DelfinGroup: DelfinGroup and ViziaFinance are challenging the norm on the 20% surcharge on CIT before the Constitutional Court

In defence of the interests of their investors and shareholders, DelfinGroup AS
and ViziaFinance SIA have challenged, before the Constitutional Court (CC), the
obligation for non-bank lenders to pay a surcharge of 20% of the previous
year's profits on top of Corporate income tax (CIT) from 1?January this year.
The companies argue that consumer lenders are subject to an unjustified tax
burden by being erroneously equating with the banking sector, even though the
two?segments have different and incomparable business structures. While banks
can profit from increased interest rates on loans, non-bank lenders themselves
find it more expensive to raise finance, which makes the tax on alleged excess
profits imposed on non-bank lenders an inherently absurd requirement. Moreover,
the surcharge is also disproportionate and taxes non-consumer lending
activities.
The Constitutional Court initiated a case on the non-compliance of several
articles of the Corporate Income Tax Law with the first sentence of Section?91
and the first and third sentences of Section 105 of the Constitution, which
include the right to equality, as well as the protection of property rights. 

According to DelfinGroup and ViziaFinance, the contested norms restrict the
fundamental right to equality laid down in Section 91 of the Constitution, as
non-bank lenders are compared to credit institutions without an objective and
reasonable basis. The surcharge on CIT infringes the right to property
guaranteed by Section?105 of the Constitution, since the procedure for
calculating and paying the surcharge on CIT may result in non-bank lenders
being subject to a triple obligation to pay tax, with the effective rate of CIT
increasing to 83% in the case of DelfinGroup. 

The amendments to the Corporate Income Tax Law were submitted to the Budget and
Finance (Tax) Committee of the Parliament on 9?November?2023, and already then
several State institutions and consumer lending service providers expressed
doubts about the constitutionality of the contested norms. 

Didzis Admidinš, Chairman of the Management Board of DelfinGroup, informs:
"Although the Consumer Rights Protection Centre, the Fintech Latvia Association
(FLA) and other industry experts pointed out the risks during the development
of the new requirement, from 1?January this year we have been unjustifiably
equated with the banking sector. Despite the fact that we have a different
business structure and operate in a completely different market environment to
banks. For example, in a period of high interest rates, banks make money by
using customer deposits and placing them in overnight deposits with the
European Central Bank, earning a return. This is essentially risk-free profit
for the banks, without any economic activity and without sharing the proceeds
with depositors. Consumer lending service providers, on the other hand, finance
their business activities from a variety of sources, including floating rate
loans." 

D. Admidinš believes that the current situation is unfair. "This unjustified
tax burden limits our ability to invest in development, causing losses and
jeopardising the interests of our investors and more than 9000?shareholders, as
the changes in the law significantly reduce our profit after tax," stresses
D.?Admidinš. 

D. Admidinš mentions another important difference between non-bank lenders and
credit institutions. All the funding that DelfinGroup and ViziaFinance use to
secure their loan portfolios is at a variable rate. Consequently, as the
EURIBOR has risen, so has the overall cost of funding for companies. However,
despite this increase in costs, the companies do not intend to pass on this
cost in the 2023 financing, and in the future, to the credit agreements between
the companies and their customers. So, even if the EURIBOR rate increases,
interest rates on loans to customers will not increase. This approach reflects
the commitment of companies to maintain stability in customer costs, which is
different from the practice of banks where such floating rates are usually
passed on to customers. 

"Taking all the above-mentioned considerations into account, we are pleased
with the Constitutional Court's decision to examine the matter on its merits
and assess the compatibility of the contested norms with the Constitution.
DelfinGroup provides consumer lending, pawnbroking and the sale of pre-owned
and new goods and it is important to us that these services are available to as
wide a section of the public as possible throughout Latvia. For example, in the
current situation, our trading segment is also subject to an additional tax,
which is not the purpose of these tax amendments. This decision is an important
step in ensuring fairness, protecting our rights and the rights of our
investors and shareholders, and allowing us to continue to grow our business,"
explains D.?Admidinš. 

Sorainen is providing legal assistance to DelfinGroup and VIZIA in the
Constitutional Court proceedings. Attorney-at-law Katrine?Plavina-Mika
explains: "With the initiation of these cases, a significant part of the
non-bank lending industry has already turned to the Constitutional Court,
asking for control over the development and constitutionality of the CIT
surcharge regulation. Although we can only expect the outcome of the case at
the end of next year, it is a strong signal for a broader discussion on where
and under what circumstances super-profits start in a successful business and
what the role of the state is in such a situation." 



About?DelfinGroup

AS DelfinGroup is a licenced fintech company established in 2009 and operates
under the brand names Banknote and VIZIA. The company has been profitable every
year since 2010. DelfinGroup continuously develops and offers consumer and pawn
loans, loans developed for senior citizens, Buy now pay later loans (BNPL
loans), and the sale of pre-owned goods online and at more than 90 branches
across Latvia and Lithuania. Since 2014, DelfinGroup has been known on the
Nasdaq Riga Stock Exchange as a bond issuer and, since 2021, as a listed
company on the Baltic Main List. The company regularly pays dividends to its
shareholders. The sustainability of DelfinGroup is based on focused corporate
governance, fintech innovation, responsible lending, financial inclusion, and
facilitating the circular economy. 




     For further information, please contact:
     Aldis Umblejs,
     DelfinGroup Chief Financial Officer
     Phone: [phone]
     E-mail: [e-mail]