The Constitutional Court's decision is fully clarified: The entry into force of the tax norm only for liberal professions violates the principle of proportionality.

The full decision on liberal professions, adopted at the final session on June 27, has been published by the Constitutional Court.

In its decision, the Court argues that the entry into force of the 15% and 231% tax obligations for liberal professions, while the new tax rate for other businesses only takes effect from 2030, violates the principle of proportionality. Moreover, the nomenclature of the specific economic activities subject to the law's effects was approved only ten days before the new tax scheme was set to take effect.

“The Court finds that the content of Article 69, paragraph 1, letter “dh”, the second and third sentences, of the Tax Law, which establishes a different schedule for the entry into force of the new tax obligation for self-employed individuals providing professional services compared to self-employed individuals carrying out genuine commercial activities (providing a grandfathering measure for the latter with the new tax rate taking effect in the 2030 fiscal year), combined with the new tax rate of 15%, the lack of an adequate notification period for the entities subject to the new tax rate (it took effect about seven months after the law's adoption, while the determination of the specific types of activities, which would be subject to the new tax rate starting from the 2024 fiscal year, was approved by a Council of Ministers' decision only 10 days before the law's effects were to take effect), without any kind of phasing-in mechanism and without giving entities sufficient opportunity to adapt to the new tax rate, it undermines the principle of proportionality with respect to the necessity and severity of the measure chosen by the legislature.

At this point, the Court notes that the implementation of tax laws must be accompanied by appropriate transitional measures, Thus, giving taxpayers time allows them not only to familiarize themselves with the formulas for calculating how the tax applies to them, but also to take measures that the taxpayers themselves deem necessary to cope with the consequences of the applicable scheme.

“That said, the principle of legal certainty with respect to legitimate expectations due to the limited time frame is also undermined. In this situation, the Court, without questioning the broad scope and discretion of the legislature to determine the rate of the tax norm per se (in this case the figure 15%) nor the fact that exemption from tax obligations does not constitute a right of the taxpayer, finds that, from an intertwined analysis of the circumstances in which the new tax rate was adopted and implemented, it is not proportionate in terms of necessity, and therefore the claimants' argument is well-founded. In these circumstances,

”The Court deems it unnecessary to proceed further with the analysis of the suitability sub-criterion (see paragraph 42 of the decision)," the decision states.

With respect to the above, the Court finds that Article 69, paragraph 1, letter “dh”, second and third sentences, of the Tax Law, reads: “The 0% tax rate does not apply to taxpayers specified in sub-paragraphs “ii” and

“iii” of this letter, which provide professional services.

“The analytical list of professional services is determined by a decision of the Council of Ministers in accordance with the applicable regulatory legislation concerning these professional services,” infringes upon the freedom of economic activity linked to the principle of legal certainty, and is therefore repealed. Consequently, paragraph 4 of Decree No. 753/2023 is also repealed, as it was delegated by the repealed provision of the law, namely Article 69(1)(dh).

In the Court's view, if a legal provision is repealed, the subordinate act issued on its basis and for its implementation must also be repealed.

In light of the foregoing, the Court finds it unnecessary to separately examine the applicants' other claims relating to the violation of the principles of equality before the law and non-discrimination, as well as the legal reservation in the field of taxation and the hierarchy of norms, as supporting arguments for the request for a constitutional review of the provisions under consideration (see paragraph 29 of the judgment).

In conclusion, the Court finds that the applicants' claims are partially well-founded, in light of the foregoing reasoning of this decision, and the request is therefore granted in part.

For these reasons,

The Constitutional Court of the Republic of Albania, in support of Articles 131, paragraph 1, letters “a” and “c”, 134, paragraphs 1, letters “c” and “h” and 2, of the Constitution, as well as Articles 72 and following of Law No. 8577, dated February 10, 2000 “On the Organization and Operation of the Constitutional Court of the Republic of Albania,” as amended, by a majority vote,

DECIDED:

Partial granting of the request. Repeal of Article 69(1)(dh), second and third sentences, of the law. No. 29/2023, dated March 30, 2023, “On Income Tax,” as amended, is declared incompatible with the Constitution.

“dh) for:
i. merchant individuals;
ii. the self-employed, as well as;
iii. entities:
For gross income up to 14 million lek per year, the 0% income tax rate will apply until December 31, 2029. The 0% tax rate does not apply to taxpayers specified in subparagraphs “ii” and “iii” of this letter who provide professional services. The analytical list of professional services is determined by a decision of the Council of Ministers in accordance with the applicable regulatory legislation governing these professional services.”

Part of Article 69 of the law to be repealed (paragraph 1, letter “dh”)

The repeal of Article 4 of Decision No. 753, date 12/20/2023 of the Council of Ministers “On the implementing provisions of Law No. 29/2023 “The ”Income Tax, as amended,” is declared incompatible with the Constitution.".

Article 4

List of taxable services as of January 1, 2024

1. In implementation of Article 69 of Law No. 29/2023, as amended, the analytical list of
economic activities of taxpayers, self-employed individuals and entities providing professional services, with annual revenues of up to 14,000,000 (fourteen million) leks per year, who will pay personal income tax on business income or corporate income tax, beginning with the 2024 fiscal year. The analytical list consists of activities according to the codes provided in the Classification of Economic Activities (rev. 2), as presented in analytical table no. 2 attached to this decision.

2. In cases where taxpayers are unclear about the categorization of the activity
economic activities they carry out or for the income tax rate applicable to their operations, the General Directorate of Taxes, based on the Nomenclature of Economic Activities (rev. 2), determines the classification and the activity to which the respective taxpayer belongs. This decision enters into force upon publication in the Official Gazette.

Article 4 of Decree No. 753 dated December 20, 2023

The refutation of other research.

This decision is final and takes effect on the day it is published in the Official Gazette.

Download the Decision

Source: Monitor Magazine.