ADVOCATES CLUB MEETING ANNOUNCEMENT

On January 30, 2024, the Chamber of Advocates of the Republic of Armenia hosted a meeting of the Advocates' Club to discuss the draft law "On Amendments and Additions to the Tax Code of the Republic of Armenia" (hereinafter referred to as the Project), initiated by the RA Ministry of Finance.

The Project proposes increasing the turnover tax on legal services from the current 5% to 10% starting October 1, 2024 (effectively doubling the tax burden), and plans to completely exclude legal activities from the turnover tax system starting January 1, 2025.

Consequently, according to the Project, entities providing legal services will be forced to operate under the general taxation system as of January 1, 2025. This would subject legal services to a 20% Value Added Tax (VAT). Additionally, under the general taxation system, advocates would be required to pay an 18% profit tax.

Notably, the Project failed to account for the human rights protection nature of the legal profession, overlooking the fact that legal services are often provided as part of human rights advocacy rather than purely commercial activity. Therefore, state policy regarding the taxation of legal services should not be tightened or equated with purely economic sectors such as casinos, gambling, pawnshops, and lotteries.

During the discussion, the Chairman of the RA Chamber of Advocates, Simon Babayan, and the Rector of the RA Justice Academy, Ara Zohrabyan, presented their positions on the controversial provisions of the Project.

Key Arguments of the Speakers:

• Lack of Justification: The controversial sections of the Project lack grounds for the proposed changes.

• Violation of Procedures: The Project was not presented to the Chamber of Advocates for preliminary discussion, violating the requirements of Clause 11, Part 1, Article 3 of the RA Tax Code.

• Discriminatory Approach: The Project is a result of discrimination against advocates; it remains unclear why advocates with low turnover are subjected to a heavier tax regime compared to other economic entities.

• Sharp Price Increases: If the Project is adopted, legal service fees will rise sharply, as the 5% turnover tax will be replaced by 20% VAT and 18% profit tax.

• Risk of Shadow Economy or Higher Costs: Advocates will face a choice: raise prices or hide actual turnover. Guided by the presumption of integrity, advocates will choose to raise prices.

• Restriction of Access to Justice: The Project harms citizens' right to access the courts, as many will be unable to afford paid legal services due to rising costs.

• Budgetary Burden: The number of requests to the Public Defender’s Office will significantly increase, imposing additional obligations on the state (pursuant to Article 64 of the RA Constitution, free legal aid is provided at the state's expense).

• Threat to Independence: The Project undermines the independence of advocates, as tax administration under VAT and profit tax regimes is far more complex and creates additional leverage for pressure.

• Ignoring Specificity: The developer failed to consider the crucial role of the legal profession in the administration of justice and the necessity of developing this institution.

FOLLOWING THE DISCUSSION, THE ADVOCATES DECIDED TO:

1. Organize and participate in public events regarding the controversial provisions of the Project.

2. Highlight the Project's shortcomings in the media.

3. Submit objections regarding the controversial provisions to the competent state authorities.

4. Request the Human Rights Defender (Ombudsman) to express a position on the issue.

5. Establish that an initiative group will coordinate the above actions.

6. Plan further steps depending on the progress of the Project.

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For further details, see the official website of the RA Chamber of Advocates.