On 5 February 2025, the Constitutional Court of the Republic of North Macedonia annulled the 2023 Solidarity Tax Act. The decision was published on 13 February 2025 in the Official Gazette and is available here in Macedonian language.
Solidarity Tax Act
The Solidarity Tax Act, which took effect on the day of its publication on 25 September 2023, imposed an one-time solidarity corporate income tax, payable in 2023, on the companies registered in North Macedonia that had recorded revenues of over 615 million Macedonian denars (equivalent to 10 million euros) in 2022, excluding the companies that had began or stopped their activities in the course of 2022. Тhe legislation professed that its aim was to harmonize Macedonian law with the Council Regulation (EU) 2022/1854 of 6 October 2022 on emergency intervention to address high energy prices (OJ L 261I of 7 October 2022), although it was not restricted to the energy sector.
The solidarity tax base was set alternatively, depending on which option was more favourable to the taxpayer, as either:
1) the tax base determined in the company’s tax balance sheet prepared for 2022, reduced by the average tax base from the tax balance sheets of the company prepared for the previous three years (2021, 2019, 2018) increased by 20%; оr
2) the average tax base from the company’s tax balance sheets prepared for 2021 and 2022, reduced by the average tax base from the tax balance sheets prepared for the previous three years (2019, 2018, 2017) increased by 20%.
The tax rate was set at 30%.
A total of 156 taxpayers paid a total 49.2 million euros on this basis.
Commencement of the proceedings
Almost immediately after the entry into force of the legislation, several initiatives for the assessment of its constitutionality were filed with the Constitutional Court.
The main argument of all initiatives was that the legislation was unconstitutional due to its retroactivity and consequent violation of the principles of legal certainty.
The Constitutional Court joined the initiatives in a single case, over a dissent of one judge who was against the commencement of the proceedings, invoking earlier practice of the Constitutional Court when it refused to assess the constitutionality of the laws that had expired, and disagreeing that the challenged legislation had retroactive effect.
Decision
The Constitutional Court found that the legislation was unconstitutional on several grounds.
Vacatio legis
According to Article 52(3) of the Constitution of the Republic of North Macedonia, laws enter into force not earlier than on the eighth day from the day of their publication, unless the National Assembly articulates the reasons for urgency, in which case the law can enter into effect on the day of its publication.
However, when it introduced the Solidarity Tax bill, the Government did not offer any arguments for the urgency and thus no urgency was established by the National Assembly. Accordingly, the Court did not have much trouble to conclude that the absence of vacatio legis rendered the Solidarity Tax unconstitutional.
Retroactive effect
According to Article 52(4) of the Constitution, laws and other regulations cannot have retroactive effect, except where they are more favourable for the citizens than the pre-existing legislation.
The Court found that the Solidarity Tax Act from 2023 had retroactive effect because it imposed a new tax burden on past corporate earnings which had already been taxed before the enactment of law. Taxpayers thus had legitimate expectation that their tax obligations had been ascertained. The retroactive tax violated legal certainty, the principle of rule of law, but also the right to property.
Right to own property, freedom of market and entrepreneurship
Article 30(1) of the Constitution guarantees the right to property, while Аrticle 55(1) guarantees free market and freedom of entrepreneurship.
The Court found that the Solidarity Tax Act violated these guarantees because it retroactively prescribed additional tax solely on the companies that recorded earnings beyond certain threshold, and, moreover, excluded from the tax burden the companies that reached the threshold but were established in 2022, without sufficient explanation for the differential treatment. This was particularly problematic in light of Article 55(2) of the Constitution, which guarantees equality on the market.
Harmonization with EU law
The Court also addressed the claim that the Solidarity Tax Act was harmonizing Macedonian law with EU law. The Constitutional Court was of the opinion that the reference in the Solidarity Tax Act to the Council Regulation (EU) 2022/1854 of 6 October 2022 on emergency intervention to address high energy prices was not enough to qualify the legislation as the one enacted as part of the process of harmonization with this piece of EU law, given that that the Solidarity Tax Act was not restricted to companies in the energy sector but was applicable across industries. The impact of the harmonization claim on the issue of constitutionality is unclear.
Consequences of the annulment
Since the Constitutional Court annulled the Solidary Tax Act with ex tunc effect, the state treasury will have to refund all 156 companies a total of 49.2 million euros they paid in solidarity tax upon the request of individual companies.
