Financial Services, Latvia, Legislation, Markets and Companies, Taxation

The court found Section 6 of the Solidarity Tax Law contravening the first sentence of Article 91 of the Constitution ("All human beings in Latvia shall be equal before the law and the courts. Human rights shall be realized without discrimination of any kind.") and decided to invalidate it as of January 1, 2019.

The provision, which regulates solidarity tax rates, will become invalid only in 2019, which means that the government has been given time to work out an alternative solution without straining the state budget.

The Constitutional Court, however, rejected the part of the complaint contesting the constitutionality of Sections 3 and 5 of the Solidarity Tax Law.

The verdict of the Constitutional Court, which is final and cannot be further appealed, came into effect immediately.

Section 6 of the Solidarity Tax Law stipulates that the solidarity tax rate conforms to the rate of mandatory contributions laid down in accordance with Section 18 of the Law on State Social Insurance.

Section 18 of the Law on State Social Insurance describes mandatory and voluntary contribution rates. Specifically, if an employee has been insured for all types of social insurance, the mandatory contribution rate is 34.09% from which an employer pays 23.59% and an employee 10.50%. It also stipulates that the Cabinet determines the mandatory contribution rate for persons subject to mandatory social insurance and the distribution thereof according to the types of social insurance. The voluntary contribution rate is the rate stipulated by the Cabinet for pension insurance, disability insurance, maternity and sickness insurance, and parents' insurance.

This latest lawsuit was filed by nine legal entities contesting the constitutionality of Sections 3, 5 and 6 of the Solidarity Tax.

In their applications, the legal entities said they employed highly qualified professionals and paid them accordingly high salaries. The requirement to pay the solidarity tax on these high salaries reduced their possibilities to hire high-class professionals. The solidarity tax, they argued left them in the disadvantage in comparison with employers who do not have employees of this level. This situation breaches the principle of equality, stipulated in the Constitution, they said.

On October 19, the Constitutional Court already ruled that Section 6 of the Solidarity Tax Law was not in line with the principle of equality enshrined in the Constitution.