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