On 1 October 2019 the Plenum of the Constitutional Court (judge rapporteur Jaromír Jirsa) partly granted and partly dismissed motion of a group of Senators to annul Section 18a (f) of the Income Taxes Act in the wording “with the exception of financial compensation,” or alternatively to annul the entire ammending Act No. 125/2019 Coll.
Headnotes:
Under pretence of taxing the income of churches and religious societies from the so-called church restitutions [see Section 18a (f) of the Income Taxes Act, as amended by the Legislative Measure of the Senate No. 344/2013 Coll. and Act No. 125/2019 Coll.], the legislature decided to retroactively reduce the agreed financial compensation for churches and religious societies, even though after concluding settlement agreements with the State pursuant to the Act on Property Settlement with Churches and Religious Societies they became legally entitled to it and could legitimately expect to receive it in the agreed amount.The unconstitutionality of the contested provision consists of a breach of the fundamental principles of democratic society [Art. 1 (1) of the Constitution], such as the principle of legal certainty, trust in law, its predictability and the principle of protection of acquired rights, which eventually leads to the violation of the right of the entities concerned to own property pursuant to Art. 11 (1) of the Charter of Fundamental Rights and Freedoms and Art. 1 of the Additional Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms.
Summary:
I. A group of senators (Petitioner) filed a petition seeking the annulment of Section 18a (f) of the Income Taxes Act in the wording “with the exception of financial compensation” or alternatively the entire Act No. 125/2019 Coll. Subsequently, the Constitutional Court received two further petitions (one submitted by the deputies and the other by the senators), seeking the annulment of the same provisions. These later petitions were dismissed as inadmissible due to lis pendens, yet the Constitutional Court took these petitions into account in its decision. Above all, the Petitioner inferred the unconstitutionality of Act No. 125/2019 Coll. from the fact that neither its proposers nor the government claim that it is a taxation law in the constitutional law sense; on the contrary, they do not conceal that the only objective consists in effectively reducing the financial compensation of the restitution, the amount of which, according to current governmental and some non-governmental parties, is disproportionately high. In the Petitioner’s view, the amendment adopted by Act No. 125/2019 Coll. demonstrates signs of inadmissible retroactivity; in addition, the principle of pacta sunt servanda was violated, because by concluding agreements with churches, their legitimate expectations were established.
II. In its substantive review of the contested legal regulation, the Constitutional Court proceeded not only from the fundamental principles of a democratic society (such as the principle of legal certainty, trust in law, prohibition of retroactivity or protection of acquired rights), but also from its constant case law concerning restitution legislation. It recalled that restitution serves to undo some of the property injustices committed between 1948 and 1989, i.e. at the time when “the regime based on communist ideology, which decided on the management of the state and the fate of citizens in Czechoslovakia [...], was criminal, illegitimate and reprehensible” [see Section 2 (1) of Act No. 198/1993 Coll., on the Unlawfulness of the Communist Regime and its Resistance]. The restitution regulations adopted in the 1990s already provided for the state property in relation to churches and religious societies to be regulated in the future; however, there was a long period in which no political consensus on the form of settlement could be found. The Constitutional Court stated that the Act on Property Settlement with Churches and Religious Societies (Act No. 428/2012 Coll.) filled a decade-long legislative gap consisting in the absence of the property settlement of the State with churches, which was declared unconstitutional in 2010 by the Constitutional Court (Judgment No. Pl. ÚS 9/07). By means of this Act, the State undertook to be a serious contractual partner to legitimate churches and religious societies and pay them, under specified terms and conditions, financial compensation for the property seized by the totalitarian regime and which can no longer be released in kind. In addition to the main restitution purpose, the financial compensation also has the function of preparing churches and religious societies for future economic separation from the State for which churches perform a number of tasks, particularly in the field of healthcare and social services. In the case of each church and religious society, the proportion of these purposes varies individually for historical and economic reasons.
In the light of the described purposes of the Act on Property Settlement with Churches and Religious Societies, the Constitutional Court reviewed the constitutional conformity of the contested provisions. In this context, the Constitutional Court emphasised that it did not pay close attention to the Petitioner’s or the Government’s arguments on the issue of the adequacy of the financial compensation, as it had dealt with it in detail in Judgment No. Pl. ÚS 10/13. In this Judgment, it stated that the political decision regarding the determination of the amount of the financial settlement did not affect the constitutionality of Act No. 428/2012 Coll.
The Constitutional Court stated that by adopting the provisions of Section 15 and Section 16 of Act No. 428/2012 Coll., the legislature declared the terms and conditions under which it was willing to conclude settlement agreements with individual churches and religious societies. The churches and religious societies concerned – with the exception of one – accepted the draft agreement submitted by the State and the government concluded the settlement agreements with them. Under the agreements, it was agreed that the financial compensation in the statutory – as well as the contracted (adjusted) amount – would be paid in thirty annual instalments.
The Constitutional Court concluded that by means of the contested legislation [i.e. Section 18a (1) (f) of the Income Taxes Act, as amended by Legislative Measure of the Senate No. 344/2013 Coll. and Act No. 125/2019 Coll.], the legislature did not decide on taxation, but rather on a de facto retroactive reduction in financial compensation, for the total amount of which churches and religious societies were legally entitled and could claim legitimate expectations at the time of the conclusion of the settlement agreements. The additional reduction in the financial compensation for the injustices caused by a criminal communist regime is in fact directed against the fundamental principles of a democratic rule of law state. Thus, the legislature violated not only the principles of legal certainty, trust in law and its predictability and the protection of acquired rights as core principles of a democratic society [Art. 1 (1) of the Constitution], but also the right of the entities concerned to own property – or more precisely their legitimate expectations of the future multiplication of their property – pursuant to Art. 11 (1) of the Charter and Art. 1 of the Additional Protocol to the Convention.
For this reason, the Plenum of the Constitutional Court annulled the abovementioned provision in the wording “with the exception of financial compensation.” The Petitioner’s alternative petition seeking the annulment of the entire amending Act No. 125/2019 Coll. was then dismissed as manifestly ill-founded.
III. A dissenting opinion was submitted by Judge Josef Fiala and Judge Radovan Suchánek.