Financial transaction tax and Slovakia as a state governed by the rule of law

Financial transaction tax and Slovakia as a state governed by the rule of law

Whatever you may think, but the Slovak Republic is a state governed by the rule of law (Constitution of the Slovak Republic)

📌! This sentence is not a propositional sentence. We do not evaluate it YES/NO. It is a norm. And the norm expresses the ideal state – THIS IS HOW IT SHOULD BE.

However, we can compare the consistency of value sentences (Citizen: “SK is not a state governed by the rule of law because…”) with normative ones (Constitution: “SK is a state governed by the rule of law.”). And if there is a big contrast, there is a problem.

Let’s try to analyse this in isolation on the transaction tax.

A foreign client asks us, “Are we subject to tax?” In his case, it all stands and falls on whether he “carries on business in Slovakia”.

But what does it mean?
The law says nothing.

Of course, it is not the role of laws to describe everything explicitly and in detail. Therefore, if dogs are forbidden to enter the Medici Garden, it does not mean that you can come there with a tiger. Why? Because: argumentum a simili or a minori ad maius.

Even if a term is left open to meaning, we lawyers should be able to ascribe meaning to it in a particular factual context.

This is by interpreting the law. In the case of transaction tax, this is objectively difficult, but it can be done, for example, through:

➡️ the rational legislator theory (laws are better interpreted if we assume a rational author). Thus, for example, “carries on business in Slovakia” cannot be interpreted broadly because then the organizational component in the definition of taxpayer would be completely redundant;
➡️ various other methods.

However, the tax administration comes and instantly offers examples that make even a kebab seller in Vienna, in conjunction with the customers to whom he partially replenishes the kebabs in SK, a potential taxpayer for transaction tax.

But probably the financial administration is not to blame, because the problem is the law and its “surroundings”. The law:

➡️ was not the result of a standard legislative process;
➡️ it has no intrinsic binding force (a proposal of the political elite with weakened de facto legitimacy)
➡️ it has no external morality (it does not pursue a moral objective) and, above all
➡️ has no internal morality (i.e., vague, somewhere unworkable, imprecise);

In such a marasmus of the quality of the law, the taxpayer becomes its object and not its subject. The state does not give him a fair chance to find out how he should behave in order to regulate his behaviour. And here the operative phrase may already apply: SK is not a state governed by the rule of law.

And it may also serve as evidence that the social phenomenon that some call “desolatization” is seeping into normative activity as well. The consequence is the labyrinthine nature of the legal order with an undermined instrumental function, which at the end of the day undermines loyalty to the state and the rules.

With this client, we will stand our ground because there are certain principles in law that our administrative courts tend to recognize. And in the recent past, we have already succeeded in averting his taxation in Slovakia by using those very principles. In the long run, however, this is not good.

But I wanted something else. We have a growing demand for foreign solutions/structures. If you are interested, feel free to let me know.

Highgate Law & tax