed in those states" of Paragraph 1 (wording of 29
September 1998, Official Gazette Valstybės žinios, 1998, No. 90-
2481) of Article 2 of the Republic of Lithuania Provisional Law
on Income Tax of Natural Persons was not in conflict with
Paragraph 1 of Article 29 of the Constitution of the Republic of
Lithuania.
This ruling of the Constitutional Court is final and not
subject to appeal.
The ruling is promulgated in the name of the Republic of
Lithuania.
Justices of the Constitutional Court: Armanas Abramavičius
Toma Birmontienė
Egidijus Kūris
Kęstutis Lapinskas
Zenonas Namavičius
Ramutė Ruškytė
Vytautas Sinkevičius
Stasys Stačiokas
Romualdas Kęstutis Urbaitis