HUN-1996-1-004

a) Hungary / b) Constitutional Court / c)  / d) 03-05-1996 / e) 16/1996 / f)  / g) Magyar Közlöny (Official Gazette), 35/1996 / h) .

Keywords of the Systematic Thesaurus:

03.10

General Principles - Certainty of the law.

04.10.07

Institutions - Public finances - Taxation.

05.03.38.04

Fundamental Rights - Civil and political rights - Non-retrospective effect of law - Taxation law.

Keywords of the alphabetical index:

Tax exemption, reversal.

Headnotes:

The reversal or reduction of a tax exemption given for a defined time period before the expiration of that period is usually unconstitutional because it violates legal certainty and consequently the principle of the rule of law expressed in Article 2 of the Constitution.

A distinction must be made between tax reductions granted for a short term and those that are long term. The reversal of tax reductions given for a short period of time are especially not acceptable constitutionally. In the case of long-term tax exemptions, proportionally with the duration of the exemption, exceptionally the legislator may reverse it in event of basic and significant changes in the circumstances. This may be particularly the case when the changes in the circumstances compared to those at the time of the granting of the exemptions would make it disproportionally hard or even impossible for the State to uphold the exemptions. Thus tax exemptions given for a defined time generally cannot be reversed. But exceptionally tax exemptions given for a long time period might be reduced or reversed constitutionally.

Summary:

An amendment in 1994 to the Act on Corporate Taxes of 1991 reduced the exemptions granted in 1988 for companies operating with foreign capital. The exemption was originally granted for ten years. The amendment of the law as a matter of fact did not abolish the tax exemption but split the respective tax into two parts. The exemption applied automatically only for one part of the tax, while additional prerequisites were set out for attaining exemption for the other part. According to the Constitutional Court the reversal concerned the original tax, and did not amount to the introduction of a new tax. Therefore the constitutional review focused on the constitutionality of the reversal of an exemption granted for a limited time period.

Supplementary information:

The decision extensively quoted the Constitutional Court's previous rulings on tax exemptions.

Four judges out of the nine dissented. One judge wrote the dissenting opinion in which the other three concurred. The dissent warned of the dangers of the generalisation in the majority's opinion. The principle of maintaining confidence in the certainty of legal regulations cannot be examined only in terms of duration of time; the examination of the gravity of the reasons relied on by the legislator for amending the law, and especially the proportionality of the goals and the means applied, were also important elements in reaching a well-founded decision.

Languages:

Hungarian.