The Ombudsman adopt an opinion in favour of a client of the WIDEN Latvia

March 18, 2024 News

WIDEN Latvia has submitted an application to the Ombudsman of the Republic of Latvia regarding the violation of fundamental rights related to the payment of taxes on income seized in criminal proceedings. WIDEN Latvia represented a client who was the subject of criminal proceedings under Part Three of Article 195 of the Criminal Law (Money Laundering), in the context of which the seizure of several million euros obtained from the sale of NFT images was seized.

The client of WIDEN Latvia had declared its economic activity and submitted a tax return, which triggered the obligation to pay personal income tax. As the client’s funds were seized in criminal proceedings, the client was unable to pay the tax and the State Revenue Service started recovery proceedings, at the same time starting to calculate late payment penalties.

Thus, on the one hand, the State questioned the legality of the origin of the client’s funds, while, on the other hand, the State Revenue Service considered the same funds to have been legally acquired and therefore demanded payment of personal income tax on them.

In his opinion, the Ombudsman states: “Having assessed the analysis of the circumstances set out in the contestation decision of the SRS, the Ombudsman concludes that in the case of the applicant, the public interest has been assessed in an excessively general and one-sided manner. The SRS has not assessed the unusual situation of the applicant, where the State has questioned the legitimacy of the income in criminal proceedings. It follows from the contestation decision of the SRS that this circumstance was not sufficiently taken into account. In particular, no assessment has been made of the future consequences for society and the applicant of the decisions taken in the criminal proceedings concerning the seized money. The contestation decision of the SRS assesses the immediate public interest and does not assess the harm that would be caused to the individual in the circumstances of doubt at all.”

The Ombudsman also finds that this situation infringes the property rights of the client of the WIDEN Latvia. In his opinion, the Ombudsman draws attention to the fact that “[…] the current legal procedure provides that, despite the recovery of tax payments, the seized funds may be recognized as criminally acquired and confiscated for the benefit of the State. In this case, the money recovered will be returned to the taxpayer. While the taxpayer has the right to request the reimbursement of the tax payments recovered, it is evident that the consequences of compulsory recovery not only disproportionately restrict property rights but also create an unfair legal environment in the long term.”

The Ombudsman considers: “Where the State questions the legitimacy of income, there is proportionate and significant caution with regard to the immediate enforcement of tax payments on that income. The State must exercise proportionate caution in enforcing payment of the tax until doubts expressed by the State as to the legitimacy of the income have been removed or confirmed. State action to the contrary is not only mutually contradictory, but also creates a disproportionate infringement of the rights of individuals due to legal uncertainty and, above all, a sense of injustice.”

Finally, the Ombudsman recommends:

• To the SRS, taking into account the atypical situation, to review the situation of the applicant with regard to the continuation of the recovery within one month;
• To the Parliament, to amend the Law on Taxes and Fees by 1 October 2024 in order to prevent future situations similar to the applicant’s situation.

The Ombudsman is an elected official of the Parliament, who seeks to ensure that human rights are respected in Latvia and that the state administration and local governments adhere to the principle of good administration.

For more than 10 years, the WIDEN Latvia has been providing a wide range of legal assistance, including in criminal and proceeds of crime proceedings, as well as in matters relating to violations of fundamental rights. Legal assistance was provided by the WIDEN Latvia partner attorney-at-law Armands Rasa and assistant attorney-at-law Anete Bože.

Opinion published by the Ombudsman:Latvijas Republikas Tiesībsargs | Atzinums pārbaudes lietā Nr.2022-59-16DA, 27J par nodokļa nomaksu no ienākumiem, kas arestēti kriminālprocesa ietvaros.