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