The Constitutional Court found no 271 / 2016 Coll.
The Constitutional Court found of 28 June 2016 sp. zn.
Valid
The Constitutional Tribunal found
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271
FIND
The Constitutional Court
On behalf of the Republic
On 28 June 2016, the Constitutional Court decided under sp. zn. Pl. ÚS 18 / 15 in plenary, composed of the President of the Court of Pavel Rychetský and Judges Jaroslav Fenyk, Josef Fiala, Jaromír Jirsa, Tomáš Lichník, Jan Musil, Vladimir Sládeček, Radovan Suchánek, Kateřina Šimáčková, Vojtěch Šimíček, Milady Tomková (Judge of the Czech Republic), David Uhlír and Jiří Zemáček, on a proposal from the Senate of the Parliament of the Czech Republic, represented by Prof. JUDr. Aleš Gerlochem, a lawyer, with the Parliament of the Czech Republic as parties to the proceedings and the Government of the Czech Republic as a party to the proceedings,
as follows:
Paragraph 4 (3) of Act No. 586 / 1992 Coll., on Income Tax, as amended, is deleted from the date of publication of this finding in the Collection of Laws.
Reasons
Recital of the proposal
1. By a proposal of 22 July 2015, registered at the Constitutional Court on 24 July 2015, a group of 17 Senators of the Senate of the Parliament of the Czech Republic (hereinafter referred to as "the draftsman"), pursuant to the provisions of § 64 (1) (b) of Act No. 182 / 1993 Coll., on the Constitutional Court, proposed that the Constitutional Court should find the provisions of § 4 (3) of Act No. 586 / 1992 Coll., on income taxes, as amended (hereinafter referred to as "the Income Tax Act"), on the date of publication of the Act of the Act.
Dedication of the contested provision and development of legislation
2. Paragraph 4 (3) of the Income Tax Act is worded as follows:
"(3) Exemption from the regularly paid pensions referred to in paragraph 1 (a). h) does not apply when the sum of the income pursuant to § 6 and the sub-bases of tax pursuant to § 7 and 9 for the taxpayer exceeds CZK 840 000 in the tax period. For the purposes of this provision, income exempt from tax shall not be included in the income referred to in Article 6, nor shall revenue on which the tax is levied by deduction at a specific tax rate, unless it is referred to in Article 36 (7). ';
3. The contested provision of Paragraph 4 (3) was inserted into the Income Tax Act by Act No. 346 / 2010 Coll., amending Act No. 586 / 1992 Coll., on Income Tax, as amended, and other related laws, with effect from 1 January 2011.
4. The purpose followed by the quoted provision § 4 (3) of the Income Tax Act is based on the explanatory report to the Government Bill No. 346 / 2010 Coll. (Chamber of Deputies of the Parliament of the Czech Republic, 6th term, press 158 / 0), according to which "due to the reduction in the deficit of public finances, it is proposed to reduce the amount of tax relief for pensioners, since the law permanently allows for the exemption of paid pensions and pensions up to 36 times the minimum wage applicable on 1 January of the calendar year. It is proposed that, in the calendar year of 840 000 CZK, the pension which he receives should be taxed in the case of a working pensioner, if the sum of the income referred to in § 6 and the partial tax bases referred to in § 7 and 9. In accordance with the provisions of Paragraph 4 (1) (h) of the Income Tax Act, taxation is already subject to revenue in the form of regularly paid pensions or pensions, or to a total of them exceeding 36 times the minimum wage applicable on 1 January of the calendar year (which does not, however, include the amount of the supplement or pension allowance under the special legislation). Currently this amount is CZK 288,000. The newly proposed provision of Paragraph 4 (3) excludes the application of Article 4 (1) (h) in cases where the sum of the income pursuant to § 6 and the tax bases pursuant to § 7 and 9 for the taxpayer exceeds CZK 840 000 in the tax period. This will mean that while today only the amount of the pension (the sum of pensions) exceeding that limit (288,000 CZK) is taxed, according to the proposed adjustment, even if the minimum amount of income is exceeded in accordance with § 6 and the tax bases according to § 7 and 9, i.e. the amount of CZK 840 000, the entire pension (the sum of pensions) is taxed to CZK 288,000."
5. It follows from the Annex to the cited explanatory memorandum, marked "Special part D (2) - Reasons for submission and objectives', that the reduction in the level of tax concessions for pensioners was proposed on the basis of a coalition agreement in order to increase the revenue of public budgets to partially cover their deficit in subsequent years, with a" change having a slightly positive impact on public budgets'.
6. Until the end of 2010, in respect of income in the form of a regularly paid pension or pension (hereinafter referred to as "pension '), tax was applied only under Paragraph 4 (1) (h) of the Income Tax Act in such a way that taxation was subject only to an amount of income exceeding 36 times the minimum wage applicable on 1 January of the calendar year, the amount of the supplement or contribution to the pension under the special legislation being included in the applicable amount; income from income up to a limit of 36 times the minimum wage for the tax period has been exempt.
7. As of 1 January 2011, the exemption of income taxes under Section 4 (1) (h) of the Income Tax Act for pensioners receiving additional income (so-called "working pensioners') was therefore abolished, as a result of the abovementioned amendment of the Income Tax Act, if the sum of these additional income under Section 6 (income from dependent activities) and the partial tax bases under Section 7 (income from separate activities) and Section 9 (income from income) of the Income Tax Act exceeded CZK 840 000 in the calendar year; In this case, the entire pension of the working pensioner was taxed under Section 16 of the Income Tax Act.
8. In the system of taxation of additional income of workers pensioners, it is also necessary to take into account the provisions of § 35ba (1) (a) of the Income Tax Act, which provides for the basic tax rebate for taxpayers of personal income tax, according to which the basic discount of CZK 24,840 per taxpayer was fully applied to working pensioners by 31 December 2012.
9. With effect from 1 January 2013, Act No 500 / 2012 Coll., on the amendment of tax, insurance and other laws in connection with the reduction of public deficits, Paragraph 35ba (1) (a) of the Income Tax Act at the end of the text of point (a) was supplemented by the words "the tax does not fall on a taxpayer who receives an old-age pension from a pension or foreign compulsory insurance of the same kind on 1 January '.
10. The finding of the Constitutional Court sp. zn. Pl. ÚS 31 / 13 of 10.7.2014 (N 138 / 74 SbNU 141; 162 / 2014 Coll.) was, with effect from 4.8.2014 above, in paragraph 9 of the cited amendment § 35ba (1) (a) of the Income Tax Act repealed for a conflict with the constitutional order. It appeared from the quoted finding and subsequent finding of the Constitutional Court sp. zn. I. ÚS 2340 / 13 of 16.9.2014 (N 167 / 74 SbNU 445) that working pensioners were able to apply a discount on the taxpayer pursuant to § 35ba (1) (a) of the Income Tax Act 2013 and 2014.
11. The statutory measure of Senate No. 344 / 2013 Coll., on the amendment of tax laws in connection with the recdification of private law and on the amendment of certain laws, effective as of 1 December 2013, was laid down in Part One, Article II, point 8 of the transitional provisions: "For the tax period 2013 to 2015, the provisions of Section 4 (3) of Law No 586 / 1992, as amended, shall not apply." It is clear from the explanatory memorandum that the reason for the exclusion for the years 2013 to 2015 was that, according to the then legal situation of the pensioners, they could not apply a discount on the taxpayer from 2013 onwards; Therefore, a temporary restriction on the application of Section 4 (3) of the Income Tax Act was proposed for 2013.
12. Act No. 267 / 2014 Coll., amending Act No. 586 / 1992 Coll., on Income Taxes, as amended, and other related laws, effective as of 1 January 2015, was laid down in Part One, Article II, point 2: "Part One, Article II, point 8 of Senate Legislative Measures No 344 / 2013 Coll." It is clear from the explanatory memorandum to the government bill that the reason for the reintroduction of taxation on the income of pensioners in accordance with Section 4 (3) of the Income Tax Act was already in 2015 that for the 2015 tax period the basic discount on the taxpayer under Section 35ba (1) (a) of the Income Tax Act was re-granted to workers. In summary, Act No. 267 / 2014 Coll. again introduced the taxation of the entire pension paid when the sum of the additional income of the working pensioner exceeded the limit of CZK 840 000.
13. The current applicable and effective legislation is therefore such that, according to Section 4 (1) (h) of the Income Tax Act, pensions up to 36 times the minimum wage (for 2015 it is CZK 331 200, for 2016 it is CZK 356 400). In addition, the pension is subject to taxation as the so-called other income within the meaning of Section 10 (1) (e) of the Income Tax Act. Taxation shall be made at a generally valid rate of 15%. However, if the sum of the additional income (from employment, business, etc.) of the pensioner exceeds CZK 840 000, under the provisions of Section 4 (3) of the Income Tax Act, the entire pension, i.e. the part of the pension that would otherwise be exempt under Section 4 (1) (h) of the Income Tax Act, is subject to tax.
Arguments of the appellant
14. The appellant contends that the contested legislation on taxation of paid pensions and pensions for pensioners with income exceeding CZK 840 000 in the calendar year infringes the principle of equality and non-discrimination guaranteed in Article 1 of the Charter of Fundamental Rights (hereinafter referred to as "the Charter ') and in Article 26 of the International Covenant on Civil and Political Rights (hereinafter referred to as" the Pact'), on the one hand, and in conjunction with the fundamental right to the protection of property rights under Article 11 (1) and (5) of the Charter, and in conjunction with Article 26 (1) of the Charter guaranteeing the right to conduct and to conduct other economic activities', in the sense of the unequal status of the various addressees of legal regulations in relation to the protection of property and the right of acquisition of funds for their life '.
15. The argument of the appellant refers to the criteria formulated by the Constitutional Court in the decision of sp. zn.
16. As regards the so-called choking effect, the appellant submits that it does not consider that the contested provision has a so-called choking effect. It is of the opinion that if the entire pension paid is taxed only on the condition that the other income of CZK 840 000 is obtained, it is clear that "the tax payer's property base, the pensioner, is not affected in a completely liquidation manner." According to the appellant, it is not possible to see that the taxation of pension over a range of 36 times the minimum wage [Paragraph 4 (1) (h) of the Income Tax Act] affects all taxpayers in the position of pensioners, with the amount of income paid in excess of that 36 times being taxed. The amount which is not taxed at all remains from the pension paid.
17. As regards the principle of equality, the appellant argues that the provisions of Paragraph 4 (3) of the Income Tax Act "collides' with both the principle of non-accesoric equality and the principle of accesoric equality and creates two distinct groups of taxpayers who are pensioners: the first group consists of those whose other income does not exceed CZK 840 000, the second group whose income exceeds that threshold. The result of this distinction is the taxation of the entire pension paid to the second group. According to the appellant, the position of taxpayers - pensioners - is not the same and the principle of equality is thereby undermined." It is therefore necessary to consider the unconstitutional nature of such legislation that violates the principle of equality. "
18. The appellant points out the necessity to exclude "insolence in the determination of certain obligations" and disputes with the grounds for the intention of the legislator, contained in the explanatory report on the Government Bill No. 346 / 2010 Coll., arguing the need to reduce the general government deficit. Such justification, in the appellant's view, cannot stand for its generality and could be used to justify any tax liability to anyone under any circumstances. The appellant pointed out the inconceptual nature of the entire legislation governing the coexistence of a gainful activity with a pension within the meaning of point 57 of the Constitutional Court's finding, sp. zn. Pl. ÚS 31 / 13, and argues that the legislator chosen is arbitral, demonstrating the calculations.
19. The appellant further contends that the infringement of the requirement of accesorial equality has affected the right to own assets within the meaning of Article 11 (1) and (5) of the Charter. At the same time, however, the right under Article 26 (1) of the Charter has also been violated in order to obtain the means of subsistence for work. As the appellant considers it obvious, a certain amount of gainful activity leads to higher taxation, but not in relation to the income thus obtained (which, for example, would be acceptable in the form of a progressive tax according to the circumstances), but in relation to income from the pension system, which is apparently no longer acceptable.
20. On the question of predictability of the effects of legal regulation, the appellant considers that the contested provision of the Income Tax Act was also affected by the "requirement of predictability of the effects of legal regulation 'in two respects:
21. The first is that the current legislation envisaged that no such tax would be applied at least for 2015. As much as the development of legal regulation (and contrario of the inconsistency of legislation) is necessary, the legislator does not, in the opinion of the appellant, approach sudden changes in legislation where it has established a certain legal regime for a specified period.
22. The second moment touches the material plane. The point is that legal regulation does not allow individual taxpayers to adapt their actions to the effects of legal regulation. The key is the limit of CZK 840 000, which means additional tax burden up to CZK 49 680. In particular, in the case of business activities, individual activities can hardly be planned in such a way as to achieve a certain annual profit. If the legal limit is exceeded significantly (e.g. by hundreds of thousands of crowns), then it is of course possible to say that it is this much higher income "compensates" for increased taxation. However, if the border is crossed only slightly (perhaps by just one crown), the total net income of the taxpayer will fall by the 49 680 CZK. For this reason, the appellant no longer finds any reasonable justification. The problem could be solved, for example, by some progressive taxation etc., but the legislator did not resort to this. Thus, no criteria were considered to mitigate the unconstitutionality of the contested legislation.
23. The appellant summed up that the contested provision infringes both the principle of non-accessorial and accessorial equality, as well as the principle of predictability of the effects of legal regulation, in line with Article 11 (1) and (5) of the Charter and Article 26 (1) of the Charter.
Assessment of admissibility of the proposal
24. The Constitutional Court notes that the application pursuant to § 87 (1) (a) of the Constitution of the Czech Republic (hereinafter referred to as the Constitution) was submitted by an authorised body under § 64 (1) (b) of Act No. 182 / 1993 Coll., on the Constitutional Court. The application thus fulfils the conditions for proceedings before the Constitutional Court.
25. As part of the assessment of the applicant's active legitimacy, the Constitutional Court cannot state that out of the 17 senators who submitted a motion to repeal the law, 7 of them voted for the contested law (cf. Resolution 604, vote No 7 at the 25th meeting of the Senate held on 12 November 2010 concerning Senate Press No. 366, where, among other things, the promoters Přemysl Sobotka, Jiří Oberfalzer, Jaroslav Kubera, Pavel Eybert, Tomáš Grulich, Daniela Filio and Jan Horník have spoken for the law). The Constitutional Court does not in any way call into question the possibility of changing the views of the legislature to the constitutionality of certain legislation, yet it will not forgive itself to appeal to the legislature to consistently address the possible unconstitutional nature of the laws during the legislative process and in the framework of the parliamentary debate, and they will no longer have to challenge the applicable, effective and legal legislation which they have helped enforce before the Constitutional Court.
Observations of the parties and the intervener
26. The Chamber of Deputies of the Parliament of the Czech Republic, as a party to the proceedings in the observations signed by its President Jan Hamakk, noted the appellant's argument and described the legislative process of adopting the contested provision of the Income Tax Act.
27. The Senate of the Parliament of the Czech Republic, as a party to the proceedings, in its observations signed by President Milan Štěm, has summarised the legislative process of adopting the contested provision, stating in conclusion that it is entirely up to the Constitutional Court to examine and decide the application for annulment of the contested legal provision.
28. The Government of the Czech Republic as an intervener and the First Deputy Prime Minister and Finance Minister Ing. Andrej Babiš referred in their identical comments on the proposal of 13. 10. 2015 and 4. 11. 2015 respectively to the legislation on taxation of income tax.
29. The appellant's objection to the breach of non-accesorial equality and its claim that the setting of the limit of CZK 840 000 is discriminatory and has no rational grounds, the Government of Part II of the statement pointed out the finding of the Constitutional Court, sp. zl. Pl. ÚS 7 / 03 of 18.8.2004 (N 113 / 34 CollU 165; 512 / 2004 Coll.), according to which the principle of non-accesoric equality implies a requirement to exclude arbitrage in the distinction between entities and rights, and in which it is stated that the constitutional conformity of the legislation under consideration is sufficient if the classification in a rational relation to the purpose of the law could have an effect.
30. To refer to the appellant's alleged discriminatory nature of the contested provision and to his claim that the regulation had no rational basis, the Government stated that the very possible discriminatory nature of the contested provision did not constitute an infringement, which, in its view, was confirmed by the Constitutional Court in its finding of sp. zn. Therefore, the assessment of the contested legislation in terms of excluding arbitrariness in distinguishing between entities and law is crucial. Similarly, the possible irrationality of the contested provision does not, according to the Government, cause unconstitutionality, but the lack of a rational relationship between the purpose of the contested provision and the purpose of the law. The Government took the view that the contested legislation did not discriminate between entities or rights arbitrarily and was not irrational in relation to the purpose of the law.
31. The Government referred to the data of the General Financial Directorate relating to the 2012 tax period, which shows that the taxpayers who declared sufficient income to exceed the limit of CZK 840 000 and at the same time reported other income under Section 10 of the Income Tax Act, in which, inter alia, the pensions paid were taxed, among men over 62 years, a total of CZK 3 603 and a total of 1,943 among women over 60 years. The number of taxpayers in this group receiving an old-age pension is likely to be even lower, as it is not always possible to determine from the tax return whether the other income is taxed. From the above, it can reasonably be expected that the taxpayers, to whom the provisions of Paragraph 4 (3) of the Income Tax Act may actually affect, form a very narrow group. According to the Government, this corresponds also to the fact that the choice of the limit was not the result of a random and unfounded consideration, but was guided by the idea of setting the corresponding limit so that the vast majority of taxpayers did not apply the contested provision and maintained the untaxed part of the pension scheme within the meaning of § 4 (1) (h) of the Income Tax Act.
32. In the view of the Government, the solution enacted in Section 4 (3) of the Income Tax Act undoubtedly conceals the idea of the solidarity of more wealthy taxpayers with lower-income taxpayers, as reflected in the environment of old-age pensioners. Taxpayers who have income that can be considered to be excessive shall, to a specified additional extent, participate in the tax levy in favour of maintaining the pension exemption of those taxpayers who are below the limit. Thus, the initial purpose of that standard was not to impose a tax burden on a selected group of pensioners, but to provide for a specific tax regime that would provide for an additional collection of tax collection for taxpayers with excessive equity ratios.
33. The "High Income" of the taxpayers who are actually affected by the contested provision was demonstrated by the government by the calculation of the income that the taxpayer receiving the old-age pension would have to achieve in order to exceed the limit of CZK 840 000.
34. If only income from dependent activities (Section 6 of the Income Tax Act) was taken into account by the taxpayer and in order to determine the excess of the limit, the taxpayer receiving the old-age pension would have to receive gross annual income exceeding the limit of CZK 840 000, i.e. CZK 70 000 per month.
35. If the taxpayer exceeded that limit by performing only one of the separate activities (Section 7 of the Income Tax Act) and applied flat-rate expenses, then the income from agricultural production, forestry and water management and the pursuit of the craft business would have to be at least CZK 2,440 000 per year, the income from other business activities (free and licensed) would have to be CZK 2,040 000 per year, the income from the rental of assets included in the commercial property and other income from separate activities of CZK 1,400 000 per annum.
36. If the taxpayer had exceeded that limit only by receiving income from the lease (Section 9 of the Income Tax Act), i.e. by renting "non-commercial" assets, while applying flat-rate expenses, he would have to obtain annual income exceeding CZK 1 200 000 per year.
37. In other circumstances, in these model situations, the taxpayer could not exceed the limit of CZK 840 000 and the tax-free part of the pension would be retained without tax collection.
38. The Government summarised that the provision of the Income Tax Act in question actually only affects the "high-income 'groups of taxpayers, with the choice of the limit of its application to these groups not being arbitrarily chosen, but rather in such a way that the measure actually affects only those taxpayers who can be sure to participate in the creation of public budget resources. Also, the contested legislation is not irrational, since it is only rationally taxing the above-mentioned" high-income' groups of taxpayers.
39. Therefore, for the reasons set out above, according to the Government, the adjustment contained in Section 4 (3) of the Income Tax Act is not contrary to the principle of non-accesorial equality.
40. The appellant's assertion that there is no breach of accesorial equality by violation of Article 11 (1) and (5) of the Charter has been claimed by the Government that there is no breach of accesorial equality by that amendment. According to the Government, the authorisation to restrict the right to property by imposing taxes is, however, an intervention in the right to property, which, contrary to the limitation of all other constitutional rules of guaranteed rights, is envisaged directly by the constitutional standard (Article 11 (5) of the Charter). Without the fulfilment of further conditions, the mere imposition of a tax obligation cannot be an interference with the right to own property, since that integrity is directly foreseen by constitutional order. The examination of whether the tax constitutes a right of ownership (i.e. an infringement of the principle of equal treatment) is limited only to cases in which the tax gains against the property substrate of an individual of the so-called choking effect, i.e. it has confiscation effects in relation to the property nature of the individual (see sp. zn. Pl. ÚS 7 / 03). The Government points out that the appellants themselves exclude that, in the present case, the amendment of Section 4 (3) of the Income Tax Act would have caused a stifling effect.
41. Similarly, according to the Government, it is also possible to comment on the alleged interference in Article 26 (1) of the Charter, i.e. the right to obtain the means of living for work. Taxation of a specific income arising from the performance of work, whether in the form of dependent activities or a separate activity, cannot be regarded without further prejudice to the right to earn a living. In order to fulfil such an intervention, it would be necessary to detect certain specific tax arrangements as a measure that monitors or causes the taxpayer to be able to make money on his work needs, for example by sanctioning such performance, which would cause the taxpayer's complete demolition to continue to pursue a gainful activity.
42. In this dierent regard, the government considers that the contested standard can be disputed over the effect of the relevant taxpayer's income exceeding the threshold of CZK 840 000, thus taxing the still untaxed part of the pension (the amount of tax in the case of a border tax is close to CZK 50 000), while its total income does not amount to the amount of tax otherwise taxed. For such a taxpayer, the amount of net income after tax is lower than that of the taxpayer whose income is immediately below the fixed limit of CZK 840 000, and for which there is no taxation of pension. In this context, the Government considers it necessary to state that, although the application of the tax scheme may have a de-activating effect in terms of gainful activity above the threshold laid down, it does not directly prevent the taxpayer from carrying out work leading to the acquisition of sufficient funds to meet the needs of life within the meaning of Article 26 of the Charter. On the contrary, the taxpayer is motivated to achieve income levels above the "loss' due to income tax and thus compensates for this decline in net income.
43. On the objection to the unpredictability of the effects of legal regulation, the Government noted that the setting of the initial temporary establishment of the application of the provisions of § 4 (3) of the Income Tax Act for the tax period 2013 to 2015, implemented by Article II (8) (transitional provisions) of Senate statutory measure No 344 / 2013 Coll., was closely linked to the impossibility of applying a basic tax rebate to a taxpayer who, on 1 January, receives an old-age pension pension or foreign compulsory insurance of the same kind [see § 35ba (1) (a) of the Income Tax Act, as amended by Act No 500 / 2012 Coll.]. The aim was not to apply to the taxpayer both in terms of the fulfilment of the tax obligation burdensome provisions, which was explicitly expressed by the legislator in a specific part of the explanatory statement to suspend the application of the contested provision: "It is proposed that the application of the provisions of Section 4 (3) of the Income Tax Act, according to which the regularly paid pension on the part of the pensioner who has income from the dependent activity, the sub-base of the business tax and the lease amount of over CZK 840 000 be excluded for the tax period 2013, 2014 and 2015. The reason is that the amendment to the Income Tax Act No. 500 / 2012 Coll. Since 2013 it does not allow old-age pensioners to apply a discount to the taxpayer [amendment § 35ba paragraph 1 (a) of the Act]. In view of the fact that pensioners cannot apply a discount to the taxpayer from 2013 onwards, a temporary restriction on the application of the provisions of Section 4 (3) of the Act is proposed for 2013 as well. '
44. The Government also noted that, on the basis of the coalition agreement for the 2013-2017 election period, in which it made a commitment to renew the discount for working pensioners from 2015 onwards, the withdrawal of that restriction on the application of the basic tax rebate from the 2015 tax period was proposed in the framework of draft Law No 267 / 2014 Coll. while at the same time the reapplication of Section 4 (3) of the Income Tax Act was proposed. The proposed changes took place precisely because of the link between the application of Section 4 (3) and the possibility to apply the basic tax rebate, as confirmed by the specific part of the explanatory statement set out below in Article II (2) of Act No 267 / 2014 Coll., according to which "transitional provision 8 in the part of the first statutory measure of the Senate, in an effective version, excludes the application of the provisions of Section 4 (3) of the Income Tax Act, according to which the pension pension is paid on a regular basis, which has the sum of the income pursuant to § 6 and the tax sub-bases under § 7 and 9 of the Income Tax Act above CZK 840 000. This temporary restriction on the application of the provision reacted to the inability of elderly pensioners to apply a discount on the taxpayer starting in 2013. In the context of the proposed regrant of a basic discount on the taxpayer to elderly pensioners who, on 1 January of the tax period concerned, receive an old-age pension from pension insurance or foreign compulsory insurance of the same type in § 35ba (1) (a) of the Income Tax Act, it is proposed to renew the application of the provisions of § 4 (3) of the Income Tax Act for the tax period 2015. '
45. The Government further noted that on 10 July 2014, the Constitutional Court decided, under the sp. zn. Following this finding, the proposed adjustment for the refund of the basic discount on the taxpayer to pensioners from the draft law No. 267 / 2014 Coll. was deleted by an amendment adopted in the discussion of this draft law by the Chamber of Deputies, but the renewal of the application of Section 4 (3) of the Income Tax Act had to be logically left in the draft law.
46. In the light of the foregoing, it cannot be argued by the Government that the change in the application of Paragraph 4 (3) of the Income Tax Act was unpredictable and that it intervened in the legal certainty of the taxpayers, as the taxpayer could have expected it on the basis of the above, under the conditions.
47. However, if it were possible to consider unpredictability in the present case, only in relation to the tax period 2015, which was the subject of the original establishment of the contested provision, and not the following years, which were not covered by the scope of the original establishment, i.e. the taxpayer had to assume that the provisions of Section 4 (3) of the Income Tax Act would be applied again since the adoption of the statutory measure of Senate No 344 / 2013 Coll. from the tax period 2016.
48. In the event that the Constitutional Court disagrees with the above argument and considers that it will comply with the proposal, the Government proposes, taking into account the need to ensure the smooth application of the Income Tax Act and the need to ensure effective collection of taxes, that the possible abolition of the contested provision be carried out only with effect from the beginning of the tax period, i.e. on 1 January.
49. The reason for such a request is also that the limit is designed as annual. In the event of cancellation of the standard during the tax period, (and likely to be) taxpayers may exist where the revenue provided for in Section 4 (3) of the Income Tax Act exceeds CZK 840 000 in the tax period, while others do not. In this situation, interpretation problems could arise from the point of view of determining whether, on the basis of the existence of the standard for part of the tax period, a distinction should be made between the taxpayers who have achieved the limit and those who have not achieved it (i.e. following the literal grammatical interpretation of the standard) or whether the standard should be applied for part of the tax period in which it operates, but the wording of Paragraph 4 (3) of the Income Tax Act does not provide full support.
50. In conclusion, the Government expressed its conviction that the proposal was unfounded. The contested provision is not contrary to the interest in respecting non-accesoric or accesorial equality. The provisions adopted in view of determining the time-point at which it began to operate complied with the interest in maintaining the predictability of the law.
51. For these reasons, the Government has proposed that the Constitutional Court reject the motion of a group of 17 senators of the Senate of the Parliament of the Czech Republic to abolish Article 4 (3) of the Income Tax Act in full.
52. The Ombudsman informed the Constitutional Court by letter dated 24 August 2015 that she would not use her right to intervene as an intervener.
Replication of the applicant
53. In a reply to the observations of the Senate of the Parliament of the Czech Republic, the appellant stated that it did not consider it necessary to discuss the Senate's observations on the proposal in detail, since the description contained in the draft description of the various stages of the legislative process corresponds to the facts and did not contain arguments relating to the unconstitutional nature of the contested provision of the Income Tax Act.
54. In a reply to the observations of the Chamber of Deputies of the Parliament of the Czech Republic, the draftsman stated that the statement merely recaptured the content of the proposal and briefly described the course of adoption of the contested provision. There were no arguments in favour of the constitutionality or the unconstitutional nature of the contested provision of expression and therefore the appellant did not consider it necessary to react more closely to that statement.
55. In reply to the Government's observations, the appellant stated that it did not share its view that discrimination against individual taxpayers, based on the contested provision, was based on rational differentiating criteria and was therefore not arbitrary and that it was therefore a constitutional adjustment.
56. The Government's argument that, in assessing the constitutional conformity of legislation, the conditions of social reality in which the proposed standard is intended to operate must be taken into account, according to the appellant, only in the general sense can it be accepted. In his view, it goes without saying that legislation must respond to relevant social problems, but that does not mean that it can ignore an existing constitutional legal framework which sets objective limits to the admissible measures taken by the legislature. Otherwise, there is arbitrary, unjustified distinction between the addressees of legal regulation which is constitutionally inadmissible. In its other arguments, the government confirms that this is the case here.
57. The appellant expressed the belief that no other argument reveals the inadmissibility of the discriminatory nature of the contested provision more than a government argument with a quantitatively limited impact of a particular regulation which is allegedly admissible for such a reason. In other words, the government claims that the smaller a number of addressees are affected by certain measures, the more so is constitutionally conformal and the established distinction is legitimate. The opposite, according to the appellant, is true for several reasons.
58. According to the appellant, the underlying principle of legal regulation is the principle of equality in rights, not the principle of inequality in rights. The introduction of differentiated conditions and the distinction between different groups of addressees of legal regulation is acceptable, but only an exception to the rule. As with all exceptions, this exemption must be interpreted in a restrictive manner and no matter how many or few addressees are affected by discrimination.
59. The appellant believes that certain legislation is either unduly discriminatory or constitutionally conformist, regardless of the number of persons affected by such legislation. In other words, even if only one addressee fulfils the discriminatory requirement, the legislation will not be less or more discriminatory and therefore less or more admissible.
60. According to the appellant, the government completely ignores the element of the general rule, which causes the scope of the addressees to be indeterminate in terms of their number, i.e. it is variable in time. The fact that, at some point, the number of people actually affected by legislation is relatively small does not mean that it will not increase in the next period. This also shows that the criterion applied by the government to the actual number of legal regulatory addressees is absolutely irrelevant in assessing the admissibility or inadmissibility of discrimination.
61. The appellant is of the opinion that the inadmissible discriminatory nature of the contested provision also reveals the argument that the contested provision "undoubtedly contains" the idea of the solidarity of more wealthy taxpayers with lower-income taxpayers, which is manifested "precisely in the environment of old-age pensioners."
62. According to the appellant, in general terms, the argument of high-income people with lower-income persons is constitutionally correct in itself. However, an assessment of the admissibility of any discriminatory treatment (without negative connotation) is essential to establish the differentiation criterion correctly. It is in this regard that the Government's argument, according to the appellant, fails completely. To be fair, it would have to be the solidarity of taxpayers with a certain higher level of income with taxpayers with a lower level of income. However, it cannot be distinguished from the source of this revenue. In other words, if the total income of a taxpayer (from business, employment, pensions, etc.) were to be used as a basis for higher taxation, it would be acceptable solidarity for the rich and the poor. However, if only an old-age pension is taxed separately, it is not a permissible distinction.
63. The appellant further pointed out calculations showing how high the income would have to be achieved by "other 'taxpayers in order to be taxed in the same way as old-age pensioners (cf. paragraphs 34-36 of this finding). If all taxpayers were thus taxed, i.e. an increased rate of tax at a certain level of income, irrespective of their source, the appellant considers that the distinction would be admissible. However, there is no reason for only elderly pensioners to be subjected to a selective de facto progressive tax. The applicant therefore considers that the source (origin) of the revenue is not a relevant distinguishing criterion. If the Ministry claims to be taxed in this way by taxpayers" who can truly participate in the creation of public budget resources, "then all other taxpayers whose revenue is equal to the same amount can also participate with the same certainty. According to the appellant, the fact that such fair and non-discriminatory taxation is capable of being applied by the legislator shows the introduction of a so-called solidarity tax pursuant to § 16a of the current effective wording of the Income Tax Act.
64. The actual nature of income which is subject to discriminatory taxation (i.e. the fact that it is an old-age pension), according to the appellant's view, even without comparison with other types of income completely excludes their burden on any tax. The pension system is built in the Czech Republic on the principle of very limited merit. While the greater the contribution of the taxpayer to the pension system, the greater his pension is, progress is very low due to the reduced limits set. It was even so low that it was subjected to criticism by the Constitutional Court in terms of constitutional conformity [finding sp. zn. Pl. ÚS 8 / 07 of 23.3.2010 (N 61 / 56 CollNU 653; 135 / 2010 Coll.)]. The high retirement pension paid to taxpayers is subject to their high contributions (pension contributions) to the pension scheme. At the same time, however, the amount of the levy itself was subject to high income, which in itself was subject to high taxation. Even without knowing exactly the data, it can be safely concluded that a number of old-age pensioners who are now subject to discriminatory taxation at the time of their economic activity were subject to a progressive income tax which was paid in the domestic income tax arrangements until 2007, up to 32% of their income (compared to the basic rate of 12%). Now they are taxed again. The appellant finds nothing to justify such an adjustment.
65. The appellant further argued that the Government also commented on the alleged unconstitutionality due to a breach of the principle of Accesorial Equality and claimed that this principle was not distorted unless the legislation had a smothering effect. Such justification, according to the appellant, is insufficient. In his view, equality is affected in relation to the right to own property, as ownership of one group of persons is affected to a greater extent than that of the other. Similarly, this applies in relation to Article 26 (1) and (3) of the Charter. It is not only a demolition effect in relation to the pursuit of a gainful activity, but a right to obtain means to satisfy the living needs of work on equal terms. It is clear that such equality is being undermined by the contested legislation. Since the appellant did not find any legitimate justification for such an adjustment for the principle of non-accesoric equality, it is logical that it does not find them even for the principle of accesoric equality. The appellant recalls that the impact of the intervention on the right to own property in the maximum amount amounts to almost CZK 50,000 per year, as confirmed by the government. This is an amount so high in the economic reality of the Czech Republic that it is worthy of constitutional protection.
66. Finally, the appellant stated in a reply that he had found nothing in the statements sent to him to shake his conviction that the contested legislation was unconstitutional. On the contrary, it is convinced that the Government has contributed to clarifying the unconstitutional nature of the contested provision by empirical arguments which the appellant itself did not have. Therefore, the appellant insists on its proposal.
Abandonment of oral proceedings
67. The Constitutional Court did not expect further clarification of the case from the oral hearing, therefore it waived the provision of § 44 of the First Law No. 182 / 1993 Coll., on the Constitutional Court, as amended.
68. The Judge-Rapporteur in the present case was originally appointed by Judge Jan Musil in accordance with the current schedule of work. After his motion was not accepted at the plenary meeting in private on 28 June 2016, the President of the Constitutional Court, Pavel Rychetský, appointed a new Judge-Rapporteur under Article 55 of the Law on the Constitutional Court.
Assessment of the constitutional conformity of the legislative process
69. In the procedure for the control of standards, the Constitutional Court pursuant to the provisions of § 68 (2) of Act No. 182 / 1993 Coll., on the Constitutional Court, as amended by Act No. 48 / 2002 Coll., also ascertains whether the contested law was adopted and issued within the limits of the Constitution established competence and by the constitutional procedure.
70. In the case at issue, the Constitutional Court found, from the observations of the parties and from the House of Prints, publicly available at http: / / www.psp.cz, that the contested provision of Paragraph 4 (3) of the Income Tax Act was adopted within the limits of the Constitution of the established competence and the constitutional procedure. After all, the appellant himself did not object to the legislative procedure. For the sake of completeness, the Constitutional Court adds that the constitutionality of the legislative process of Act No. 346 / 2010 Coll. has in the past been assessed under sp. zn. Pl. ÚS 17 / 11 [the find sp. zn. Pl. ÚS 17 / 11 of 15.5.2012 (N 102 / 65 SbNU 367; 220 / 2012 Coll.), cf. paragraphs 36-39 of the cited finding].
General bases of the constitutional review of tax legislation
71. The Constitutional Court considers that the determination of tax liability and effective collection of taxes are vital for the proper functioning of the State and society. Taxes depend not only on financial saturation of public budgets and the operation of the state apparatus, but also on the implementation of economic, cultural, educational, security, defence and social policy.
72. It cannot be seen that finding an optimal model of tax burden is extremely complex and absolutely requires taking into account many dynamic factors of economic, demographic, mathematical and statistical and other. Many of these issues are of a professional nature.
73. The issues of the optimal tax burden are typically among the so-called political questions, i.e. those issues the solution of which results from social consensus, preferences, population values, population mentality, traditions, etc. In the case of tax burdens, for example, the social consensus on the degree of solidarity between the rich and the poor, on population policy, on support for families with children, on concessions for handicapped population groups, etc.
74. Fixing the tax burden is one of the most controversial issues in competing political parties and movements and plays a crucial role in voters' preferences in elections. These are, therefore, issues on which the composition of Parliament and other representative bodies of all degrees depends and, after all, the composition of the government.
75. The task of "refresh" this political discourse into the form of tax legislation rests on the shoulders of political representation resulting from elections. The 'Kolbiště' in which this process takes place is Parliament and other representative bodies representing a wide range of social interests.
76. Thus, the Constitutional Court cannot assess the optimisation of the tax system or assess tax laws from the point of view of fulfilling the basic functions of taxation, i.e. the functions of allocation, distribution and stabilisation. As stated by the Constitutional Court in Case C-29 / 08 ÚS 29 / 08 of 21.4.2009 (N 89 / 53 SbNU 125; 181 / 2009 Coll.), "Tax assessment in respect of these criteria falls within the competence of the democratically elected legislator. If the Constitutional Court had acceded to it, it would have entered into the field of individual policies whose rationality cannot be well assessed from a constitutional point of view" (paragraph 58). The Constitutional Court does not intend to examine the consistency of tax policy with other policies of the State, as it would find itself on the thin ice of not always conclusive analyses, the results of which are to be assessed and the political context of the democratic legislator, who must consider whether the tax adjustment is appropriate and necessary (sp. rev.
77. However, the above-mentioned restraint does not mean the absolute exclusion of tax issues from the powers of the Constitutional Court or the resignation of the Constitutional Court to review tax laws from the point of view of their constitutional conformity, but only the maintenance of the necessary degree of restraint or judicial self-restraint in this review, precisely in order to preserve the principle of division of power.
78. Article 11 (5) of the Charter creates scope for a constitutionally acceptable restriction on property rights for reasons of public interest, which is interested in collecting funds for the provision of various types of public goods (sp. zn. The assessment of the suitability and necessity of the various components of the tax policy is left to the discretion of the democratically elected legislator if the impact of the tax on persons does not have a suffocating effect (it is not extremely disproportional) and does not breach the principle of Accesoric and Non-Accessional Equality (sp. zn. Thus, any public-law mandatory cash performance (tax, fee, financial penalties) cannot have in its consequences confiscation effects in relation to the property of the individual (sp. zn. The legislature must therefore not intervene in the property rights in such a way as to thwart the substance of the property itself or to destroy the taxable person's property base [cf. also the finding sp. zn. Pl. ÚS 3 / 02 of 13.8.2002 (N 105 / 27 CollNU 177; 405 / 2002 Coll.), part III, or the finding sp. zn. Pl. ÚS 29 / 08, paragraph 53].
79. Thus, when assessing the degree of intervention in the property rights of taxable entities, the abstention of the Constitutional Court in the area of tax laws is manifested in the lower intensity of the review of tax laws in the form of examination of only extreme disproportionality of tax burden (or impact of tax) instead of the application of proportionality in the form of an order for optimisation. The restriction of property rights on the basis of Article 11 (5) of the Charter in the form of a statutory tax will thus constitute an unconstitutional interference with property law only if its intensity reaches the so-called choking effect, i.e. if it has its extremely disproportionate confiscation effect.
80. At the same time, however, the taxation legislation must not be contradictory to the principle of equality, whether in the form of a prohibition of arbitrariness in determining obligations or in the distinction between entities and rights under Article 1 of the Charter or in the form of equality in the application of fundamental rights and freedoms under Article 3 (1) of the Charter.
Assessment by the Constitutional Court of the present case
81. Based on these general considerations, the Constitutional Court has examined the contested legal provision from the point of view of the intensity of the intervention in the right to protection of property or property (part X / 1) and from the point of view of the right to equal treatment (part X / 2) and has reached the following conclusions:
Infringement of the fundamental right to the protection of property pursuant to Article 11 (1) and (5) of the Charter or Article 1 of the Additional Protocol to the Convention on the Protection of Human Rights and Fundamental Freedoms
Assessment of the statutory tax base
82. Article 11 (5) of the Charter states: "Taxes and charges may only be imposed by law." Similarly, Article 1 of the Additional Protocol ("Protocol No 1 ') to the Convention on the Protection of Human Rights and Fundamental Freedoms (" the Convention') provides for the treatment of the use of property ("the Third Rule ') as follows:" The previous provision does not preclude States from adopting laws which they consider necessary to regulate the use of property in accordance with the general interest and to ensure the payment of taxes and other charges or fines'.
83. In the present case, there is no dispute that the tax liability is formally established by law and this aspect is not even challenged by the appellant.
84. At the same time, however, it is necessary that the law also meets material criteria. In general, the decision-making practice of the European Court of Human Rights requires that the legislation (law) affecting the Convention of Guaranteed Rights be clear, accessible and predictable (cf. Spaček, s. r. o., against the Czech Republic, judgment of 9.11.1999, Case 26449 / 95, § 54, available as the other decisions cited by the European Court of Human Rights at http: / / hudoc.echr.coe.int).
85. To the appellant's claim that the contested provision of Paragraph 4 (3) of the Income Tax Act infringes the "principle of predictability of the effects of legal regulation ', since its application for 2015 was decided" abruptly', which prevented the addressees of legal regulation from adapting their behaviour to the consequences of it, the Constitutional Court recalls that the taxpayer had to have been in effect since 1 January 2011, when the provision cited had become effective, knowing that the provisions of Section 4 (3) of the Income Tax Act were in force and what the consequences of that provision were or could be incurred. In addition, according to that provision, it was already carried out during tax periods in 2011 and 2012. It was therefore possible to expect its "reactivation 'after the basic income tax rebate was re-granted to working pensioners.
86. The argument of the appellant therefore goes de facto against Act No. 267 / 2014 Coll., amending Act No. 586 / 1992 Coll., on Income Tax, as amended, and other related laws, effective from 1. 1. 2015, which provided that "for the 2015 tax period, Part One, Article II, point 8 of Senate Law Measures No 344 / 2013 Coll."
87. The Constitutional Court considers that the contested legislation is a clear, accessible and predictable rule of conduct, thus concluding that the imposition of the tax obligation took place "under the law 'within the meaning of Article 11 (5) of the Charter and Article 1 of Protocol 1 to the Convention respectively.
Assessment of the existence of a legitimate objective or of the general interest pursued by the tax obligation
88. Interventions in the right to the protection of property generally require the existence of a legitimate objective, or Article 1 of Protocol No 1 to the Convention, of a public or general interest. From the point of view of the European Court of Human Rights's decision-making practice, Member States have a wide margin of discretion when defining the public or public interest as a reason for intervening in the right to the protection of property, or the European Court of Human Rights, when examining the fulfilment of the conditions of public or public interest. The European Court of Human Rights draws attention to the necessity of examining political, economic or social issues, without questioning that the legislator has the freedom to decide on economic and social policy. The European Court of Human Rights thus respects the way in which the legislator defines the public interest, except where the decision "clearly lacks a rational basis' (see, for example, Pinco and Pinca against the Czech Republic, Case No 36548 / 97, paragraphs 47 and 48).
89. In the event that the interference with property rights lies precisely in the imposition of a tax liability, as in the case at hand, there is, in view of the reasons set out above (Part IX), an interest in the discretion of the court when assessing the existence of a legitimate objective of the regulation.
90. The legal objective of imposing the tax obligation in question is, according to the explanatory memorandum to the contested legislation, to increase the revenue of the State budget in order to reduce its deficit. In its observations to the Constitutional Court, the Government also argues with the idea of the solidarity of more wealthy taxpayers with lower-income taxpayers, or the possibility of maintaining the tax exemption for the pensions of those taxpayers who do not reach the threshold.
91. The appellant argues that the government's reference to the need to reduce the general government deficit could not stand for its generality and that such justification could be used to impose any tax liability on anyone under any circumstances. The idea of solidarity is generally accepted by the promoter, but it is a specific way of implementing this idea by the legislator.
92. The Constitutional Court considers that the legitimate objective or general interest pursued by the contested legislation is demonstrated here, whether it is an interest in increasing the revenue of the state budget in general or an interest in the solidarity of the more wealthy with the less wealthy. While the objectives are relatively general, it should be taken into account, as mentioned above, that the legislator has a relatively wide margin of discretion in this respect in order to implement its economic and social policy. In general, the Constitutional Court considers as a legitimate objective of intervention in the property sector in the form of a tax obligation "interest in the collection of funds for the provision of various types of public goods' (sp. zn.
The other issue, however, and in the case currently under consideration, is the assessment of how the legitimate objective is to be achieved. This is both in terms of the intensity of the tax burden (cf. X / 1 / 3 below) and in terms of the level of distribution of the tax burden (cf. X / 2).
Assessment of the intensity of the intervention in property rights or the intensity of the tax burden
94. In view of the assessment of the intensity of the intervention in property rights in the field of the review of tax legislation, the Constitutional Court has already stated that it does not examine the appropriateness and necessity of the various components of the tax policy, but only its possible choking (strangling) effect or possible confiscation effects in relation to the property nature of the taxpayer. Similarly, the European Court of Human Rights generally grants the States wide discretion when intervening in property rights in seeking a fair balance between the needs of the general interest of society and the protection of property rights, and its review is thus limited to the requirement of a reasonable (rational) basis of intervention, or the absence of obvious inadequacy (cf. Benet Czech, spol. s r. o., against the Czech Republic, judgment of 21 October 2010, No 31555 / 05, § 40).
95. It should be recalled here that the taxation of the entire pension is treated in a situation where the income of the pensioner (namely the sum of the income according to § 6 and the partial tax bases according to § 7 and 9 of the Income Tax Act) exceeds CZK 840 000 per year (i.e. it exceeds an average of CZK 70,000 per month). It is therefore clear, in view of the economic reality of the Czech Republic (e.g. the level of the average wage), that even after taxes on income or the taxation of the entire pension, it is not a tax burden that would have a suffocating or strangling effect on the taxpayer. Moreover, the appellant itself excludes the tax burden arising from the contested legislation.
96. Thus, the contested legislation does not impose a disproportionate burden on the taxpayers concerned, with a breathtaking effect in relation to their property or income base.
Conclusion
97. The Constitutional Court thus concludes that the contested legislation does not infringe the right to own the property or the right to protect the property pursuant to Article 11 of the Charter or Article 1 of Protocol 1 to the Convention.
98. Moreover, the appellant does not assert the infringement of the property right itself, or the right to the protection of property as a separate constitutional right, merely objects to the inequality in its interference with that right, i.e. the legislature's oppression to determine the tax liability, not the suffocating or confiscating effect of that tax burden. It is precisely the principle of equality that will be considered crucial in determining tax liability.
The infringement of the fundamental right to equal treatment (prohibition of discrimination) guaranteed by Articles 1 and 3 (1) of the Charter, Article 26 of the Pact and Article 14 of the Convention
General basis for the review
99. The Constitutional Court, following the assertion of the appellants and its existing caselaw, states that the constitutional right to equal treatment or prohibition of discrimination is guaranteed, on the one hand, in Article 1 of the Charter or Article 26 thereof. The Pact as a separate fundamental right, which can be invoked directly and without further action (equality non-action, autonomous) and, on the one hand, as a fundamental right conditional, which can be sought pursuant to Article 3 (1) of the Charter or Article 14 of the Convention only in conjunction with the alleged interference with another fundamental right or freedom protected by the Charter or the Convention (equality of action, non-autonomous).
100. Having regard to the fact that, in its caselaw, the Constitutional Court gradually admitted, in addition to the constitutional protection of equality in fundamental rights, in accordance with Article 3 (1) The Charter also provides for the constitutional protection of equality in all rights, or the general prohibition of arbitrariness in accordance with Article 1 of the Charter, as the distinction between accessorial or non-accesorial equality in legal proceedings before the Constitutional Court is not of fundamental importance, since all possible objections relied on by Article 3 (1) of the Charter and Article 14, respectively. The conventions are always normally "covered" by the provisions of Article 1 of the Charter or Article 26 of the Pact, whose scope is wider by nature.
101. The intensity of the constitutional review is not primarily dependent on the fact that unequal treatment takes place in relation to another constitutionally guaranteed law (accesoratively) or not (non-accesoratively). In particular, the reason for the different treatment, i.e. the established distinctive character (e.g. race, sex, nationality, origin, age, religion, property), as well as the specific right or property to which it is treated differently (e.g. guarantees of political rights or tax obligations), will be key. This must be in line with the claims made by the Constitutional Court to justify the legitimacy of the different treatment (cf. below).
102. In distinguishing for reasons of so-called suspect classification, or for reasons relating to the personal characteristics of an individual having a close relationship with the protection of human dignity, it is necessary to impose very strict claims on the justification of the different treatment, even if the different treatment would not concern another fundamental right. On the contrary, if different treatment (distinguishing character) is a criterion normally and strictly applied in a particular area of legal regulation (e.g. income level in tax legislation), although different treatment would affect another fundamental right (property protection), as in the case at hand, the intensity of the constitutional review will be low. It should be recalled that, in the context of tax legislation, the distinguishing criterion of income is a completely legitimate criterion, in the nature of the matter, necessary, morally neutral and in no way and primarily suspicious, unlike, for example, the same criterion used for the purposes of restricting electoral law.
103. It can be summarised that the degree of "suspicion 'of the distinguishing criterion to be assessed in the context of a regulated legal area must correspond to the rigour of the claims to justify different treatment in order to demonstrate that the different treatment does not constitute discriminatory treatment, i.e. unconstitutional.
Assessment of infringement of Article 3 (1) of the Charter or Article 14 of the Convention
104. Pursuant to Article 3 (1) of the Charter, "fundamental rights and freedoms (...) shall be guaranteed to all without distinction sex, race, colour, language, faith and religion, political or other thinking, national or social origin, membership of a national or ethnic minority, property, genus or other status'. Article 14 of the Convention" the use of rights and freedoms granted by this Convention must be ensured without discrimination based on any reason such as sex, race, skin colour, language, religion, political or other thinking, national or social origin, membership of a national minority, property, genus or other status'.
105. In the present case, the alleged inequality affects another constitutionally guaranteed right, namely the protection of property rights. Accesorial equality is applicable not only if another constitutional (or convention) guaranteed right is violated, but it is sufficient to only intervene in it or, in general, its applicability to the case under consideration. From the perspective of the European Court of Human Rights, it is sufficient that the case falls within the scope of one of the articles of the Convention or Additional Protocols (cf. e.g. Stummer v Austria, judgment of the Grand Chamber of 7 July 2011, complaint No 37452 / 02, § 81).
106. In the present case, this may be a alleged inequality in relation to the protection of the property right protected by Article 11 of the Charter or Article 1, respectively. Protocol No 1 to the Convention, given by the different taxation regime, although the infringement itself of the right to the protection of property, as reflected above, does not take place under the contested legislation.
107. At the same time, however, it is necessary for the applicability of Article 3 (1) of the Charter or Article 14 of the Convention to differentiate on the basis of the reasons set out therein or on the basis of "other status'. However widely interpreted in the European Court of Human Rights's decision-making practice, the concept of" other status "includes not only the individual's personal status, but a wider range of possible grounds for differentiation (cf. Kmek, J., Košák, D., Kratočíl, J., Bobek, M. European Convention on Human Rights). Comment. Issue 1. Prague: C. H. Beck, 2012, p. 1218-1222), it is always necessary to take into account the purpose and purpose of the explicitly mentioned types of prohibited discrimination constituting a demonstration list when interpreting and applying the concept of" other status. "
108. The concept of "other status' is then intended to cover only criteria similar to or close to those specifically laid down in the provisions mentioned and not any conceivable situation. This should be based on the individual's personal choice, reflecting his or her personality characteristics, such as faith, religion or political views, or reasons based on personal characteristics or personal characteristics that we cannot choose, such as gender, race, skin colour, national or social origin, gender, age or disability.
109. In view of the alleged infringement of Article 3 (1) of the Charter and Article 14 of the Convention, the Constitutional Court finds that the reason for the distinction being applied by the legislator in the case currently under consideration (i.e. the amount and structure of the income) is not, in the context of the purpose for which that reason is used (the determination of the tax burden), a reason for the distinction which could be placed under a demonstration list of the characteristics defined in Article 3 (1) of the Charter or Article 14 of the Convention. The criterion of the tax base is the criterion of morally neutral, in no way and priori to suspects and for tax legislation normal and essentially necessary.
110. Nor is the appellant, despite the appeal, to Article 3 (1) of the Charter or Article 14 The Convention does not specify why the legislature's defined criterion of differentiation (the amount of income as a tax base) should fall under "other status' and thus be a prohibited reason for differentiation. It should be added that, in the context of the constitutional system of the Czech Republic, in particular in the parallel operation of Article 1 of the Charter having a broader scope than Article 3 (1) of the Charter, it is not necessary to interpret the prohibited grounds of discrimination in the form of" different status' in any way extensively.
111. The Constitutional Court thus concludes that the alleged infringement of Articles 3 (1) and 14 of the Convention has not been found to be applicable to the case under assessment.
Assessment of infringement of Article 1 of the Charter and Article 26 of the Pact from the point of view of the prohibition of free will
112. According to Article 1 of the First Charter, "people are free and equal in dignity and in rights." According to Article 26 of the First Pact, "all are equal before the law and have the right to equal protection of the law without discrimination '.
113. The principle of equality, inter alia, excludes the choice of the legislator to distinguish the rights of certain groups of entities [cf. the findings of sp. zn. Pl.
114. From the point of view of the applicability of equality in rights, or of the general prohibition of appetites in any distinction arising from Article 1 of the Charter, or of equality before the law under the first sentence of Article 26 of the Pact, there is no doubt that the provisions in question are applicable to the case under examination, as the subject of the review is different treatment, i.e. the differentiation of entities or situations, namely the different treatment between two groups of pensioners of pension pensions differing in income (namely income pursuant to § 6 and the sub-bases of tax pursuant to § 7 and 9 of the Income Tax Act).
115. In the present case, the appellant claims that there is a breach of equality between two groups of taxpayers - pensioners, with an amount of CZK 840 000 of the (specified) annual income being set as the distinguishing limit. According to the appellant, the distinction between categories of pensioners is arbitrary and unconceptual depending on the limit of CZK 840,000 of other income. Moreover, according to the appellant, "the very fact of the taxation of the pension as such is materially problematic 'and" it therefore does not seem rational to tax the income paid by the State from pension insurance'. At the same time, however, the appellant admits that "this consideration is clearly insufficient to conclude on the unconstitutional nature of such legislation '.
116. Here, the Constitutional Court must state that it does not in itself consider the taxation of pensions to be unconstitutional. This is a question of economic and social policy, in which the legislator has considerable discretion as to the choice of means to implement his policy. Similarly, the fact of taxation of pensions is not considered to be problematic, for example by the Federal Constitutional Court (cf. Decisions of 6.3.2002, 2 BvL 17 / 99, 29 September 2015, 2 BvR 2683 / 11, 2 BvR 1066 / 10 and 2 BvR 1961 / 10). The Constitutional Court, as indicated above, cannot assess the question of the suitability or conceptuality of pension or tax policy if the legislation is not "choking 'or does not infringe the right to equal treatment (cf. above).
117. As regards the justification for the different treatment, the Constitutional Court consistently requires that, in any distinction between situations or entities (whether or not fundamental rights matters are subject to legislation), the legislator should avoid libel, i.e. unjustified discrimination. As the Constitutional Court has already stated many times, the State may decide to grant less benefits to one group than others, but it must not proceed in any way and its decision must show that it does so in the public interest [cf. the finding of sp. zn. Pl.
118. In order to infringe the right to equal treatment, different entities in the same or comparable situation must be treated in a different manner without having objective and reasonable grounds for the different approach applied [cf. e.g. the finding of sp. zn.
119. In relation to taxes, the Constitutional Court of the Czech and Slovak Federal Republic has already stated that "neither the sovereignty of the State provides for the possibility of imposing any tax, even if it would be by law ', while" in the field of taxation, the legislature must be required to base its decision on objective and rational criteria. (...) If this happened, the determination of differentiated taxes for different taxpayers is not a condition that could be described as an unconstitutional inequality, and vice versa "(the finding of the Constitutional Court of the CSFR of 8.10.1992 sp. zn.
120. It is clear that the contested legislation creates two groups of pensioners within the group of pensioners who also receive additional income, with a distinguishing feature of the amount of another (further) income (namely the sum of income pursuant to § 6 and the sub-bases of tax pursuant to § 7 and 9 of the Income Tax Act). The first group consists of those who reach another income up to a maximum of CZK 840 000 per year, and the second group consists of those whose income exceeds CZK 840 000 per year.
121. The different treatment consists of a different tax burden on the other group, with this different tax burden on that group being higher. The existence of objective and reasonable reasons explaining both the existence of the contested different treatment and the intensity or form of such different treatment is crucial to the conclusion on the constitutionality or unconstitutional nature of that solution.
122. As regards the determination of the limit of CZK 840 000, or generally considering the possible different tax treatment of "high-income" pensioners as compared to other pensioners, it should be noted that that limit representing an income of an average of CZK 70 000 per month is, in view of the economic reality of the State, capable of rationally delimiting the line between "high-income" and other old-age pensioners, however much higher and lower fulfilling the same purpose can be imagined. However, the Constitutional Court cannot enter the field of political decision-making by requiring the optimal, most appropriate or best solution, which cannot, in fact, always be precisely specified in constitutional terms, is sufficient if a solution is reasonable in relation to the purpose to be achieved. Here, again, it is necessary to accept the legislator's wide margin of discretion, since the requirement of a fully exactlyjustifiable income line is impossible in tax or social matters.
123. Although that threshold cannot be considered as unjustifiable in itself, it is necessary to assess also the specific purpose for which it is intended and, in particular, the degree of different treatment between the two defined groups of taxpayers - pensioners - in order to maintain the principle of equal treatment or to exclude arbitrarily. In particular, to assess whether the degree of different treatment is proportional to the degree of difference of those entities.
124. In that regard, however, the Constitutional Court already finds the contested legislation unconstitutional.
125. In the present case, the fact that "high-income 'pensioners are treated differently is not itself relevant, but primarily a specific form of treatment. The principle of equality in relation to tax legislation requires tax law to burden taxpayers equally (cf. decision of the Federal Constitutional Court of 9 March 2004, 2 BvL 17 / 02). As stated by the Constitutional Court in the above-mentioned finding, Pl. ÚS 29 / 08," the principle of equality requires that each seal be engaged equally in the financing of state tasks according to his capacity' (paragraph 45).
126. The equivalence of the tax burden does not mean the conformity of the tax burden for all, but only the fulfilment of the postulate, that the different must be treated differently, the same, the degree of difference of the entities or situations being equal to the degree of difference of legal regulation. The level tax burden then implies that taxpayers with the same (similar) financial performance must also be taxed equally (mutatis mutandis), or that the taxation of higher income must be proportionate compared to the tax burden on lower income (see also the Federal Constitutional Court's decision of 29 September 2015, 2 BvR 2683 / 11 or 30 September 2015, 2 BvR 1066 / 10 and 2 BvR 1961 / 10).
127. Here, the Constitutional Court also recalls the recognised principle of horizontal justice in the tax theory: taxpayers who have a relatively equal level of solvency should pay the same tax, without distinguishing between the source (origin of income) of the tax.
128. In the case at hand, the difference between the tax burden within the two groups described is taxation of the entire pension paid for one group, as opposed to taxation of only a part of the pension exceeding 36 times the minimum wage for another group. However, this tax difference is relatively crucial and can amount to CZK 496,680 for 2015 (taxation of an amount equal to 36 times the minimum wage in 2015, i.e. taxation of CZK 331 200 at a rate of 15%) or for 2016 to CZK 53 460 (taxation of an amount equivalent to CZK 36 times the minimum wage in 2016, i.e. taxation of CZK 356 400 at a rate of 15%).
129. In a model case where two pensioners reaching the same annual amount of an old-age pension equal to 36 times the minimum wage, the amount of their other income foreseen by the contested provisions of the Income Tax Act will differ only by the "crown" (for example, one will have income of CZK 840 000, the other will have a minimum increase), their tax burden will be different (in 2016) by more than CZK 53 000 (abstrading from the details of the calculation of the amount of income tax including rounding, etc.). The same effect will also occur if the working recipients of the pension have exactly the same total disposable income (consisting of both pension and other taxable income), and only the internal distribution of these income according to income sources will differ (the amount of income exceeding the threshold of CZK 840 000 for one of the taxpayers will be higher income of the other taxpayer who does not exceed that income limit). The difference in taxation can again amount to tens of thousands of crowns despite both having the same total disposable income.
130. Thus, there is a completely extreme disagreement between the difference in tax burden in relation to income. In general, it can be accepted that higher taxpayers' incomes lead to different treatment, for example, in the form of higher tax rates. Otherwise, any progressive taxation would be unconstitutional. However, even in these cases, the difference in treatment must correspond precisely to the degree of difference between the operators under consideration, i.e. typically the difference in income. In the case of progressive taxation (also in the form of, for example, the so-called solidarity tax increase pursuant to Article 16a of the Income Tax Act), only those revenues which exceed a certain threshold are taxed at a higher rate, thereby ensuring that treatment is equal within a certain tax zone (equal taxation up to a certain level of income) and, on the contrary, different taxation is allowed in relation to those revenues which constitute the difference between the entities under consideration (i.e., for example, a different tax rate for income exceeding a certain threshold).
131. However, the contested legislation is in direct conflict with this logic, as it does not tax the part of the income that is relevant for the distinction between those groups, but the income that is completely different (in the form of a pension), plus the income that can be completely identical for both groups, i.e. the income that is not relevant for the distinction between the two groups. Moreover, this income (pension) is taxed on a step-by-step basis, i.e. without the possibility of subjecting it to the relevant income differences between the two groups of pensioners. However, the degree of different treatment can justify precisely the degree of difference in groups treated differently.
132. Although the Constitutional Court has stated that, when assessing unequal treatment for a reason which does not constitute a priori a suspicious criterion for differentiation, the intensity of its review is rather modest, and sufficient for a substantive and rational justification for different treatment, the Constitutional Court has found no factual and rational argument in the case at hand that could justify the form of different treatment described above. The irrationality of that distinction is also evident in the fact that a person with a lower "gross" income who does not receive a "step" tax on the entire pension will have overall higher "net" income after tax compared to a person with a "step" income higher than that for which a "step" tax on the entire pension occurs. Any material and rational justification for that effect, consisting of a lower "net" earnings of a person with a higher "gross" income, cannot be found again compared to a comparable person with a "gross" income of less.
133. Although arguments can be accepted for the very fact of the different tax treatment of "high-income 'pensioners, for the form and intensity of different treatment under the contested legislation, the Constitutional Court no longer finds any substantive and rational justification. It cannot be reasonably justified in any way that the difference in income (in type-identical) of several crowns may lead to a tax difference of up to several tens of thousands of crowns. This is a case of insolence in distinguishing situations or entities which are contrary to the right to equal treatment.
134. On the finding of sp. zn. Pl. ÚS 31 / 13 of 10.7.2014 (N 138 / 74 SbNU 141; 162 / 2014 Coll.) concerning the tax rebate for pensioners, which is mentioned by the appellant, it should be recalled that an important argument to conclude that the abolition of the tax rebate for pensioners was, among other things, a disproportionate burden on pensioners with the lowest income. In the present case, on the contrary, pensioners on the opposite side of the notional income spectrum are affected by the legislation. However, the fact that the legislation applies only to pension recipients with additional higher income and the taxation of their pensions therefore does not constitute a disproportionate burden on property with regard to the amount of other income, cannot justify an arbitrary procedure by a legislature who lacks any rational and substantive justification for the distribution of the tax burden among taxpayers, even those with higher incomes. The difference in tax burden of up to CZK 50,000 between taxpayers whose income situation may differ at least (in the order of CZK) is completely extreme and unfounded.
135. It is also necessary to reject the Government's argument that the legislation concerns only a few thousand pensioners, a generally very small group of people. The argument cannot in itself ever justify arbitrary or unequal treatment. Discrimination-based law will be unconstitutional, even if it would actually disadvantage only one addressee. On the contrary, unequal treatment can often be exposed to very small or few groups of people.
136. Moreover, the government's argument of a low number of contested legislation by the taxpayers concerned - pensioners - significantly calls into question the Government itself's assertion that the legitimate objective of increasing public budget revenue, reducing the budget deficit, or greater solidarity with the less wealthy persons concerned can be fulfilled at all by the legislation thus chosen, let alone as regards the government's "complicity" objective of this group of pensioners to "finance" the exemption of most pension pension recipients from income tax. In view of the amount of funding necessary to finance the pension scheme, it is prima facie that the fulfilment of this objective is also beyond reality. The low number of taxpayers affected by the legislation and the corresponding financial contribution to the state budget will be quite negligible. These factors, too, demonstrate the absence of a rational and substantive justification for the contested regulation of the established distinction between two groups of pensioners.
Conclusion
137. The Constitutional Court therefore concludes that the degree of different treatment between the different groups of pensioners is clearly disproportionate to the degree of differences shown by those groups. The contested provision thus constitutes a distinction between arbitrary without any substantive and rational justification and thus violating the prohibition of unequal treatment guaranteed by the first sentence of Article 1 of the Charter of Fundamental Rights and of Article 26 of the First International Covenant on Civil and Political Rights.
In order to infringe the fundamental right to obtain the means of living for work under Article 26 of the Charter
138. Finally, the appellant contends that the contested legislation also infringes the right under Article 26 (1) of the Charter in the sense of "the possibility of obtaining the means of subsistence for work '. According to the appellant," it is clear that a gainful activity of a certain size leads to higher taxation, but not in relation to income thus obtained (which, for example, would be acceptable in the form of a progressive tax as the case may be), but in relation to income from the pension system, which is no longer acceptable'.
139. Article 26 (1) of the Charter lays down the right to free choice of profession, the right to engage in business and to pursue other economic activities. On the contrary, the alleged "possibility of earning livelihood 'is the content of Article 26 (3) of the Charter.
140. However, the Constitutional Court considers that, in the case at hand, the right to free choice of profession, the right to engage in business and to engage in other economic activities under Article 26 (1) of the Charter, or the right to acquire funds for the purposes of its living needs through work under Article 26 (3) The instruments contested by the legislation are not infringed, since the very core of the law (the possibility of doing business, the freedom to choose a profession, the freedom to engage in other economic activities, or the possibility of securing the means of living for work) is not affected in any way, nor is the appellant objected, and the very intensity of the taxation in question is not at all capable of infringing that right. As with the review of the intensity of taxation for the purposes of assessing the breach of property rights, it is also necessary to examine here the "choking 'effect of the relevant legislation, which, as was recap above (X / 1), is not present for the contested legislation.
141. Moreover, the appellant does not put forward, in addition to the alleged inconceptual nature of the legislation, any arguments relating to the infringement of Article 26 (1) or (3) of the Charter, and on the contrary it denies the "choking 'effect of the contested legislation.
Total summary and temporal scope of the finding
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Regulation Information
| Citation | The Constitutional Court found No. 271 / 2016 Coll., on the application for annulment § 4 (3) of Act No. 586 / 1992 Coll., on Income Tax, as amended |
|---|---|
| Regulation Type | The Constitutional Tribunal found |
| Author | - |
| Collection | Code of Laws |
| Date of Promulgation | 29.08.2016 |
|---|---|
| Effective from | - |
| Effective until | - |
| Status | Valid |
The regulation text is for informational purposes only.
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