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Latvia's Solidarity Tax Found Unconstitutional

by Ulrika Lomas, Tax-News.com, Brussels

31 October 2017


Latvia's Constitutional Court has ruled that the country's solidarity tax breaches the principle of equality before the law and must be removed.

The ruling was made in response to a complaint brought by 37 taxpayers liable to the levy on the grounds that the measure is discriminatory.

Latvia's solidarity tax is effectively an excess social security contribution for high earners, whereby social security payments on income exceeding the maximum social security contribution base of EUR52,400, (USD60,920) are no longer refunded, contrary to the regime prior to January 1, 2016.

The complainants said that while the solidarity tax is classified as a social security contribution, revenues are paid into the Government's general budget, and not into the social security fund, out of which state pension is paid. As such, they do not receive social security benefits proportional to the social insurance contributions they have paid compared with those employees not obliged to pay the solidarity tax, they contended.

They put forward a number of arguments. While the Court found that the solidarity tax was legislated for in the correct manner, it agreed with the complainants that as currently structured, the tax violates the principle of equality in the Latvian constitution, finding that the differential treatment of comparable taxpayers is arbitrary.

The Court gave the Government until January 1, 2019, to amend or repeal the regime, allowing it time to legislate for new measures to offset the loss of revenue. It said any difference in the taxation of comparable taxpayers must have a legitimate aim, and that authorities will be required to set rates of solidarity tax based on objective and reasonable grounds.

TAGS: court | tax | law | insurance | employees | budget | Latvia | social security

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