Pl.ÚS 33/01

Thus,  if  a  certain  model and manner of social  thought  and
conduct  has been consensually established in the value  system
and  consciousness of society, which, for various reasons, e.g.
as  a  result of the pressure from a certain political  system,
could  not find normative expression, then the legal regulation
of  that  conduct, containing retroactivity, remains  fully  in
accordance with the principles of a democratic state  based  on
the rule of law. In other words, it would, on the contrary,  be
inconsistent with the principles of justice if, in such  cases,
true  retroactivity  did not have its say.  However,  all  this
should   all   the  more  distinctively  indicate   that   true
retroactivity has no place in a state governed by the  rule  of
law  in situations where the legislature already could have had
its “say” but did not do so.
      Because,  from  a  constitutional  law  standpoint,   the
legislature’s   decision  on  the  manner  of   resolving   the
overlapping in time of old and new legal regulations is  not  a
matter  of  chance  or  arbitrariness,  but  is  a  matter   of
consideration of conflicting constitutional law principles, the
Constitutional  Court considered whether conditions  exist  for
allowing  an  exception from the principle of  forbidding  true
retroactivity,    which   would   permit   the   constitutional
admissibility of this legal norm. The framing of tax policy  is
a matter for the state, which determines what the tax burden on
the  taxpayer  of  a particular tax will be  and  how  it  will
regulate  his  obligations  in connection  with  verifying  the
correct  assessment  of tax. The Act on Income  Taxes,  in  its
original  version of 1992, established the use of usual  market
prices in the event that negotiated prices differ from them and
the  difference  is  not satisfactorily documented,  with  this
procedure  to  be  used whenever there was  interconnection  by
personnel  or economic interconnection between the  same  legal
entities or natural persons. Act No. 259/1994 Coll., in  effect
as  of  1  January 1995, added to the Act on Income  Taxes  the
obligation  to  satisfactorily document the difference  between
prices negotiated between entities connected economically or in
personnel and prices negotiated between independent entities in
ordinary  business  relationships under  the  same  or  similar
conditions.  This  amendment narrowed the  obligations  of  the
taxpayer,  who  in future had to pay attention to  satisfactory
documentation  of  the price difference only in  certain  legal
relationships  foreseen by the law, and bore  the  consequences
for any failure to fulfill this obligation in the form of a tax
base  adjustment  by the tax administrator.  Act  No.  316/1996
Coll.,  in  effect  as  of 1 January 1997,  provided  what  was
considered to be a price negotiated between independent persons
in  ordinary  business relationships in setting  the  level  of
interest  for  loans, which did not expand the range  of  legal
relationships  subject to the law. Thus,  until  the  amendment
passed   by   Act  No.  210/1997  Coll.,  the  taxpayer   could
justifiably  expect  that in creating  legal  relationships  he
would   have  to  document  a  price  difference  to  the   tax
administrator  and bear the consequences if he did  not  do  so
only with some of them, while with other legal relationships he
would  not  be  subject to this obligation. The  Constitutional
Court  therefore  believes that this case  is  a  case  of  the
taxpayer’s  justified faith in the law, because  in  the  legal
situation  at  the time to which the retroactive norm  applies,
the  taxpayer  could not presume any flaw in  his  conduct  and
could   not  expect  the  possibility  of  retroactive  change.
Although  social  relationships  began  to  show  signals  that
indicated  the  need  for new legal regulation,  which  is  the
subject of the matter at hand, the legislature, in a democratic
state,  did  nothing to limit disadvantageous effects  earlier,
i.e.  by a regulation pro futuro. Thus, in this case conditions
do  not  exist  to  accept an exception from the  ban  on  true
retroactivity, nor can the constitutional conflict be  overcome
through interpretation.

    
    
The Plenum of the Constitutional Court decided on 12 March 2002
in  the matter of a petition from the Ostrava Regional Court to
annul  the part of Art. III point 1 of Act No. 210/1997  Coll.,
which  amends  and supplements Czech National Council  Act  No.
586/1992   Coll.,  on  Income  Taxes,  as  amended   by   later
regulations,  identified by the number  and  punctuation  “48,”
with  the  participation of 1) the Chamber of Deputies  of  the
Parliament of the CR and 2) the Senate of the Parliament of the
CR  as  parties  to the proceedings, with the  consent  of  the
parties to the proceedings without a hearing,
                               
                          as follows:

Art.  III  point 1 of Act No. 210/1997 Coll., which amends  and
supplements Czech National Council Act No. 586/1992  Coll.,  on
Income  Taxes,  as amended by later regulations,  in  the  part
identified  by the number and punctuation “48,” is annulled  as
of  the  day  this judgment is published in the  Collection  of
Laws.

                          Reasoning:

                               
                              I.

On 11 October 2001 the Constitutional Court received a petition
from  the Ostrava Regional Court to annul Art. III point  1  of
Act  No.  210/1997  Coll., which amends and  supplements  Czech
National  Council Act No. 586/1992 Coll., on Income  Taxes,  as
amended  by  later regulations, in the part identified  by  the
number and punctuation “48,”.

     The petition states that the Ostrava Regional Court, panel
22  Ca,  (the “petitioner”), is handling a complaint  by  Peter
Polanský   against   a  decision  by  the   Ostrava   Financial
Directorate  which  denied his appeal  against  a  supplemental
payment  assessment  by  the Český Těšín  Financial  Office  on
additional  individual income tax for the tax period  1997.  In
May  1997 the plaintiff sold securities which were not publicly
tradable  at  a  loss  of  ca. CZK  10  million,  and  the  tax
administrator categorized the case as the conclusion of a trade
between  otherwise connected persons for purposes  of  lowering
the  tax  bas under § 23 para. 7 of Act No. 586/1992 Coll.,  on
Income  Taxes,  as  amended by of Act No.  210/1997  Coll.  The
petitioner believes that the part of Art. III. point 1  of  Act
No.  210/1997  Coll., identified by the number and  punctuation
“48,”  is  in conflict with Art. 1 of the Constitution  of  the
Czech  Republic (the “Constitution”) because it has retroactive
effects.

     Point 48 of Art. I of Act No. 210/1997 Coll. expanded  the
circle   of   specific  business  cases  in   which   the   tax
administrator  reviews negotiated prices. If the taxpayer  does
not  satisfactorily document the difference between  the  price
negotiated in such a case and the price which was negotiated in
ordinary  business  relationships between  independent  persons
connected otherwise than economically or by personnel, the  tax
administrator  adjusts  the  taxpayer’s  tax   bases   by   the
difference   determined.  Here  the  lack  of  a   satisfactory
explanation from the taxpayer leads to a change in the tax base
and  thus to a change in the amount of tax. Under Art.  V,  Act
No. 210/1997 Coll. went into effect on 1 January 1998, but Art.
III,  point 1 of the Act states that Art. I points 33, 34,  48,
51, 52, 62 [applying only to § 24 para. 2 let. zf)], 69, 98 and
114 will already be applied for the tax period 1997.

     According to the petitioner, the basic principles defining
the  category of a state based on the rule of law  include  the
principle of protecting citizens’ confidence in the law and the
related principle of a ban on the retroactivity of legal norms.
Although  the  ban on retroactivity is expressly  regulated  in
Art.  40  para.  6  of  the Charter of Fundamental  Rights  and
Freedoms  (the  “Charter”) only for the area  of  criminal  law
(under that provision the question whether an act is punishable
is considered and punishment imposed under the law in effect at
the time the act was committed, and a subsequent law is applied
if  it  is more favorable for the perpetrator), the application
of this ban for other areas of law must be drawn from Art. 1 of
the  Constitution. The accent laid on the ban on  retroactivity
for  legal norms as one of the basic elements of a state  based
on  the  rule  of  law  flows from the  requirement  for  legal
certainty.  The ban on retroactivity consists in the  principle
that  it  is  fundamentally impossible to judge, under  current
legal  norms, human conduct, legal facts or legal relationships
which occurred before the legal norm went into effect. The  ban
on  retroactivity of legal norms is based on the principle that
everyone  must  have an opportunity to know  which  conduct  is
forbidden, so that he can be called to account for violation of
the  ban.  This  ban is also related to the function  of  legal
norms,  which instruct persons subject to them how they are  to
act   after  the  laws  go  into  effect,  and  therefore   are
fundamentally in effect only in the future.

    With reference to the Constitutional Court’s conclusions of
law  expressed in its case law on the question of retroactivity
of  a  legal  norm and the protection of acquired  rights,  the
petitioner points to the fact that the application of point  48
in  Art. I of Act No. 210/1997 Coll. already for the tax period
1997,  although the Act went into effect only as of  1  January
1998,  placed  the taxpayer in a position where his  previously
legally   faultless  conduct  is  retroactively   viewed   more
strictly, because business activities are subject to review  by
the   tax   administrator  which,  under  the  previous   legal
regulation,  were not subject to such review. Thus,  under  the
new   legal  norm,  legal  relationships  are  evaluated  which
occurred  before the norm went into effect, and this evaluation
may  have  an unfavorable effect on the taxpayer’s  rights  and
obligations.  In the period before 31 July 1997, when  Act  No.
210/1997  Coll.  was  passed,  a person  or  entity  could  not
predict,  when  entering  business relationships,  which  facts
would  newly  be  legal  facts  decisive  for  his  rights  and
obligations in the area of income tax, and thus did not have an
opportunity  to choose whether to undertake the possible  risks
related to these consequences. The new legal regulation,  which
changes  the  consequences of legal relationships  which  arose
before the day when it went into effect, is thus a case of true
retroactivity   of   a   legal  norm.   Because   this   change
retroactively  worsens  the  taxpayer’s  legal   position,   it
violates the principle of protection of acquired rights.

     The petitioner states that in this case the new regulation
is  worded  unambiguously and it can not be  interpreted  in  a
constitutional  manner  so  that  its  consistency   with   the
constitutional  order  can be ensured. Therefore,  it  proposes
that  the  Constitutional Court make a judgment to  annul  Art.
III,  point  1  of  Act No. 210/1997 Coll.,  which  amends  and
supplements Act No. 586/1992 Coll., on Income Taxes, as amended
by  later regulations, in the part identified by the number and
punctuation “48,”.

                              II.

The Chamber of Deputies and the Senate of the Parliament of the
CR,  as  parties to the proceedings, stated their positions  on
the proposal for a new legal regulation in accordance with § 69
of Act No. 182/1993 Coll., on the Constitutional Court.
    
    
                             III.
The  Constitutional  Court, under §  68  para.  2  of  Act  No.
182/1993  Coll.,  on  the Constitutional  Court,  proceeded  to
review  whether Act No. 210/1997 Coll., which amended  Act  No.
586/1992   Coll.,  on  Income  Taxes,  as  amended   by   later
regulations,  was  passed within the bounds of constitutionally
prescribed  jurisdiction  and in a constitutionally  prescribed
manner  and  to  review  the contested  provision  itself.  The
Constitutional Court stated that the act was passed within  the
bounds  of constitutionally prescribed jurisdiction  and  in  a
constitutionally prescribed manner.
    
                              IV.
    
Provision of §  23 para. 7 of Act No. 586/1992 Coll., on Income
Taxes  was  amended  by  Act No. 259/1994  Coll.  and  Act  No.
316/1996 Coll., and before passage of the amendment in Act  No.
210/1997  Coll.  read:  “If prices negotiated  between  persons
connected economically or by personnel differ from prices which
were   negotiated  between  independent  persons  in   ordinary
business  relationships under the same or  similar  conditions,
and  if this difference is not satisfactorily document, the tax
administrator  will  adjust  the taxpayer’s  tax  base  by  the
difference  determined.  For purposes of  this  provision,  the
price   negotiated  between  independent  persons  in  ordinary
business relationships when setting the interest rate on  loans
is  considered  to be interest of 140 % of the  Czech  National
bank  discount  rate  in  effect at  the  time  a  contract  is
concluded.  Persons are considered to be connected economically
or by personnel if one person takes part directly or indirectly
in the management, inspection or equity of the other person, or
if  the  same  legal  entities or natural persons  directly  or
indirectly take part in the management, inspection or equity of
both  persons  or  a  related natural person.  Taking  part  in
inspection or equity means ownership of more than 25 %  of  the
basic  capital  or holdings with voting rights. This  provision
does   not   apply  to  the  provision  by  an  employer,   for
compensation, of a room with necessary furnishings to  a  union
organization for necessary operating activity.”

     Point 48 art. I of Act No. 210/1997 Coll. of 31 July  1997
added § 23 para. 7 of the Act on Income Taxes as follows: In  §
23  para. 7, first sentence, after the words “by personnel” the
words  “or  otherwise” are inserted. After the second  sentence
the  following sentence is inserted: “This does  not  apply  to
cases  where the creditor is a person with a registered address
or  home address abroad and the negotiated interest rate for  a
loan  is  less  than 140 % of the Czech National Bank  discount
rate  in  effect at the time the contract is concluded.”  After
the  words  “a  related  person.”  the  following  sentence  is
inserted: “Otherwise connected persons means persons who formed
a business relationship primarily for the purpose of lowering a
tax  base  or increasing a tax loss.” Subsequent amendments  to
the Act on Income Taxes did not affect § 23 para. 7.
    
     Art.  III Closing Provisions, point 1 of Act No.  210/1997
Coll.  reads:  “Art. I points 33, 34, 48, 51, 52, 62  [applying
only to § 24 para. 2 let. zf)], 69, 98 and 114 shall apply  for
the tax period 1997.”
    
     As  stated above, the petitioner’s petition and  arguments
are  not  directed against amending the Act,  but  against  the
retroactivity  of  the  closing  provision,  which   causes   a
situation in which legal relationships arising before  the  day
the  Act  becomes  valid and in effect  are  subject  to  legal
consequences established in a new legal regulation.
    
     Under  §  23  para. 7 of the Act on Income  Taxes  in  the
version before the amendment by Act No. 210/1997 Coll. the  tax
administrator  could  adjust the taxpayer’s  tax  base  by  the
difference determined, if the prices negotiated between persons
connected  economically or by personnel  differed  from  prices
which  were negotiated between independent persons in  ordinary
business  relationships under the same or  similar  conditions,
and if this difference was not satisfactorily documented. Under
the  new  legal  regulation,  the tax  administrator  may  also
investigate  a  difference  determined  in  prices  which  were
negotiated  not only between persons connected economically  or
by  personnel, but also persons connected otherwise, and person
connected  otherwise  are considered  to  include  persons  who
formed  a  business relationship primarily for the  purpose  of
reducing  a tax base or increasing a tax loss. In the  interest
of  limiting  artificial tax reduction as a result of  purpose-
made  business  relationships, the tax advisor’s  authority  to
retroactively inspect, investigate and punish this form of  the
taxpayer’s “commercial” conduct was expanded.

     In  its  case law, the Constitutional Court  of  the  CSFR
discussed the ban on retroactivity in its judgment file no. Pl.
ÚS  78/92  (Collection  of Decisions  [and  Judgments]  of  the
Constitutional  Court, 1992, no. 15), in which it  stated  that
the principles of a state based on the rule of law require,  in
each possible case of retroactivity that it be expressly stated
in the Constitution or in a statute, with the aim of ruling out
the  possibility of retroactive interpretation of a statue, and
also  require  that  consequences  tied  to  retroactivity   be
resolved  in  a  statute so that acquired rights  are  properly
protected. The Constitutional Court of the CR, in its  judgment
file  no.  IV. ÚS 215/94 (ÚS, vol. 3, no. 30) stated  that  the
characteristics  of  a  state  governed  by  the  rule  of  law
inseparably  include  the  principle  of  legal  certainty  and
protection  of  the citizen’s confidence in the law,  and  that
this  process  includes the ban on the retroactivity  of  legal
norms  or their retroactive interpretation. The inadmissibility
of  retroactive effect of legal norms in the field of  criminal
law  is  expressly regulated in Art. 40 para. 6 of the  Charter
and Art. 7 of the Convention for the Protection of Human Rights
and  Fundamental Freedoms (the “Convention”); their application
in   other  areas  of  law  is  derived  from  Art.  1  of  the
Constitution.
    
     Legal  theory  and practice distinguish between  true  and
apparent  retroactivity.  The  substance  of  true  retroactive
effect is that it is possible, under a particular current legal
norm,  to  judge  legal  facts  or  legal  relationships  which
occurred  before the legal norm went into effect, or  the  fact
that the new legal norm can change the legal consequences which
arose  lawfully  before the day when it went  into  effect.  In
apparent  retroactivity, legal relationships which  were  valid
when  the old law was valid are governed by that law until  the
time when a new law goes into effect, but are then governed  by
that  new  law.  The  creation of legal relationships  existing
before  a  new  legal  regulation goes into  effect  and  legal
entitlements  arising under them are governed by the  original,
annulled legal norm. Generally, in cases of overlap between the
old and new legal norms, apparent retroactivity is applied.
    
      Analysis  of  the  principle  of  retroactivity  is  also
contained  in  Constitutional Court judgment file  no.  Pl.  ÚS
21/96,  published  under  no.  63/1997  Coll.,  in  which   the
Constitutional  Court  considered  the  question  of   possible
exception  to  the  inadmissibility of retroactivity  of  legal
norms. The judgment states that while apparent retroactivity is
generally  admissible, and is inadmissible only in  exceptional
cases,  true  retroactivity  is,  on  the  contrary,  generally
inadmissible,  but there are strictly limited exceptions  where
it  is  admissible. To shed light on the question of when these
exceptions  to the ban on true retroactivity can  be  admitted,
the   Constitutional  Court,  with  supporting  citations  from
previous  and  current legal theory, stated: True retroactivity
“can  be  justified at most in situations where the past  legal
obligation  was  previously already felt at least  as  a  moral
obligation”  (A.  Procházka,  The Retroactivity  of  Laws.  In:
Dictionary  of Public Law. Vol. III, Brno 1934, p.  800).  This
situation  is also addressed and foreseen by the already  cited
article 7 of the Convention, which provides in paragraph 2 that
ruling out the retroactive effect of criminal law norms “… does
not  prevent the conviction and punishment of a person  for  an
action  or  failure  to  act which, at the  time  when  it  was
committed,   was  punishable  under  general  legal  principles
recognized  by  civilized nations.” The cited judgment  further
states  that  we also find a similar opinion in  current  legal
theory:   “Generally,  one  can  diverge  from   the   ban   on
retroactivity  only  exceptionally,  by  an  express   positive
provision.  As  is obvious from history, the  reason  for  such
steps  was  a situation where legal certainty would  come  into
sharp   conflict   with  social  certainty   and   with   legal
consciousness,  as  was the case in the  CSR  in  the  case  of
retributive decrees. The retroactive effect of a law  on  civil
law  relationships  could  also be justified  by  public  order
(ordre  public), primarily if absolutely mandatory  regulations
would  be  affected which had been issued  as  a  result  of  a
particular marginal situation of the transformation  of  valued
in  society.”  (L. Tichý, On the Application  in  Time  of  the
Amendment  of the Civil Code, Lawyer, no. 12, 1984,  p.  1102).
The  criterion for admissibility of exceptions to the principle
of  a ban on true retroactivity is the legislative principle of
“protection  of justified confidence in the permanence  of  the
legal  order”. (A. Procházka, Principles of Intertemporal  Law,
Brno   1928,  p.  111)  Justified  confidence  can  come   into
consideration  if  a subject of law must,  or  had  to,  expect
retroactive regulation. An example of such a situation  is  the
application  of  a legal norm which is in sharp  conflict  with
fundamental,  generally recognized principles of  humanity  and
morals: “In our legal order we can justify, by reference to the
previously  dominant  moral conviction,  e.g.  the  retroactive
effect  of  usury  laws (see § 13 of Act No.  47/1881  Imperial
Laws,  § 10 Imperial Order no. 275/1914 Imperial Laws ,  §  105
III.  partial  amendment  to the Civil Code)."  (A.  Procházka,
Retroactivity of Laws. In: Dictionary of Public Law. Vol.  III,
Brno 1934, p. 800.)

    For the sake of completeness, the Constitutional Court adds
to  the  foregoing  that  the cited “principles  recognized  by
civilized  nations”  can,  in  their  aggregate,  scarcely   be
understood  to  mean  anything other than a  system  of  values
established in society. Values are of fundamental importance in
society,  and play an irreplaceable role, because  it  is  only
thanks  to  them  that human society can not  only  exist,  but
communicate  historically and socially.  Without  them,  social
development would fall apart into a mosaic of unrelated  social
events  and  social  structures into  non-communication  social
units.  In the aggregate of all their individual forms,  values
thus  create “the rules of the game”, the observance of  which,
although they always were and probably will be violated, always
reveals itself again to human society as a basic condition  for
its existence and social development.

     It  is  to  this system of values that the  legal  system,
containing ethical and legal norms, is connected. If values can
be  defined  to  mean  models  of social  thought  and  action,
characteristics,   social   conditions    and    events,    and
institutional  forms  whose  common  feature  is  their   being
applicable, subject to consent, for a certain aim and  purpose,
norms  can  be  defined as rules, orders, prescriptions  for  a
certain  manner  of social conduct, subject to and  secured  by
sanctions, which is recognized or established to attain such an
aim  or  purpose. Values share a common base with norms insofar
as  together with them they form a society’s value  system  and
legal  order,  as its constituent, establishing and  organizing
principle.  Within this value system and legal order,  however,
values and norms fulfill particular, often closely related  but
nevertheless mutually non-substitutable functions. Both, values
and norms, are marked by a relationship to a particular goal or
purpose,  but  it  is  only  values which  indicate  a  general
historical and social direction, constitute the envisioned  aim
and  the  basic  method  of  achieving  it,  while  the  direct
implementation  of  the form of values is a matter  for  norms.
However, despite this executive nature and the dependence on  a
given  value system, the social function of norms  can  not  be
underestimated and connected only with the technical aspect  of
social  events. It is norms that represent the instrument  that
makes possible not only the implementation of values, but  also
their verification; norms help to bring a value system to life,
and  the success or failure of this effort indicate its  social
utility and applicability. Because values are primarily  models
for  social  behavior, and as such appear as  idealized  types,
they  can  hardly be translated into legal norms in their  full
breadth. A society which tried to enact everything in law would
ultimately  create  an  extensive vacuum  between  the  claimed
conduct  and  its  possibilities, which would  in  the  end  be
composed of simulative and fictitious elements.

     The  foregoing excursion about the system  of  values  and
legal order may help us to better understand issues relating to
true retroactivity, whose admissibility, in view of the breadth
of values, is projected into all areas of social relationships,
particularly legal relationships. Thus, if a certain model  and
manner  of  social  thought and conduct has  been  consensually
established  in the value system and consciousness of  society,
which,  for  various reasons, e.g. as a result of the  pressure
from  a  certain  political system, could  not  find  normative
expression,   then  the  legal  regulation  of  that   conduct,
containing retroactivity, remains fully in accordance with  the
principles of a democratic state based on the rule of  law.  In
other  words,  it would, on the contrary, be inconsistent  with
the principles of justice if, in such cases, true retroactivity
did  not  have its say. However, all this should all  the  more
distinctively indicate that true retroactivity has no place  in
a  state  governed by the rule of law in situations  where  the
legislature already could have had its “say” but did not do so.
    
     Starting  with these theoretical foundations in evaluation
the  present  matter  the Constitutional Court  concluded  that
point  1  Art.  III, referring to point 48 Art. I  of  Act  No.
210/1997 Coll. has the effects of true retroactive effect.
    
      Because,  from  a  constitutional  law  standpoint,   the
legislature’s   decision  on  the  manner  of   resolving   the
overlapping in time of old and new legal regulations is  not  a
matter  of  chance  or  arbitrariness,  but  is  a  matter   of
consideration of conflicting constitutional law principles, the
Constitutional  Court considered whether conditions  exist  for
allowing  an  exception from the principle of  forbidding  true
retroactivity,    which   would   permit   the   constitutional
admissibility of this legal norm. The framing of tax policy  is
a matter for the state, which determines what the tax burden on
the  taxpayer  of  a particular tax will be  and  how  it  will
regulate  his  obligations  in connection  with  verifying  the
correct  assessment  of tax. The Act on Income  Taxes,  in  its
original  version of 1992, established the use of usual  market
prices in the event that negotiated prices differ from them and
the  difference  is  not satisfactorily documented,  with  this
procedure  to  be  used whenever there was  interconnection  by
personnel  or economic interconnection between the  same  legal
entities or natural persons. Act No. 259/1994 Coll., in  effect
as  of  1  January 1995, added to the Act on Income  Taxes  the
obligation  to  satisfactorily document the difference  between
prices negotiated between entities connected economically or in
personnel and prices negotiated between independent entities in
ordinary  business  relationships under  the  same  or  similar
conditions.  This  amendment narrowed the  obligations  of  the
taxpayer,  who  in future had to pay attention to  satisfactory
documentation  of  the price difference only in  certain  legal
relationships  foreseen by the law, and bore  the  consequences
for any failure to fulfill this obligation in the form of a tax
base  adjustment  by the tax administrator.  Act  No.  316/1996
Coll.,  in  effect  as  of 1 January 1997,  provided  what  was
considered to be a price negotiated between independent persons
in  ordinary  business relationships in setting  the  level  of
interest  for  loans, which did not expand the range  of  legal
relationships  subject to the law. Thus,  until  the  amendment
passed   by   Act  No.  210/1997  Coll.,  the  taxpayer   could
justifiably  expect  that in creating  legal  relationships  he
would   have  to  document  a  price  difference  to  the   tax
administrator  and bear the consequences if he did  not  do  so
only with some of them, while with other legal relationships he
would  not  be  subject to this obligation. The  Constitutional
Court  therefore  believes that this case  is  a  case  of  the
taxpayer’s  justified faith in the law, because  in  the  legal
situation  at  the time to which the retroactive norm  applies,
the  taxpayer  could not presume any flaw in  his  conduct  and
could   not  expect  the  possibility  of  retroactive  change.
Although  social  relationships  began  to  show  signals  that
indicated  the  need  for new legal regulation,  which  is  the
subject of the matter at hand, the legislature, in a democratic
state,  did  nothing to limit disadvantageous effects  earlier,
i.e.  by a regulation pro futuro. Thus, in this case conditions
do  not  exist  to  accept an exception from the  ban  on  true
retroactivity, nor can the constitutional conflict be  overcome
through   interpretation.  The  argument  of  the  Chamber   of
Deputies,  that in this case the tax administrator surely  also
relied  on  §  23 para. 10 of the Act on Income Taxes,  changes
nothing  about  the  above  mentioned  conclusion.  Under  this
provision  “The  tax  base  is  determined  on  the  basis   of
accounting  maintained according to a separate regulation  20),
unless a separate regulation or this Act provides otherwise  or
unless  the  tax  obligation  is reduced  by  another  method.”
According  to the footnote, the separate regulation  means  Act
No.  563/1991 Coll., on Accounting, the Directive on the  Chart
of Accounts and Principles of Single Entry Accounting published
in the Collection of Laws. The Constitutional Court considers §
23  para.  10  of  the Act on Income Taxes to be  incapable  of
justifying  an exception to the ban on true retroactive  effect
of  point 1 Art. III, referring to point 48 Art. I of  Act  No.
210/1997 Coll., and it found no other grounds for doing so.
    
     For  the above mentioned reasons the Constitutional  Court
granted the petition of the Ostrava Regional Court and, under §
70  para.  1  of  Act No. 182/1993 Coll., on the Constitutional
Court,  annulled  Art. III point 1 of Act No.  210/1997  Coll.,
which  amends  and supplements Czech National Council  Act  No.
586/1992   Coll.,  on  Income  Taxes,  as  amended   by   later
regulations,  in  the  part  identified  by  the   number   and
punctuation  “48,” as of the day this judgment is published  in
the Collection of Laws.
    
Decisions of the Constitutional Court can not be appealed.

Brno, 12 March 2002