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On value-added tax

Case No. 22/98

 

 

THE CONSTITUTIONAL COURT OF

THE REPUBLIC OF LITHUANIA

 

R U L I N G

 

On the compliance of Subitem 1.14 of the Resolution of the Government of the Republic of Lithuania (No. 546) “On Value-Added Tax” of 9 May 1996 with the Constitution of the Republic of Lithuania, Articles 15 and 16 of the Republic of Lithuania’s Law on Value-Added Tax, as well as Paragraph 4 of Article 4 and Article 9 of the Republic of Lithuania’s Law on the Principles of Accounting

 

Vilnius, 15 March 2000

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Egidijus Jarašiūnas, Egidijus Kūris, Zigmas Levickis, Augustinas Normantas, Vladas Pavilonis, Jonas Prapiestis, Vytautas Sinkevičius, Stasys Stačiokas, and Teodora Staugaitienė

The court reporter—Daiva Pitrėnaitė

Birutė Černiuvienė, Deputy Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania, acting as the representative of the Government of the Republic of Lithuania, the party concerned

The Constitutional Court of the Republic of Lithuania, pursuant to Paragraph 1 of Article 102 of the Constitution of the Republic of Lithuania and Paragraph 1 of Article 1 of the Law on the Constitutional Court of the Republic of Lithuania, on 24 February 2000, in its public hearing, considered case No. 22/98 subsequent to the petition submitted to the Constitutional Court by the Court of Appeal of Lithuania, the petitioner, requesting an investigation into whether Subitem 1.14 of the Resolution of the Government of the Republic of Lithuania (No. 546) “On Value-Added Tax” of 9 May 1996 was in compliance with Items 2 and 7 of Article 94 and Paragraph 3 of Article 127 of the Constitution of the Republic of Lithuania, Articles 15 and 16 of the Republic of Lithuania’s Law on Value-Added Tax, as well as Paragraph 4 of Article 4 and Article 9 of the Republic of Lithuania’s Law on the Principles of Accounting.

The Constitutional Court

has established:

I

The Court of Appeal of Lithuania, the petitioner, considered a civil case under the procedure of appeal wherein it was requested that 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Lithuania concerning payment of value-added tax and penalties and its decision concerning payment of value-added tax be repealed.

By means of its ruling, the said court suspended the consideration of the case and applied to the Constitutional Court with the petition requesting an investigation into whether Subitem 1.14 of the Government Resolution (No. 546) “On Value-Added Tax” of 9 May 1996 (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 Paragraph 3 of Article 127 of the Constitution, Articles 15 and 16 of the Law on Value-Added Tax, as well as Paragraph 4 of Article 4 and Article 9 of the Law on the Principles of Accounting.

The petition of the petitioner is based on the following arguments.

Paragraph 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 means of 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 the enforcement of laws and resolutions of the Seimas concerning the 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 the accounting of VAT is kept. Meanwhile, in Subitem 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 the rendering of services subject to VAT (in case of damage, burning etc. of the goods). Therefore, the petitioner is of the opinion that Subitem 1.14 of the Resolution conflicts with Items 2 and 7 of Article 94 and Paragraph 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 Subitem 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 Paragraph 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, Vice-Minister of Finance of the Republic of Lithuania, and B. Černiuvienė, Deputy Head of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania, explained in writing that Subitem 1.14 of the Resolution is in compliance with Items 2 and 7 of Article 94 and Paragraph 3 of Article 127 of the Constitution, Articles 15 and 16 of the Law on Value-Added Tax as well as Paragraph 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, Subitem 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 Subitem 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 Subitem 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, Subitem 1.14 of the Resolution is in compliance with Paragraph 4 of Article 4 and Article 9 of the Law on the Principles of Accounting as Paragraph 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 consideration, written explanations of the representatives of state institutions—E. Žilevičius, Vice-Minister of Finance of the Republic of Lithuania, E. Kunevičienė, Chairwoman of the Budget and Finance Committee of the Seimas, G. Švedas, 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, 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 Subitem 1.14 of the Government Resolution (No. 546) “On Value-Added Tax” of 9 May 1996 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” (the law in its wording of 14 October 1997).

On 9 May 1996, the Government adopted the Resolution (No. 546) “On Value-Added Tax”. Subitem 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 the 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 categorised as the expenditure, while the taxable income (revenues) are computed” (the Resolution in its wording of 24 December 1998).

2. The petitioner—the Court of Appeal of Lithuania—requests an investigation into whether Subitem 1.14 of the Resolution is in compliance with Items 2 and 7 of Article 94 and Paragraph 3 of Article 127 of the Constitution as well as Articles 15 and 16 of the Law on Value-Added Tax.

The petition is substantiated by the fact that under Paragraph 3 of Article 127 of the Constitution, “taxes, other budgetary payments, and dues shall be established by means of 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 law, nor may it impose any additional limitations which are not provided for by law, etc., in case the Government is not commissioned to perform this by means of a 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. Subitem 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 Subitem 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 impugned act actually obligated the taxpayer to pay VAT twice for the same goods: the first time to the vendor of goods on the purchasing of the goods, while for the second time—upon the 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.

Paragraph 3 of Article 127 of the Constitution provides: “Taxes, other budgetary payments, and dues shall be established by means of 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 by which this legal regulation must be performed. Thus, taxes may be established by law only (the Constitutional Court’s 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 means of a 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 law but the procedure of their implementation as well which may be regulated by substatutory act. Therefore, in the course of establishment of taxes it is of utmost importance to differentiate as to which relations must be regulated by law and which may be regulated by means of 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 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 act only in cases when it is directly commissioned to do so by 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 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 Paragraph 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 legislature may not commission the Government to perform certain actions in such a way which, by its content, would 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 consideration of the petition 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. Paragraph 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 Paragraph 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 must 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, the control regarding the tax, the 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, subunits of foreign economic entities operating in the Republic of Lithuania, and natural persons (Paragraph 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 the 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 the 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 Paragraph 4 of Article 17 of the Law on Value-Added Tax), it should 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 the 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. Subitem 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 subitem 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 the 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, the possibility of such an ambiguous interpretation occurs due to the wording used in Subitem 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 Subitem 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 regarded 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 Paragraph 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 should be concluded that Subitem 1.14 of the Government Resolution (No. 546) “On Value-Added Tax” of 9 May 1996 is in compliance with Items 2 and 7 of Article 94 and Paragraph 3 of Article 127 of the Constitution and Articles 15 and 16 of the Law on Value-Added Tax.

II

On the compliance of Subitem 1.14 of the Government Resolution (No. 546) “On Value-Added Tax” of 9 May 1996 with Paragraph 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. Paragraph 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 the rendering of telecommunications services for mass consumers) with special accounting documents. The operations, including the 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 an investigation into whether Subitem 1.14 of the Resolution is in compliance with Paragraph 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 (Paragraph 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 Subitem 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 Paragraph 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 Paragraph 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 among many elements of financial accounting. Its essence is disclosed in Paragraph 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 (Paragraph 1 of Article 9 of the Law on the Principles of Accounting), which are accounts, subaccounts, 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 the 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 sale and purchase 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, subaccounts, 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 the conducting of the procedure of VAT recording, therefore, it should be recognised that Subitem 1.14 of the Resolution (No. 546) “On Value-Added Tax” of 9 May 1996 is in compliance with Paragraph 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 Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

To recognise that Subitem 1.14 of the Resolution of the Government of the Republic of Lithuania (No. 546) “On Value-Added Tax” of 9 May 1996 is in compliance with the Constitution of the Republic of Lithuania, Articles 15 and 16 of the Republic of Lithuania’s Law on Value-Added Tax, as well as Paragraph 4 of Article 4 and Article 9 of the Republic of Lithuania’s Law on the Principles of Accounting.

This ruling of the Constitutional Court is final and not subject to appeal.

The ruling is pronounced in the name of the Republic of Lithuania.

Justices of the Constitutional Court:

 

Egidijus Jarašiūnas     Egidijus Kūris     Zigmas Levickis

 

Augustinas Normantas      Vladas Pavilonis     Jonas Prapiestis

 

Vytautas Sinkevičius     Stasys Stačiokas      Teodora Staugaitienė