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Aug 17, 2020

Decision of the Constitutional Court of Bosnia and Herzegovina (BH), adopted upon the appellation of Marić & Co Law Firm, is of historical significance for taxpayers in Bosnia and Herzegovina and is a first step for changing the long-term injustice they were subjected to. At the same time, this decision represents a turning point in the relationship of the Office for Indirect Taxation (OIT) and taxpayers, but also of the Administrative Disputes Department of the Court of BH, which many times in the past accepted standpoints of the OIT as the supreme authority when it comes to tax issues.

Namely, the issue that many taxpayers faced was that when they were entitled to a tax refund from the OIT, instead of refunding the VAT, the OIT would order a full control of the taxpayer, and the same would not receive the refund for the entire time the control would last, and the time it would take to resolve any potential disputes. When the VAT refund was finally made, the OIT was not paying the interest for the period that the payment was delayed.

OIT based its activities on the provision of article 14 paragraph 2 of the Law on Indirect Taxation Procedure which regulates “if the indirect taxation regulations do not stipulate a deadline, the refund will be made within 6 months from the submission of the request or knowledge of the OIT on the obligation to perform the refund”. In addition, the OIT invoked article 139 paragraph 1 of the Law on administrative procedure which stipulates that the administrative procedure will be stalled “until resolving of any prior issues”, and that the “stalling of the procedure, all deadlines for procedural actions will stop”. Namely, the OIT’s standpoint was that the tax control represents a prior issue for VAT refund, and that the refund should be made only upon completion of the tax control, administrative procedure and administrative dispute – OIT claimed that it only then gained knowledge on obligation to refund.

Due to the above, the OIT refused to pay interest to the funds of taxpayers, which it used, despite the fact that the administrative procedures lasted for years. Unfortunately, the Court of BH did not scrutinize such standpoint either, and all the claims submitted on this basis were rejected.

However, the Constitutional Court of BH accepted all the claims raised by Marić & Co, and at its session held on June 4, 2020 adopted a judgement AP 3548/18 which overturned the judgement of Court of BH and established “violation of property rights of the appellant as protected by Article II/3.k of Constitution of Bosnia and Herzegovina and Article 1 of the Protocol to the European Convention, which violation was committed by rejection of the request of the appellant for payment of interest for delayed payment of VAT refund, by arbitrary application of the legislation, and therefore it cannot be concluded that the interference with the appellant’s property rights was “legal” in accordance with Article 1 of the Protocol 1 to the European Convention”.

The Constitutional Court of BH completely agreed with the standpoints put forward in the appellation that “it cannot be disputed that the Law on VAT regulates deadline for VAT refund, and therefore this law is lex specialis to Law on Indirect Taxation Procedure. As such, VAT refunds are to be made within 60 days upon lapse of deadline for submission of VAT return, and not “within 6 months upon gaining knowledge on the exact amount”.

Constitutional Court of BH deems the application of the 6 months deadline, which is usually applied by the OIT, as arbitrary interference with the appellant’s property, and the same cannot be deemed “legal” as stipulated by Article 1 of Protocol 1 to the European Convention on Human Rights.

Even if one was to ignore the fact that this judgement awarded the appellant the right to collect over BAM 3,000,000 on the basis of interest, this judgement also sets a precedent, which should in future enable the taxpayers to gain protection of their rights, and change the standpoints and actions of the OIT and the Court of BH. This shows how significant the judgment is.

The benefit to the tax payers is obvious: the ruling of the Constitutional Court of BH allows them to collect interest for all the amounts of VAT due for refund, but not paid within the deadlines stipulated by the Law on VAT, irrespective of any control procedures conducted by the OIT.

Naturally, the ruling does not affect the right of the OIT to control the taxpayers prior to executing the refund, but contributes that the stalling of the procedure is used much more responsibly, and that it is used only if absolutely necessary. Therefore, the taxpayers will not suffer damages due to irresponsible activities of the OIT, but the damages will be borne by the OIT as they will pay interest to all amounts unreasonably withheld.

Finally, we can expect that this will also affect the general attitude of Court of BH in disputes where OIT is the defendant. In modern states, the whole purpose of administrative procedures is protection of taxpayers from illegal actions of the state, and not the protection of the state from the taxpayer, as was often the case in Bosnia and Herzegovina. Although it is still not clear whether the decision of the Constitutional Court of BH will truly change the previous approach of the Court of BH, we remain hopeful that this will be a starter to the transformation process.