The abstract of the judgment (The judgment is available only in Georgian). Abstracts published by the Constitutional Court of Georgia summarise the facts of the case and key legal considerations of the judgment.

Abstract

On 28 December, 2017, the Second Chamber of the Constitutional Court of Georgia adopted the Judgement in the case of “JSC “Telenet” v. The Parliament of Georgia” (constitutional complaint №667).

The subject of dispute in this case was the constitutionality of Article 202(4) of the Tax Code of Georgia with regard to Article 14, Paragraphs 1 and 2 of Article 21 and Article 30(2) of the Constitution of Georgia.

The complainant requested declaration of unconstitutionality of a provision of the Tax Code of Georgia, which granted the tax authority discretion to determine the tax obligation of the payer of the property tax based on the market price of the taxable property. The complainant asserted, that the power of the tax authority provided in the disputed rule made the tax burden unforeseeable, as the legislator provided for two different rules of calculation of the tax without stipulating any criteria or preconditions. In view of this, the complainant asserted, that the disputed regulation was discriminatory; it interfered with the right of property and hindered freedom of entrepreneurship and presence of competition in the market.

The respondent party asserted, that the disputed rule did not impose unexpected tax burden on the taxpayer and it was within the state power to establish framework for legal relations of taxation. Moreover, this rule served determination of the tax burden by the real price and did not differentiate among the taxpayers, as it applied equally to its addressees after undertaking the tax audite. In view of this the respondent declared, that the disputed rule raised no issue of constitutionality.

The Constitutional Court reiterated that in the sphere of tax policy, the state has a wide margin of appreciation. At the same time, scope and acceptable limits of this policy is determined by the right of property set forth in the Constitution of Georgia. Reasoning with regard to Article 21 of the Constitution of Georgia, the Court interpreted the relation between the book value and market value of the property and stated, that the system provided in the disputed rule aims at determination of the real price of the property and does not impose unreasonably inadequate tax burden. Moreover, as the taxpayer has a choice to employ revaluation method and avoid calculation of the taxable value of the property based on its market value, the regulation should be considered as the least restrictive and it meets the requirements of the right to property.

Reviewing the constitutionality of the disputed rule with regard to Article 14 of the Constitution of Georgia, the Constitutional Court pointed out that determination of the property tax based on its market price is part of the discretionary power of the tax authority. After conducting the tax audit, it is possible that the tax authority will use the differentiation provided in the disputed rule and will determine the property tax based on the market price for some taxpayers, while it will leave the tax obligation calculated on the basis of the book value unchanged for other taxpayers. Therefore the disputed rule allows for differential treatment of taxpayers. At the same time, the Court ruled, that in a given case, the differential treatment had no reasonable justification. Therefore it violated the right to equality before the law as protected under Article 14 of the Constitution of Georgia.

Reasoning with regard to Article 30 of the Constitution of Georgia, the Court emphasized that the arguments brought by the complainant addressed only differential treatment and restriction of property prescribed by the disputed rule. As no circumstances were identified, that would restrict freedom of entrepreneurship and freedom of competition, the Court did not uphold th complaint in this part.