Cassation complaint of the State Revenue Service in case of foreign income is dismissed

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12 December 2016

12 December, Department of Administrative Cases of the Supreme Court (SC) dismissed cassation complaint of the State Revenue Service and upheld the judgment of Regional Administrative Court, which satisfied the application of the Applicant and imposed the State Revenue Service a duty to reimburse paid income tax to the Applicant. The Supreme Court judgment held that the Regional Administrative Court correctly established the Applicant's permanent residence in Kosovo, as the court took into account Applicant’s actions in order to declare place of residence in Kosovo as well as other circumstances - employment, marital status, etc. The SC judgment also stated that the fact that income of Applicant that probably was not subject to tax in Kosovo fell within the competence of national authorities. Even if income was subject to tax, it would not in general resolve the case on its merits as desired by the State Revenue Service, because the jurisdiction of the Republic of Kosovo and its tax administration, in the light of the fact that the applicant in accordance with national laws and regulations was not Latvian tax resident, is not subject to Latvian taxation legislation. Thus, the Section 14, paragraph 2 of the Law "On Taxes and Duties" cannot act as legal basis for imposing a non-resident income tax on foreign gained income, if this foreign income is not taxed in respective foreign country.

2010-2012, Applicant was employed and received income in the European Union Rule of Law Mission in Kosovo, for which she paid personal income tax in Latvia. After some time Applicant addressed the State Revenue Service, asking for reimbursement of tax paid. Service refused the request, stating that the applicant is not considered to be resident of another country, but a resident of Latvia, and that no such interpretation of  the Section 14 of Law "On Taxes and Duties" provided that the person could be considered  the resident of no country.

Applicant appealed to the court with an application for the issuance of a favorable administrative act. The judgment of Administrative Regional Court upheld the application. The Court concluded that the situation of Applicant does not meet any of the conditions stated in the second paragraph of Section 14 of Law "On Taxes and Fees" which within the meaning of tax law would allow declaring Applicant the resident of the Republic of Latvia; and Applicant during dispute period had not received income in Latvia. Thus, the Applicant is not required to pay personal income tax to the Republic of Latvia and this obligation is not affected by taxation legislation of another country.

Information prepared by Baiba Kataja, the Press Secretary of the Supreme Court

Tel.: +371 67020396; e-mail: baiba.kataja@at.gov.lv