Judicature by the Constitutional Court Applicable to Malice in Law

The Constitutional Court ruled that although tax law did not use the term “malice in law”, this did not mean that malice in law or circumvention of law did not occur.

The case in question involved a family that established an association to support and develop sport, cultural and artistic activities of its members, better their education and protect the environment and animals. However, the association in fact funded common needs and interests of its members instead; no other use of funds was proven.

The court considered the following situation to constitute malice in law: the only members of the association were relatives who covered otherwise non-tax costs for their own needs via the association while such costs are not generally tax deductible. Therefore, the funds provided to the association could not have been deemed to constitute a “tax-deductible donation” pursuant to Section 15, subsection 8 of the Income Tax Act.