Case No. 11/05
THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA
RULING
ON THE COMPLIANCE OF PARAGRAPH 2 OF ARTICLE 12 OF THE
REPUBLIC OF LITHUANIA LAW ON THE AMENDMENT AND
SUPPLEMENT OF ARTICLES 1, 2, 3, 4, 5, 6, 7, 11, 14,
20, AND 21 OF THE LAW ON TAXES ON PROFITS OF LEGAL
PERSONS WITH THE CONSTITUTION OF THE REPUBLIC OF
LITHUANIA
29 November 2007
Vilnius
The Constitutional Court of the Republic of Lithuania,
composed of the Justices of the Constitutional Court Armanas
Abramavičius, Toma Birmontienė, Zenonas Namavičius, Ramutė
Ruškytė, Vytautas Sinkevičius, Stasys Stačiokas, and Romualdas
Kęstutis Urbaitis,
with the secretary of the hearingDaiva Pitrėnaitė,
in the presence of:
the representative of the Seimas of the Republic of
Lithuania, the party concerned, who was Sigita Krutkevičienė,
senior advisor of the Public Law Unit of the Law Department of
the Office of the Seimas of the Republic of Lithuania,
under 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 a public
Court hearing on 28 November 2007 heard constitutional justice
case No. 11/05 subsequent to the petition of the Vilnius Regional
Administrative Court, the petitioner, requesting to investigate
whether the provision "the provisions of Articles 1 <...> of this
Law shall apply for the computation of the taxable profit of the
year 2000 and the following years" of the Republic of Lithuania
Law on the Amendment and Supplement of Articles 1, 2, 3, 4, 5, 6,
7, 11, 14, 20, and 21 of the Law on Taxes on Profits of Legal
Persons was not in conflict with Paragraph 2 of Article 7 of the
Constitution of the Republic of Lithuania and the constitutional
principles of justice and a state under the rule of law.
The Constitutional Court
has established:
I
The Vilnius Regional Administrative Court, 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 "the provisions of Articles 1 <...> of this
Law shall apply for the computation of the taxable profit of the
year 2000 and the following years" of the Law on the Amendment
and Supplement of Articles 1, 2, 3, 4, 5, 6, 7, 11, 14, 20, and
21 of the Law on Taxes on Profits of Legal Persons was not in
conflict with Paragraph 2 of Article 7 of the Constitution and
the constitutional principles of justice and a state under the
rule of law.
II
The petition of the Vilnius Regional Administrative Court,
the petitioner, is grounded on the following arguments.
1. Permanent establishments (defined in Article 1 of the
Law on Taxes on Profits of Legal Persons (wording of 11 July
2000, set forth in the Law on the Amendment and Supplement of
Articles 1, 2, 3, 4, 5, 6, 7, 11, 14, 20, and 21 of the Law on
Taxes on Profits of Legal Persons)), permanently performing
commercial-economic activities through a representative (an
agent) were imposed the profit tax retrospectively. However,
under Paragraph 2 of Article 7 of the Constitution, once
published, laws are valid prospectively and have no retroactive
power (lex retro non agit), therefore, it is not allowed to
demand from participants of legal relations to observe rules of
conduct, which did not exist during their involvement in
respective activities, since the knowledge of the future
requirements was impossible; according to the petitioner, if the
priority of law in comparison to legislation is recognised "on
the grounds of the civic right concept", the law may not be valid
retrospectively even when this is provided for in the law itself,
since the willpower of the legislator is limited not by laws
which the legislator adopted, but by the values higher than
lawsthe basic human rights. Therefore, the duty of paying the
profit tax under the Law on the Amendment and Supplement of
Articles 1, 2, 3, 4, 5, 6, 7, 11, 14, 20, and 21 of the Law on
Taxes on Profits of Legal Persons, which took effect on 31 July
2000, may not cover the period prior to the entry of this law
into effect, i.e. prior to 31 July 2000.
2. As stated by the petitioner, Item d of Article 1 of the
Law on Taxes on Profits of Legal Persons (wording of 11 July
2000) could not be applied also since 31 July 2000, before there
appeared respective substatutory legal acts (orders of the
Minister of Finance, establishing the definition of permanency of
commercial-economic activities, the criteria of dependence and
independence of a representative (an agent)), which took effect
on 11January 2001. In the opinion of the petitioner, the criteria
of the dependence and independence status of a representative (an
agent) confirmed by Order of the Minister of Finance No. 347 of
28 December 2000 defined the notion of an independent
representative (an agent) in a broad manner, and it was
impossible for tax payers "to derive those criteria from
provisions of the law" either directly or indirectly.
3. The petitioner doubts whether the tax administrator
under the Law on the Amendment and Supplement of Articles 1, 2,
3, 4, 5, 6, 7, 11, 14, 20, and 21 of the Law on Taxes on Profits
of Legal Persons, which took effect on 31 July 2000, could, under
Item d of Article 1 of the Law on Taxes on Profits of Legal
Persons, demand the payment of the legal persons profit tax for
the period from 1 January 2000 till 31July 2000, and whether the
tax administrator could demand the payment of the profit tax of
legal persons for the period from 1 January 2000 to 11 January
2001, since at that time no substatutory acts necessary for the
implementation of provisions of this law were valid.
III
In the course of the preparation of the case for the
Constitutional Court hearing written explanations were received
from the representatives of the Seimas, the party concerned, who
were A. Butkevičius, a Member of the Seimas, and S.
Krutkevičienė, wherein it is stated that the disputed provision
of the Law on the Amendment and Supplement of Articles 1, 2, 3,
4, 5, 6, 7, 11, 14, 20, and 21 of the Law on Taxes on Profits of
Legal Persons was not in conflict with the Constitution. The
representatives of the Seimas, the party concerned, provide the
following grounds for their arguments.
1. Those changes of the law on taxes, which were adopted
before the end of the tax period and which essentially changed
the legal situation of tax payers (such as, the establishment of
the tax subject and of a new tax tariff) are applicable only as
from the date of the entry of a respective law into effect. In
tax administration such changes of the law on taxes should be
applied for the entire tax period (although the tax period is a
calendar year, some tax obligations are executed upon the start
of the other tax period).
However, upon the entry of the Law on the Amendment and
Supplement of Articles 1, 2, 3, 4, 5, 6, 7, 11, 14, 20, and 21 of
the Law on Taxes on Profits of Legal Persons into effect, the
legal regulation establishing the tax payers obligations related
with the execution of their activities through a permanent
establishment, in comparison to the legal regulation, which
existed before the entry of this law into effect, virtually
remained intact, however, it became more detailed (upon
elimination of certain contradictions and ambiguities of national
and international law), it became clearer and better defined,
which is particularly important for the establishment of taxes
and the procedure of computation thereof. The definition of a
permanent establishment was presented as far back as in the
Republic of Lithuania Law on the Amendment and Supplement of
Articles 1, 2, 3, 4, 4-1, 5, 6, 7, 8, 11, 12, 13, 14, and 15 of
the Law on Taxes on Profits of Legal Persons and on Supplementing
It with Articles 21 and 22, adopted by the Seimas on 2 July 1998,
while the notion of a permanent establishment was specified in
the Law on the Amendment and Supplement of Articles 1, 2, 3, 4,
5, 6, 7, 11, 14, 20, and 21 of the Law on Taxes on Profits of
Legal Persons adopted by the Seimas on 11 July 2000.
Under the Law on Taxes on Profits of Legal Persons (wording
of 2 July 1998) and Resolution of the Government of the Republic
of Lithuania No. 877 "On the Approval of the Procedure for
Establishment of Taxable Profit of Permanent Establishments" of
30 July 1999 the character of activities of dependent
subdivisions of foreign enterprises was related with their
holding any place of activities and performing activities through
an empowered or another person, but the said law (wording of 2
July 1998) did not establish the criterion of performance
duration (permanency), therefore a permanent establishment was in
fact related only with a relative place of performance of
respective activities, with an empowered representative and with
the sum of the total income received over the tax period or the
percentage expression thereof, the overrun of which results in
the tax payment liability by that person. The concept of a
permanent establishment consolidated in the Law on the Amendment
and Supplement of Articles 1, 2, 3, 4, 5, 6, 7, 11, 14, 20, and
21 of the Law on Taxes on Profits of Legal Persons established
the conditions for origination of tax payment obligation rather
than essentially expanded the circle of tax payers: the
establishment of permanency as a new criterion of the economic-
commercial activities provided for an easier identification of a
permanent establishment as a tax payer; in fact, the circle of
tax payers was even narrowed from a certain point of view. Thus,
one attempted to harmonise the provisions of the Law on Taxes on
Profits of Legal Persons with general international taxation
principles, by following which the tax system model of the
Republic of Lithuania was being created. The concept of a
permanent establishment as the expression of activities of a
foreign enterprise in another state was formed and developed on
the grounds of international treaties, therefore the area of
application of this notion was rather broad and enhances both
national laws on taxes and international legal acts. The
provisions defining a permanent establishment were harmonised
with the provisions of international treaties on income and/or
avoidance of capital double taxation.
2. The substatutory legal acts, upon obligation by the
legislator, only concretised the legal status of tax payers
established by the law, therefore the absence of respective
substatutory legal acts in itself is not to be related with the
validity of the law on taxes.
IV
In the course of the preparation of the case for the
Constitutional Court hearing written explanations were received
from Z. Balčytis, Acting Minister of Finance of the Republic of
Lithuania, P. Koverovas, State Secretary of the Ministry of
Justice of the Republic of Lithuania, A. Juozulynas, Deputy State
Controller of the Republic of Lithuania, M. Kaseliauskas, Head of
the Republic of Lithuania State Tax Inspectorate under the
Ministry of Finance of the Republic of Lithuania, I. Jarukaitis,
Deputy Director General of the European Law Department under the
Ministry of Justice of the Republic of Lithuania, and A. Čepas,
Director of the Institute of Law.
V
At the Constitutional Court hearing additional explanations
were also provided by the representative of the Seimas, the party
concerned, who was S. Krutkevičienė, who virtually repeated the
arguments set forth in her written explanations as well as
presented additional explanations.
The Constitutional Court
holds that:
1. The Vilnius Regional Administrative Court, the
petitioner, requests to investigate whether the provision "the
provisions of Articles 1 <...> of this law shall apply for the
computation of taxable profits of the year 2000 and of the
following years" of Paragraph 2 of Article 12 of the Law on the
Amendment and Supplement of Articles 1, 2, 3, 4, 5, 6, 7, 11, 14,
20, and 21 of the Law on Taxes on Profits of Legal Persons was
not in conflict with Paragraph 2 of Article 7 of the Constitution
and the constitutional principles of justice and a state under
the rule of law.
2. The petition of the Vilnius Regional Administrative
Court, the petitioner, provides the arguments regarding the
compliance of the provision that Article 1 of the Law on the
Amendment and Supplement of Articles 1, 2, 3, 4, 5, 6, 7, 11, 14,
20, and 21 of the Law on Taxes on Profits of Legal Persons must
be applied for the computation of taxable profit for the year
2000, with the Constitution, however, no arguments are provided
regarding the compliance of the provision that this article must
be applied for the computation of taxable profit for the years
following the year 2000 with the Constitution.
Therefore, this petition of Vilnius Regional Administrative
Court, the petitioner, is to be treated as a petition requesting
to investigate whether the provision "the provisions of Articles
1 <...> of this Law shall apply for the computation of the
taxable profit of the year 2000 <
>" of Paragraph 2 of Article 12
of the Law on the Amendment and Supplement of Articles 1, 2, 3,
4, 5, 6, 7, 11, 14, 20, and 21 of the Law on Taxes on Profits of
Legal Persons was not in conflict with Paragraph 2 of Article 7
of the Constitution and the constitutional principles of justice
and a state under the rule of law.
3. By Article 1 of the Law on the Amendment and Supplement
of Articles 1, 2, 3, 4, 4-1, 5, 6, 7, 8, 11, 12, 13, 14, and 15
of the Law on Taxes on Profits of Legal Persons and on
Supplementing It with Articles 21 and 22 adopted by the Seimas on
2 July 1998 that took effect on 31 July 1998 (with certain
exceptions) Article 1 of the Law on Taxes on Profits of Legal
Persons was amended and supplemented (wording of 27 March 1997).
Article 1 of the Law on Taxes on Profits of Legal Persons
(wording of 2 July 1998) inter alia established the following:
"A profit tax of legal persons shall be imposed on: <...>
(d) permanent establishmentsdependent subdivisions of
enterprises of foreign states, including affiliates thereof
(hereinafter referred to as permanent establishments), which in
the Republic of Lithuania: have a place of activity, where they
conduct their activity or a certain part thereof; or which
conduct their activity through the empowered natural, legal or
other person, provided the person has the authorisation of the
enterprise of the foreign state to conclude contracts on its
behalf and acts on the authorisation; or who use the building
site, the building, assembly or equipment facility; or who are
using equipment or structure, including drilling equipment or
ships, for mineral resources prospecting or extraction. Permanent
establishments must register as taxpayers with the territorial
tax inspectorate of the territory where their place of business
is located."
For the purpose of the construction of these provisions,
while considering travaux préparatoires, it should be held that:
a new tax payer was establisheddependent subdivisions of foreign
enterpriseswhich were named as permanent establishments in the
Law on Taxes on Profits of Legal Persons (wording of 2 July
1998); a permanent establishment had to have a place of
activities (with a certain exception); this place of activities
could be variousnot only the territory, but also equipment, a
structure, etc.; the activities or a part of activities of a
permanent establishment had to be performed through this place of
activities; a permanent establishment also existed, when the
activities of a foreign enterprise was performed through an
empowered person, a legal person or another person, if this
person had an authorisation and made use thereof, in which case
the place of activities was optional; permanent establishments
had to be registered as tax payers in the territorial tax
inspection, on the territory of which the place of activities was
available.
It should be mentioned that the provisions of Article 1 of
the Law on the Amendment and Supplement of Articles 1, 2, 3, 4,
4-1, 5, 6, 7, 8, 11, 12, 13, 14, and 15 of the Law on Taxes on
Profits of Legal Persons and on Supplementing It with Articles 21
and 22 adopted by the Seimas on 2 July 1998 had to be applied for
the computation of the taxable profit of 1998 (Paragraph 1 of
Article 17). The Law on Taxes on Profits of Legal Persons
(wording of 2 July 1998) established inter alia that the advance
amount of the profit tax payable by a taxpayer according to a
submitted advance financial report shall be calculated in
accordance with the procedure established in this article; the
advance payment of the profit tax shall be computed by the
taxpayer (Paragraph 1 of Article 12); for the first four months
of the taxable period the advance payment of the profit tax shall
be computed based on the profit tax amount actually estimated for
the taxable period prior to the preceding taxable period; the
advance payment of the profit tax for the fifth to twelfth months
of the taxable period shall be computed according to the amount
of the profit tax actually estimated for the preceding taxable
period; each month's advance payment of the profit tax shall
amount to 1/12 of the amount of the profit tax actually computed
over the said period (Paragraph 2 of Article 12); for the first
taxable year the registered new enterprises shall be exempt from
advance payments of the profit tax; said enterprises shall
commence paying advance payments of the profit tax from May (the
fifth month of the taxable period) of the following year
(Paragraph 3 of Article 12); profit tax advance financial report
for the first four months of the taxable period shall be
submitted on or before the last day of the first month (January)
of the taxable period; profit tax advance financial report for
the fifth to twelfth months of the taxable period shall be
submitted on or before the last day of the fifth month (May) of
the taxable period (Paragraph 1 of Article 13); at the close of
the calendar year (taxable period), before May 1 of the following
year (by the 1st day of the fifth month of the following taxable
period) the taxpayers shall submit to the territorial state tax
inspectorates the financial statement and profit tax report
prescribed by the Law on the Principles of Accounting (Paragraph
1 of Article 14); if the amount of the profit tax computed in the
profit tax report exceeds the amount of the tax paid over the
taxable period, the taxpayer must pay into the budget the
underpaid amount of the profit tax the next working day following
the expiry of the period prescribed for the submission of the
profit tax report; the overpaid amount of tax shall be refunded
under the procedure established by the Law on Tax Administration
(Paragraph 2 of Article 14).
Summing up this legal regulation, it should be noted that
the obligation was established for the profit tax advance
payment; the payment of the profit tax of legal persons was
completed on the next business day after 1 May on the following
calendar year; for the first tax year newly registered
enterprises were exempt from the advance payment of the profit
tax; those enterprises had to start the advance payment of the
profit tax on the month of May of the following year.
The taxable profit earned by permanent establishments had
to be established under the procedure stipulated by the
Government or by its empowered institution (Paragraph 4 of
Article 4).
The procedure for the establishment of taxable profit of
permanent establishments was approved by Government Resolution
No. 877 "On the Approval of the Procedure for the Establishment
of Taxable Profits of Permanent Establishments" of 30 July 1999
that took effect on 5 August 1999.
In the context of the constitutional justice case at issue
it should be noted that the necessity of levying taxes on a
permanent establishment was also determined by international
practice and the corresponding international obligations of the
Republic of Lithuania. At that time the Republic of Lithuania had
already signed with other states various international bilateral
treaties on the avoidance of double taxation of income and/or
capital and/or fiscal violations (the majority of such treaties
were ratified).
4. By Article 1 of the Republic of Lithuania Law on the
Amendment and Supplement of Articles 1, 2, 3, 4, 5, 6, 7, 11, 14,
20, and 21 of the Law on Taxes on Profits of Legal Persons
adopted by the Seimas on 11 July 2000 that took effect on 31 July
2000, Item d of Article 1 of the Law on Taxes on Profits of Legal
Persons was amended and set forth in a new wording (wording of 2
July 1998). It is clear from the explanatory note presented by
the Minister of Finance to the Seimas on 24 May 2000 together
with the draft Law on the Amendment and Supplement of Articles 1,
2, 3, 4, 5, 6, 7, 11, 14, 20, and 21 of the Law on Taxes on
Profits of Legal Persons that one attempted to specify and
harmonise the definition of permanent establishments with the
provisions of international treaties of the Republic of Lithuania
on prevention of double taxation of income and/or capital and/or
fiscal violations, also with the provisions of the model
Convention on the Organisation for Economic Co-operation and
Development.
Article 1 (wording of 11 July 2000) on the Law on Taxes on
Profits of Legal Persons inter alia established the following:
"A profit tax of legal persons shall be imposed on <...>
(d) permanent establishments. A foreign state enterprise shall be
considered having a permanent establishment if in Lithuania it:
permanently engages in the conduct of business activities or part
thereof; or engages in its business activities through its
dependent representative (agent); or uses a building site, or
construction, assembly or equipment facility; or equipment or
structure used for natural resources prospecting or extraction,
including the wells or vessels used for the purpose. The
definition of permanency of business activities, the criteria of
dependence or independence of a representative (agent) shall be
established by the Government <
> or the body empowered by it."
Article 14 of the Law on Taxes on Profits of Legal Persons
(wording of 11 July 2000) established that "At the close of the
calendar year (taxable period), before May 1 of the following
year (by the 1st day of the fifth month of the following taxable
period) the taxpayers shall submit to the territorial state tax
inspectorates the financial statement and profit tax report
prescribed by the Law on the Principles of Accounting. <...> If
the amount of profit tax calculated in the profit tax report
exceeds the amount of tax paid under profit tax advance reports
over the taxable period, the taxpayer must pay into the budget
the underpaid amount of profit tax the next working day following
the expiry of the time period prescribed for the submission of
profit tax report. The overpaid amount of tax shall be refunded
under the procedure established by the Law on Tax Administration
".
The comparison of this legal regulation of Article 14
(wording of 11 July 2000) of the Law on Taxes on Profits of Legal
Persons with that established by Article 14 (wording of 2 July
1998) of the Law on Taxes on Profits of Legal Persons shows that
it did not change essentially, and the formulation "the amount of
tax over the taxable period" was replaced by the formulation "the
amount of tax paid under profit tax advance reports over the
taxable period".
Thus the obligation of payment of the advance profit tax
was also maintained according to the new regulation. Upon close
of the tax period on the next business day after 1 May of the
following year a tax payer had to make the payment of the
additionally estimated tax amount into the budget, if it was
larger according to the profit tax reports; the overpaid amount
of tax was refunded.
It should be mentioned that the provision of exempting
newly registered enterprises from the advance profit tax in the
first taxation year was maintained in the Law on Taxes on Profits
of Legal Persons (wording of 11 July 2000), and the payment of
profit taxes had to be started by these enterprises in May of the
following year (Paragraph 3 of Article 12).
Paragraph 2 of Article 12 of the Law on the Republic of
Lithuania Law on the Amendment and Supplement of Articles 1, 2,
3, 4, 5, 6, 7, 11, 14, 20, and 21 of the Law on Taxes on Profits
of Legal Persons established the following:
"The provisions of Articles 1, 3, 4, 5, 6, 9, 10 and 11 of
this Law shall apply in the computation of the taxable profit of
the year 2000 and subsequent years. If the established tax period
does not coincide with the tax year, the provisions of Articles
1, 3, 4, 5, 6, 9, 10 and 11 of this Law shall apply for the
computation of the taxable profit of the tax period commenced in
the year 2000 and for the following years."
As noted, the compliance of the provision "the provisions
of Articles 1 <...> of this Law shall apply for the computation
of the taxable profit of the year 2000 <
>" with the Constitution
is disputed in this constitutional justice case.
5. In this context it should be mentioned that Article 1 of
the Law on Taxes on Profits of Legal Persons (wording of 11 July
2000), the provision whereof had to be applied inter alia for the
computation of the taxable profit of the year 2000, was changed
and set forth in a new wording by Article 1 of the Law on the
Republic of Lithuania Law on the Amendment to Articles 1, 2, 3,
5, 7, 8, 9, 11, 12, 21 and 22 of the Law on Taxes on Profits of
Legal Persons adopted by the Seimas on 10 July 2001 that took
effect on 18 July 2001. On 20 December 2001, the Seimas adopted
the Republic of Lithuania Law on Income Tax, which took effect
(with certain exceptions) on 1 January 2002. Under Item 1 of
Article 60 of the Law on Income Tax, the Law on Taxes on Profits
of Legal Persons (wording of 31 July 1990 with subsequent
amendments and/or supplements) became no longer valid as of 1
January 2003. At present the taxation of income from activities
of a foreign entity through a permanent establishment in the
Republic of Lithuania is performed under the Law on Income Tax
(wording of 20 December 2001 with subsequent amendments and/or
supplements).
6. From the comparison of the wording of Item d of Article
1 of the Law on Taxes on Profits of Legal Persons of 11 July 2000
with the wording of 2 July 1998 it is obvious that no attributes
of a permanent establishment in Lithuania were changed.
In this context it should also be noted that the disputed
legal regulation established neither a single new tax object, nor
a new tax subject, that it made no changes to the previously
established sizes (tariffs) of the profit tax of legal persons,
nor did it establish new obligations to tax payers (to the
permanent establishments in the case under consideration) in
comparison to those which were established in the Law on Taxes on
Profits of Legal Persons previously adopted by the Seimas
(wording of 2 July 1998).
7. As noted, by Item d of Article 1 of the Law of Profit
Tax of Legal Persons (wording of 11 July 2000) the legislator
entitled the Government or its empowered institution to establish
the definition of permanency of economic-commercial activities
and the criteria of dependence or independence of the status of a
representative (an agent). By Item 1 of Resolution No. 1062 "On
the Provision of Empowerments for the Implementation of the
Republic of Lithuania Law on Taxes on Profits of Legal Persons
and the Republic of Lithuania Provisional Law on Taxes on Income
of Natural Persons" of 7 September 2000, the Government inter
alia empowered the Ministry of Finance, upon coordination with
the Ministry of Economy, to prepare and approve the definition of
permanency of economic-commercial activities and the criteria for
a dependence or independence status of a representative (an
agent). In his turn, the Minister of Finance by Order No. 347 "On
the Approval of Criteria of Dependence or Independence of a
Representative (an Agent)" of 28 December 2000 (which took effect
on 11 January 2001) approved the dependence or independence
criteria of a representative (an agent), and, on the same day,
i.e. by Order No. 348 "On the Approval of the Definition of
Permanency of Commercial-Economic Activities of Foreign
Enterprises in the Republic of Lithuania" of 28 December 2000
approved the definition of permanency of commercial-economic
activities of foreign enterprises in the Republic of Lithuania.
These orders of the Minister of Finance were recognised as no
longer valid by Order of the Minister of Finance No. 1K-177 "On
Recognition of Order of the Minister of Finance of the Republic
of Lithuania No. 347 'On the Approval of Criteria of Dependence
or Independence of a Representative (an Agent)' of 28 December
2000 and Order No. 348 'On the Approval of the Definition of
Permanency of Commercial-Economic Activities of Foreign
Enterprises in the Republic of Lithuania' of 28 December 2000 as
No Longer Valid" of 6 May 2004.
8. All subjects of law-making should heed the hierarchy of
legal acts, which stems from the Constitution; the Constitution
prohibits the regulation of those legal relations by means of
legal acts of lower power, which could be regulated only by means
of legal acts of higher power; it is prohibited to establish any
such legal regulation in legal acts of lower power, which could
compete with that established in legal acts of higher power.
The Constitutional Court has held that if the laws provide
that certain relations connected with the procedure (procedures)
of implementation of requirements of laws are regulated by the
Government, then the Government must do so; if it is established
in the laws that certain relations connected with the procedure
(procedures) of the implementation of laws are regulated by an
institution empowered by the Government (e.g., a ministry), then
the Government has a duty to establish, by means of a resolution,
which state institutions have to do so, while the latter
institution (its head) must issue a respective legal act
(Constitutional Court decision of 11 February 2004, ruling of 8
July 2005). Thus such institution (its head), through the
issuance of its respective substatutory legal acts, may not
change laws, nor establish legal regulation competing with the
provisions of laws, since this would result in the violation of
the superiority of laws in comparison to substatutory legal acts
as established by the Constitution.
In the context of the constitutional justice case at issue
it is also to be noted that, as the Constitutional Court has held
a number of times in its acts, such essential elements of the tax
as the object of the tax, subjects of tax relations, their rights
and duties, sizes (tariffs) of the tax, payment terms, exceptions
and concessions, penalties and fines must be provided for by the
law (Constitutional Court rulings of 15 March 2000, 3 June 2002,
17 November 2003, 2 September 2004, 24 January 2006, and 26
September 2006). However, the procedure for implementation of
laws on taxes, as well as the procedure of computation of a
specific payable tax may be established both by laws and by
substatutory legal acts (Constitutional Court ruling of 17
November 2003).
9. Therefore, the Minister of Finance had empowerments in
the course of the execution of the assignment of the Government
to establish (upon coordination with the Ministry of Economy) the
definition of permanency of commercial-economic activities, and
the criteria of dependence and independence of the status of a
representative (an agent). In the course of execution of the
specified empowerments, the Minister of Finance could establish
the implementation of provisions of Item d of Article 1 of the
Law on Profits of Legal Persons (wording of 11 July 2000), which
inter alia also implies the computation of the tax on profits of
legal persons which has to be paid by a permanent establishment.
While executing this assignment of the Government, the Minister
of Finance could establish only such legal regulation which would
not distort the legal regulation established by Item d of Article
1 of the Law on Profits of Legal Persons (wording of 11 July
2000) and which would not compete with that established by the
law.
10. It is also to be noted that both the Government and the
Minister of Finance that were subject to the execution of
respective assignments were also bound by international treaties
of the Republic of Lithuania, since, under Paragraph 3 of Article
138 of the Constitution, international treaties, after their
ratification by the Seimas, comprise a constituent part of the
legal system of the Republic of Lithuania. It should be noted in
this context that under Article 4 of the Republic of Lithuania
Law on Tax Administration (wording of 28 June 1995 with
subsequent amendments and/or supplements), if taxation
regulations established by international agreements differ from
those in tax laws and these agreements have been ratified in the
Republic of Lithuania, international agreement regulations shall
apply. Article 18 of the Law on Taxes on Profits of Legal Persons
(wording of 11 April 1995 with subsequent amendments and/or
supplements) established the following: "If the provisions of the
interstate agreement to which the Republic of Lithuania is a
party conflict with the Law on Taxes on Profits of Legal Persons,
the provisions of the interstate agreement shall apply for
imposing the tax on profits."
In the context of the constitutional justice case at issue
it should be noted that the ruling whereby one has applied to the
Constitutional Court was adopted in an administrative case
wherein the petitioner was a company of the United States of
America that disputed the decisions of tax administrators and of
the Tax Disputes Commission under the Government of the Republic
of Lithuania whereby this company upon performance of its
activities in Lithuania through a permanent establishment was
subjected to the payment of tax on the profits of legal persons
of a respective size for the years 2000-2001. At the time of the
entry of the Law on the Amendment and Supplement of Articles 1,
2, 3, 4, 5, 6, 7, 11, 14, 20, and 21 of the Law on Taxes on
Profits of Legal Persons into effect, the Republic of Lithuania
had already signed 27 international bilateral treaties with other
states on the prevention of double taxation of income and/or
capital and/or fiscal violations (24 of them had been ratified),
inter alia with the United States of America; the agreement
between the Government of the Republic of Lithuania and the
Government of the United States of America on prevention of
double taxation of income and fiscal violations was ratified by
the Seimas by the Law on Ratification of the Agreement between
the Government of the Republic of Lithuania and the Government of
the United States of America on the Prevention of Double Taxation
of Income and Fiscal Violations adopted on 23 December 1999; this
agreement took effect on 30 December 1999. The said national
legal acts of the Republic of Lithuania (the Law on the Amendment
and Supplement of Articles 1, 2, 3, 4, 5, 6, 7, 11, 14, 20, and
21 of the Law on Taxes on Profits of Legal Persons, also the
substatutory legal acts) established the main criteria defining a
permanent establishment, which are virtually the same as those in
the agreement between the Government of the Republic of Lithuania
and the Government of the United States of America on the
prevention of double taxation of income and fiscal violations.
11. Both the Government and the Minister of Finance in
charge of the execution of respective assignments, were also
bound by the requirements directed to the subjects of law-making
arising from the Constitution, inter alia, the principle lex
retro non agit related with the constitutional principle of a
state under the rule of law, whereby the power of legal acts is
prospective and the retrospective validity of legal acts is not
allowed, unless the situation of legal subjects could be
alleviated without prejudice to other legal subjects (lex
benignor retro agit). Neither laws nor substatutory legal acts
may establish such legal regulation which interferes with the
legal relations that are over. The regulation that could change
legal norms upon completion of regulated relations would create
preconditions for negation of legitimate expectations of persons,
legal certainty and legal security, and the constitutional
principle of justice.
In this context one is mention the case of the Court of
Justice of the European Communities (arr?t de la Cour (grande
chambre) du 26 avril 2005, Stichting "Goed Wonen" /
Staatssecretaris van Financi?n, affaire C-376/02, Rec. p. I-3445)
in which it was held that the principles of protection of
legitimate expectations and legal certainty, as a part of the
legal system of the European Community, consolidate the general
rule that the establishment of the validity of a legal act before
the publication thereof is prohibited, however, an exemption of
this principle may be applied whenever this is required by the
general interest and due consideration is given to legitimate
expectations of persons concerned.
12. In deciding whether the provision "the provisions of
Articles 1 <...> of this Law shall apply for the computation of
the taxable profit of the year 2000 <
>" of Paragraph 2 of
Article 12 of the Law on the Amendment and Supplement of Articles
1, 2, 3, 4, 5, 6, 7, 11, 14, 20, and 21 of the Law on Taxes on
Profits of Legal Persons was not in conflict with Paragraph 2 of
Article 7 of the Constitution and the constitutional principles
of justice and a state under the rule of law, it should be held
that the disputed legal regulation did not establish a new tax
object, a new tax subject, any changes to the previously
established size (tariff) of the tax on profits of legal persons,
as well as no new obligations to tax payers (to permanent
establishments in the case at issue), in comparison to those that
were previously established (both in national legal acts and in
international treaties of the Republic of Lithuania); the
disputed provision of the law was intended for the regulation of
relations of the tax on profits of legal subjects, which,
contrary to the statement of the petitioner, were not over.
Therefore, the disputed legal regulation did not interfere with
the legal relations that were already over and did not violate
the constitutional principle lex retro non agit, it did not
negate the legitimate expectations and legal certainty of tax
payers (permanent establishments in the case under the hearing);
it was not unfair.
13. Taking account of the arguments set forth one is to
conclude that the provision of Paragraph 2 of Article 12 "the
provisions of Articles 1 <...> of this Law shall apply for the
computation of the taxable profit of the year 2000 <
>" of the
Law on the Amendment and Supplement of Articles 1, 2, 3, 4, 5, 6,
7, 11, 14, 20, and 21 of the Law on Taxes on Profits of Legal
Persons was not in conflict with Paragraph 2 of Article 7 of the
Constitution and the constitutional principles of justice and a
state under the rule of law.
14. It should be noted that the investigation of the
compliance of legal acts issued by ministers with legal acts of
higher power (inter alia the Constitution) is attributed to the
competence of the administrative court, but not to the competence
of the Constitutional Court. Therefore, the said orders of the
Minister of Finance establishing the definition of the permanence
of commercial-economic activities and the criteria of dependence
or independence of a representative (an agent) may not be and are
not a matter of investigation in this constitutional justice
case.
Pursuant to Articles 102 and 105 of the Constitution of the
Republic of Lithuania, 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 recognise that the provision "the provisions of Articles
1 <...> of this Law shall apply for the computation of the
taxable profit of the year 2000 <
>" of Paragraph 2 (Official
Gazette Valstybės žinios, 2000, No. 64-1912) of Article 12 of the
Republic of Lithuania Law on the Amendment and Supplement of
Articles 1, 2, 3, 4, 5, 6, 7, 11, 14, 20, and 21 of the Law on
Taxes on Profits of Legal Persons was not in conflict with 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
Zenonas Namavičius
Ramutė Ruškytė
Vytautas Sinkevičius
Stasys Stačiokas
Romualdas Kęstutis
Urbaitis