16 March 2000 № J-95/2000
The Constitutional Court of the Republic of Belarus comprising of the Presiding Officer - Chairman of the Constitutional Court G.A. Vasilevich, Deputy Chairman of the Court A.V. Maryskin, judges T.S. Boiko, G.A. Vorobei, K.I. Kenik, V.V. Podgrusha, A.G. Tikovenko, R.I. Filipchik, V.I. Shabailov, G.B. Shishko, V.Z. Shuklin
with participation of:
representative of the Supreme Economic Court of the Republic of Belarus -S.P. Turmovich, judge of the Supreme Economic Court of the Republic of Belarus;
representatives of the State tax committee of the Republic of Belarus - L.A. Kondratova, Deputy Chairman of the State tax committee of the Republic of Belarus of the Republic of Belarus; E.F.Gerstein, head of department of methodology of taxation of legal entities of the State tax committee of the Republic of Belarus
has examined in open Court session the case "On the conformity between the Constitution, laws of the Republic of Belarus and items four, five, six, seven, eight, nine and ten of point 8 of Methodical instructions "On procedure of calculation of value-added tax" approved by order of the State tax committee of the Republic of Belarus of 26 April 1999 No. 87 with alterations and addenda approved by order of the State tax committee of the Republic of Belarus of 20 July 1999 No. 173".
The Court session was attended by: E.M. Tsarenko - Deputy Chairman of the Supreme Court of the Republic of Belarus, O.G. Sergeeva - Deputy Minister of Justice of the Republic of Belarus.
The proceedings were brought by the Constitutional Court on 25 January 2000 as a result of the proposal of the Supreme Economic Court of the Republic of Belarus on the ground of Article 116 of the Constitution, Articles 5 and 6 of the Law "On the Constitutional Court of the Republic of Belarus" and Article 43 of the Rules of Procedure of the Constitutional Court.
The subject to verification were items four, five, six, seven, eight, nine and ten (hereafter - items four - ten) of point 8 of Methodical instructions "On procedure of calculation of value-added tax" approved by order of the State tax committee of the Republic of Belarus of 26 April 1999 No. 87 with alterations and addenda approved by order of the State tax committee of the Republic of Belarus of 20 July 1999 No. 173 (National register of legal acts of the Republic of Belarus, 1999, No. 51, 8/439; No. 63, 8/711) which had envisaged imposition of value-added tax on losses incurred in operations on purchase and sale of foreign currency.
The Supreme Economic Court has pointed out in its proposal that Methodical instructions "On procedure of calculation of value-added tax", which is subject to verification have equated foreign currency with purchased goods (production) and currency exchange rate - with good (production) price. Thereby, it took place alteration of the object of taxation and of taxable turnover which may be determined by means of adoption of the relevant law of the Republic of Belarus. In the opinion of the Supreme Economic Court foreign currency, as money resources, is not a good; such categories as "foreign currency" and "good" shall have different economic grounds. In that connection application of the provisions of part four of Article 3 of the Law of 19 December 1991 "On value-added tax" to law relations connecting with purchase and sale of foreign currency shall be illegal.
The Constitutional Court emphasizes that Methodical instructions "On procedure of calculation of value-added tax" approved by order of the State tax committee of the Republic of Belarus of 26 April 1999 No. 87 with further alterations and addenda (hereafter - Methodical instructions) at the moment of consideration of the case by the Constitutional Court have become invalid. However, due to the fact that in the period of effect of Methodical instructions there have been involved constitutional rights and obligations of tax-payers and for some of them application of the norms, which are subject to verification, has entailed concrete legal consequences, the Constitutional Court deems it necessary to examine the case in question on points of fact.
Having heard judge-speaker, T.S. Boiko, representatives as litigants, studied materials of the case, analysed provisions of the Constitution, laws and other enforceable enactments of the Republic of Belarus, as well as law enforcement practice, the Constitutional Court established the following.
Items four - ten of point 8 of Methodical instructions determine that:
in the presence of losses incurred in operations on purchase and sale of foreign currency taxable turnover shall be increased to the sum of those losses (in banks - account 9241 "Losses incurred in purchase and sale of foreign currency");
by calculating value-added tax taxable turnover shall be increased only to the extent of losses met as a result of realization of previously acquired currency below the price of its acquisition;
sum of losses incurred in realization of foreign currency in banks shall be the specified according to data of a primary record in the composition of account 9241 "Losses incurred in operations on purchase and sale of foreign currency" only sums of losses incurred in operations of sale of foreign currency below the price of its acquisition with the exception of conversion of one kind of foreign currency into another kind of foreign currency, in obligatory sale of excess of receipts over expenses in foreign currency, in operations of regulation of currency position between branches of a bank, in forming reserves on doubtful debts on currency credits, in liquidation of principle debt and interests on currency in belarusian roubles, in SWAP transactions, in allocation of currency for convertation of funds of a bank, in specification in record of receipts and expenditures of a bank in currency which are carrying out in accordance with the effective legislation and instructions of the National Bank of the Republic of Belarus;
at the same time the presence of bought foreign currency shall be determined on relevant accounts 6901 "Currency position" (credit balance) on each kind of currencies as at the beginning of accounting period determined by a bank while calculating realized financial result of currency and exchange operations according to Procedure for record keeping of operations in foreign currency in commercial banks;
the price of acquisition of bought currency shall be determined by division of the sum of debit balance at the beginning of accounting period on account 6911 "Rouble equivalent of currency position" to the sum of credit balance at the beginning of accounting period on account 6901 "Currency position" of the relevant kind of currency;
the price of realization of bought foreign currency shall be determined by the rate established by each contract (transaction) of sale of that currency;
extent of the loss to which value-added taxable turnover is increasing shall be determined by multiplication of the quantity of sold (redrawing) currency debt below the price of acquisition of currency by absolute deviation of realization price from acquisition price. In instance of increase of the specified loss the extent of loss on account 9241 "Losses incurred in purchase and sale of foreign currency" taxable turnover shall be increased to the extent of the loss on that account.
Value-added tax was established by the Law of 19 December 1991 "On value-added tax" which has become effective since 1 January 1992. The given enforceable enactment is specified in new wording by the Law of 16 November 1999 "On making alterations and addenda to the Law of the Republic of Belarus "On value-added tax".
Under the Law of 19 December 1991 "On value-added tax" during its effect since 1 January 1999 till 31 December 1999 (hereafter - Law of 19 December 1991) object for taxation has been cost which was added by an enterprise (both in the sphere of production and circulation) to the cost of raw materials, materials or of goods by outputting and realization of production, goods, execution of work and provision of services, as well as the cost of goods bringing in the territory of the Republic of Belarus. Added value while selling all goods, produced, acquired or stored up, by some legal entities or entrepreneurs, who exercise their activities without making legal entity, to other legal and natural entities has been subject to value-added taxation. Object, manufactured article, property, production have been considered to be goods (Article 2).
The same Law has also envisaged that taxable added value has been calculated based on the sum realized for the goods, executed work and provided services less material inputs on output of those production (work, services), as well as difference between receipts and expenditures on non-realizing operations (part one of Article 3).
Under first wording of the Law of 19 December 1991 operations (transfer included) concerning currency, money, banknotes which are means of payment, collection coins excluded, were subject to no value-added tax (point 8 of part one of Article 5). The Law of 10 December 1993 "On making alterations and addenda to legislative acts of the Republic of Belarus on the issues of taxation" has excluded point 8 from part one of Article 5 of the Law of 19 December 1991.
Norm of part four of Article 3 of the Law of 19 December 1991, under which while realizing purchasing goods (production) at the prices below the price of acquisition taxable turnover has been calculated based on the price of acquisition of realized goods, has been introduced by the Law of 22 December 1992 "On making alterations and addenda to legislative acts of the Republic of Belarus on the issues of taxation" which became valid since 1 January 1993. The Constitutional Court emphasizes that addition to the Law of 19 December 1991 by the specified norm took place during effect of a privilege as regards operations (transfer included) concerning currency, money and banknotes which are means of payment, i.e. the lawmaker had made no specification as for the value-added tax payment while realizing foreign currency below the price of its acquisition. It has been followed from the meaning of the Law of 19 December 1991, that money resources (foreign currency) are goods (production) only, if they are results of activities of an enterprise on their manufacture or, if money (currency) are acquired for numismatic purposes.
The Constitutional Court considers, that after exclusion from the Law of 19 December 1991 of the privilege in respect to operations (transfer included) concerning currency, money and banknotes which were means of payment, provisions of part four of Article 3 of the Law in question, which has determined that while realizing purchased goods (production) at the prices below the price of acquisition taxable turnover shall be calculated based on the price of acquisition of realized goods, had not been applied automatically to the operations with foreign currency. Broad construction of the notion "purchasing goods (production)", with an allowance for provisions of part four of Article 3 of the Law of 19 December 1991 and further alterations and addenda to the norms of the Law "On value-added tax" in part of determination of the object of taxation and taxable turnover, shall be inadmissible with respect to currency operations, because will of the lawmaker at the moment of introduction of the norm, envisaging value-added tax payment while realizing purchasing goods (production) at the prices below the price of acquisition, has not been applied to the operations with currency. According to a general rule, object of taxation under the Law of 19 December 1991 was added value (Article 2), therefore, certain exemptions from that general rule had to be established by the lawmaker only.
Moreover, the Constitutional Court deems that provisions of part four of Article 3 of the Law of 19 December 1991 were not subject to application to currency operations also owing to the fact that banking services of purchase and sale of foreign currency according to their legal nature are currency and exchange operations by which foreign currency is exchanging for national monetary unit of the Republic of Belarus (or vice versa) at the definite currency exchange rate. Currency exchange rate is the price of monetary unit of a country expressed in monetary unit of another country. Under the Law "On the National Bank of the Republic of Belarus" the National Bank shall establish official rates of national monetary unit in relation to other currencies and shall regulate its market rate (Article 21).
In accordance with part thirteen of Article 3 of the Law of 19 December 1991 the sum of value-added tax shall be included in selling price of goods (work, services). Article 12 of the Law "On price formation" stipulates that a legal entity, entrepreneur shall have the right independently or by agreement with purchaser to fix the price (impose tariff) for the goods (work, services), if according to the legislation on price formation there is no application to them of state price regulation. Thus, selling prices for goods (work, services) are forming by economic entities who produce and realize those goods (work, services) independently or shall be fixed by the bodies of state government, contain expenses for their production and realization and has nothing in common with currency exchange rate established by the National Bank.
The Constitutional Court pays also attention that all wordings of Methodical instructions on the procedure of calculation of value-added tax, which were in force before adoption of Methodical instructions under verification, contained no provisions for value-added taxation of losses incurred in operations on purchase and sale of foreign currency. Before adoption of those Methodical instructions part four of Article 3 of the Law of 19 December 1991, which envisaged that while realizing purchasing goods (production) at the prices below the price of acquisition taxable turnover has been calculated based on the price of acquisition of realized goods, has been repeated by the State tax committee in exact compliance with the Law of 19 December 1991. Norms, which envisage value-added taxation of the losses incurred in operations on purchase and sale of foreign currency, has been appeared only in Methodical instructions "On procedure of calculation of value-added tax" approved by order of the State tax committee of 26 April 1999 No. 87 with addenda of 20 July 1999 No. 173.
It follows from the analysis of the content of items of point 8 of Methodical instructions under verification that in fact they contained: establishment (expansion) of the object of taxation on the value-added tax by increasing taxable turnover for the sum of losses incurred in operations on purchase and sale of foreign currency (item four); determination (increase) of taxable turnover by way of insertion in it only the losses inflicted as a result of realization of previously acquired currency below the price of its acquisition (item five); exclusion from taxable turnover of losses incurred in certain types of operations with foreign currency (conversion of one type of foreign currency into another type of foreign currency, obligatory sale of excess of receipts over expenses in foreign currency etc.) (item six), that in its point is granting privileges on value-added tax.
The Constitutional Court notes that object of tax, taxable base (taxable turnover) are basic elements of the tax and therefore, their determination shall be related to the powers of the state bodies who have the right to impose taxes. Under the Constitution of the Republic of Belarus introduction of republican taxes and dues shall be referred to the competence of the National Assembly of the Republic of Belarus (point 2 of part one of Article 97, point 1 of part one of Article 98).
Issues concerning granting privileges on the taxes and dues shall be regulated by the Law "On taxes and dues raised into the budget of the Republic of Belarus" under which privileges on the taxes and dues shall be established by the President of the Republic of Belarus and by the laws of the Republic of Belarus (part one of Article 4).
The Constitutional Court also emphasizes that the Law of 19 December 1991 neither envisaged taxation of losses incurred in operations on purchase and sale of foreign currency nor gave the State tax committee the right to determine the objects of value-added taxation, to increase taxable turnover and, all the more, to grant privileges on the tax in question.
The Constitution of the Republic of Belarus enshrines the principle of supremacy of law. The State and all the bodies and officials thereof shall operate within the confines of the Constitution and the laws enacted in accordance therewith (Article 7). According to point 2 of Provision on the State tax committee of the Republic of Belarus approved by resolution of the Council of Ministers of the Republic of Belarus of 11 April 1997 No. 333, the State tax committee shall be guided in its activities by the Constitution of the Republic of Belarus, by effective legislation and by the specified Provision.
The Constitutional Court has come to the conclusion that regulation of the issues containing in items four - ten of point 8 of Methodical instructions has not been based on the provisions of the Law of 19 December 1991 and has not been within the competence of the State tax committee of the Republic of Belarus. According to point 4.3 of the Provision on the State tax committee of the Republic of Belarus the competence of the State tax committee shall be, in particular, elaboration of the proposals on the improvement of tax legislation and issue methodical instructions and explanations on the procedure of calculation, accounting and collection of taxes and other payments into the budget.
At the same time the Constitutional Court notes that the Law "On value-added tax" which became effective in its new wording since 1 January 2000 has envisaged exemption from value-added taxation of turnovers on realization in the territory of the Republic of Belarus by banks and non-bank financial organizations of the operations on circulation of the currency of the Republic of Belarus or foreign currency, if those operations do not carry out for numismatic purposes, do not connected with realization of currency for the National Bank of the Republic of Belarus or for the bank of another state by the enterprise which produced it and are not subject to services on deposit, shipment or encashment of currency (sub-point 2.22.3 of point 2 of Article 3). In that connection the Constitutional Court pays attention that Methodical instructions "On procedure of calculation and payment of value-added tax" approved by order of the State tax committee of the Republic of Belarus of 13 December 1999 No. 310 determined that for the purposes of taxation goods shall be, in particular, production (object, manufactured article), buildings, facilities and other types of immovable and movable property except money resources (point 5).
Based on the aforesaid and guided by Article 116 of the Constitution, Articles 5, 6, 9, 34, 38, 40 and 43 of the Law "On the Constitutional Court of the Republic of Belarus" the Constitutional Court
RULED:
1. To find items four, five, six, seven, eight, nine and ten of point 8 of Methodical instructions "On procedure of calculation of value-added tax" approved by order of the State tax committee of the Republic of Belarus of 26 April 1999 No. 87 with alterations and addenda approved by order of the State tax committee of the Republic of Belarus of 20 July 1999 No. 173 to be at variance with the Constitution and laws of the Republic of Belarus.
To consider them to be invalid from the day of adoption of the said Methodical instructions.
2. To publish the present Judgment within the period established by the legislation in "Narodnaya gazeta", "Zvyazda", as well as in National register of legal acts of the Republic of Belarus.
3. The Present Judgment shall come into force from the day of its promulgation, is final and subject to no appeal and protest.
Presiding Officer —
Chairman of the
of the