EN ECB-PUBLIC 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 25 October 2019 
on amendments to the Law on Latvijas Banka 
(CON/2019/36) 
 
Introduction and legal basis 
On 25 September 2019 the European Central Bank (ECB) received a request from the Budžeta un 
finanšu (nodok ļu) komisija  (Budget and Finance (Tax) Commission) of the Saeima  (Parliament) of the 
Republic of Latvia for an opinion on a draft law containing amendments to the Law on Latvijas Banka 
(hereinafter the ‘draft law’)1. 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third indent of Article 2(1) of Council Decision 98/415/EC2, as 
the draft law relates to Latvijas Banka and to the specific tasks conferred upon the ECB concerning the 
prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. In accordance with the 
first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing 
Council has adopted this opinion. 
 1. Purpose of the draft law  
1.1 The draft law amends the profit distribution provisions of the Law on Latvijas Banka. Within 15 days 
following the approval of the annual report by the Council of Latvijas Banka and the covering of 
losses accumulated in the previous years, if any, Latvijas Banka shall transfer part of its profit 
earned during the reporting year to a State general budget account. That part shall be calculated 
by applying the tax rate established by the Corporate Income Tax Law (the ‘CIT Law’)
3 without 
applying the coefficient which increases the tax base as laid down by the CIT Law.  
1.2 The draft law amends the Law on Latvijas Banka by reducing the term of office of the Governor, 
Deputy Governor and the members of the Council of Latvijas Banka from six to five years. If the 
Governor, Deputy Governor or any of the members of the Council resign before their term expires, 
the Saeima  shall appoint a new Governor, Deputy Governor or member of the Council in their 
place for a term of five years. As explained by th e consulting authority in the letter accompanying 
the consultation request, decreasing the term of office from six to five years is in accordance with 
                                                 
1   Groz ījumi likum ā “Par Latvijas Banku”. 
2  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
3 Uz ņēmumu ien ākuma nodok ļa likums.  
ECB-PUBLIC 
2 the general practice and legislation in force, including the Statute of the European System of 
Central Banks (ESCB) and of the ECB (the ‘Statute of the ESCB’). It also aligns the term of office 
of the Governor, Deputy Governor and members of the Council of Latvijas Banka with the term of 
office of the Chairman and members of the Council of the Finanšu un kapit āla tirgus komisija  
(FKTK, Latvian Financial and Capital Market Commission). 
1.3 The draft law amends the Law on Latvijas Banka to provide that the same person may hold the 
office of the Governor, the Deputy Governor and a member of the Council of Latvijas Banka for a 
maximum of two consecutive terms. As explained by  the consulting authority, this provision of the 
draft law is in accordance with the latest international practice on the appointment of heads of 
institutions. 
1.4 The transitional provisions of the draft law provide that the above-mentioned amendments to the 
Law on Latvijas Banka concerning the terms of office of the Governor, Deputy Governor and the 
members of the Council of Latvijas Banka shall enter into force upon the resignation of the 
Governor, Deputy Governor or the members of th e Council of Latvijas Banka at the end of the 
current six-year term, or, in the event that the Governor, Deputy Governor or the members of the Council of Latvijas Banka resign before the expiry of the current six-year term, upon appointment of 
a new Governor, Deputy Governor or member of the Council of Latvijas Banka. Under the draft law 
which amends the Law on Latvijas banka, the current Governor, Deputy Governor and/or members 
of the Council of Latvijas Banka shall continue to perform their duties until the end of their six-year 
term of office, or until the Saeima  has relieved them from office.  
1.5 The draft law amends the Law on Latvijas Banka by providing that the Governor, Deputy Governor 
and a member of the Council of Latvijas Banka may be relieved from office by the Saeima  if he/she 
(i) has submitted a resignation, or (ii) has been found guilty of serious misconduct or no longer 
fulfils the conditions required for the performance of his/her duties in accordance with Article 14.2 
of the Statute of the ESCB.  
1.6 The draft law amends the Law on Latvijas Banka by reducing the number of members of the Board 
of Latvijas Banka from six to four persons. The transitional provisions of the draft law provide that 
the above provision shall apply from 1 March 2020.  
1.7 Finally, the transitional provisions of the draft law provide that by 31 October 2020 the Government 
shall submit to the Saeima  a draft law on Latvijas Banka providing for its governance framework 
and operation and for the incorporation of the FKTK into Latvijas Banka while respecting the 
independence of its monetary policy functions and its functions as the finance and capital market 
supervisor and resolution authority.  
 
2. Observations  
2.1 Distribution of Latvijas Banka’s profits 
2.1.1 Under the existing provisions on profit distribution of the Law on Latvijas Banka, within 15 days 
following the approval of the annual report by the Council of Latvijas Banka and the covering of 
losses accumulated in the previous years, if any, Latvijas Banka transfers the following to a State 
ECB-PUBLIC 
3 general budget account: (i) a part of its profit earned during the reporting year, which shall be 
calculated by applying the tax rate established by the Law on Corporate Income Tax4; and (ii) 
payments for the usage of State capital amounting to  50 % of the profit earned during the reporting 
year. The Council of Latvijas Banka may reduce the amount of dividends payable into the State 
budget if required for an increase of Latvijas Banka’s reserve capital due to financial risks affecting 
Latvijas Banka in the execution of its tasks5. 
2.1.2 The ECB understands that the draft law only am ends the first component of the twofold calculation 
of the amount payable by Latvijas Banka into the State budget under point (i) above. This technical 
amendment is intended to take into account the new corporate income tax regime under the CIT 
Law, which entered into force on 1 January 2018. In particular, the CIT Law provides that the basis 
of corporate income tax, which is applied at the statutory rate of 20 % instead of the previous rate 
of 15 %, is the amount of distributed dividends divided by a coefficient of 0.8 meaning that the 
actual corporate income rate amounts to 25 % of the total amount of distributed dividends6. 
Although Latvijas Banka is not subject to corporate income tax7, the change in the corporate 
income tax regime is relevant for the calculation of the first component of the twofold calculation of the amount payable by Latvijas Banka into the State budget. In this respect, the draft law clarifies 
that this first component shall be calculated by applying the tax rate established by the CIT Law 
without applying the coefficient 0.8 which increases the tax base. This effectively means that 
Latvijas Banka will, under the first component, transfer into the State budget account 20 % of the 
profits earned during the reporting year, instead of the 15 % payable based on the old Law on 
Corporate Income Tax and also in lieu of the 25 % that would be payable if the coefficient 0.8 
under the new CIT Law was to be included in the calculation.  
2.1.3 The ECB notes that the amendments to the fi rst component of the twofold calculation of the 
amount payable by Latvijas Banka into the Stat e budget enter into force retroactively, from 
1 January 2018. The ECB understands that the retroactive application of the amendments would 
not result in a recalculation of the amount pay able by Latvijas Banka into the State budget for the 
year 2018. 
2.1.4 The ECB understands that the second componen t of the twofold calculation of the amount payable 
by Latvijas Banka into the State budget remains unchanged so that Latvijas Banka is obliged to 
make a further payment of 50 % of those profits, in addition to the payment of 20 % of the profits 
earned during the reporting year. However, as noted above, under the draft law the Council of 
Latvijas Banka retains discretion to reduce the amount of dividends payable into the State budget if 
                                                 
4 Likums “Par uz ņēmumu ien ākuma nodokli”. 
5  Article 18 of the Law on Latvijas Banka (likums “Par Latvijas banku”). 
6  Articles 4(2) and 4(9) of the CIT Law (Uz ņēmumu ien ākuma nodok ļa likums). 
7  Latvijas Banka does not fall under the definition of corporate income tax payers provided by Article 2(1)(1) of the CIT 
Law. Moreover, paragraph I(2)(3) of the annotation to the draft law states that in the future Latvijas Banka will not be 
bound by other provisions of the CIT Law apart from the 20 % tax rate (without applying the 0.8 % coefficient increasing the tax base). 
ECB-PUBLIC 
4 required to increase Latvijas Banka’s reserve capital in the event of financial risks affecting 
Latvijas Banka in the execution of its tasks.  
2.1.5  Under the principle of financial independence under the Treaty, a national central bank (NCB) must 
have available to it sufficient financial resources to fulfil its mandate, i.e. to perform its ESCB-
related tasks and its national tasks8. An NCB’s statutes may prescribe how its profits are to be 
allocated. However, profits may only be transferred to the State budget after any accumulated 
losses from previous years have been covered and financial provisions deemed necessary to 
safeguard the real value of the NCB’s capital and assets have been created9. Against this 
backdrop, notwithstanding the 5 % increase in the level of profits to be transferred by Latvijas 
Banka to the State budget, the ECB welcomes that profits will continue to be transferred to the 
State budget after the covering of losses accumulated in the previous years and that the Council of 
Latvijas Banka will retain discretion to reduce the amount of dividends payable into the State 
budget if required to increase Latvijas Banka’s reserve capital in the event of financial risks 
affecting Latvijas Banka in the execution of its tasks.  
2.1.6  As previously noted by the ECB, under the current twofold calculation of the amount payable by 
Latvijas Banka into the State budget, amendments to the CIT Law result in changes to 
Latvijas Banka’s total contribution to the State budget . While in principle this is acceptable, the ECB 
reiterates that, for the sake of legal certainty, and to  better safeguard Latvijas Banka’s financial 
independence, the maximum contribution of Latvijas Banka to the State budget should be 
determined by a single fixed rate of Latvijas Banka’s annual profits, set out in the Law on Latvijas 
Banka. Alternatively, if the current twofold calculat ion of the total rate of Latvijas Banka’s profit 
distribution is maintained, in view of Latvijas Banka’s obligations under the Treaty and the Statute 
of the ESCB, the ECB recommends that any changes to its financial obligations towards the State 
should be decided in cooperation with the Council of Latvijas Banka, taking into account its specific 
tasks10. 
2.2 Term of office of the Governor, Deputy Governor and members of the Council of Latvijas Banka   
2.2.1 In accordance with Article 14.2 of the Statut e of the ESCB, the statutes of an NCB shall, in 
particular, provide that the term of office of a Governor of an NCB shall be no less than five years. 
Personal independence would be jeopardised if the rules relating to security of tenure and grounds 
for dismissal of Governors were not to apply to  members of the decision-making bodies of NCBs 
involved in the performance of ESCB-related tasks.  In addition, various provisions of the Treaty 
and of the Statute of the ESCB require comparable security of tenure11. If an NCB’s statutes are 
amended, the amending law must safeguard the securi ty of tenure of the Governor and of other 
                                                 
8  See the ECB’s Convergence Report 2018, 2.2.3. 
9  See the ECB’s Convergence Report 2018, 2.2.3. 
10  See paragraph 3.3 of Opinion CON/2009/53. All ECB Opinions are published on the ECB’s website at 
www.ecb.europa.eu . 
11   See the ECB’s Convergence Report 2018, 2.2.3. 
ECB-PUBLIC 
5 members of decision-making bodies who are involved in the performance of ESCB-related tasks12. 
Against this backdrop, the ECB welcomes the transitional provisions of the draft law, which ensure 
that the current Governor, Deputy Governor and members of the Council of Latvijas Banka will 
remain in office until the end of their original six-year terms (or until the Saeima  has relieved them 
from office) in accordance with the requirements of the Treaty and the Statute of the ESCB. 
2.2.2  In relation to the provision of the draft law which provides that the same person may not hold the 
office of the Governor, Deputy Governor and the members of the Council of Latvijas Banka for 
more than two consecutive terms, the ECB understands that this requirement does not apply in 
respect of terms served before the draft law come s into effect. This impl ies that the current and 
past members of the Council of Latvijas Banka would be able to serve two consecutive terms in the 
future, and that terms served in the past are not included and do not count towards the calculation 
of the two consecutive- term limit. The ECB welcomes this clarification from the perspective of legal 
certainty13. 
2.3 Grounds for relieving the Governor, Deputy Gove rnor and members of the Council of Latvijas 
Banka from office 
2.3.1  The Law of Latvijas Banka14 currently provides that the Governor, Deputy Governor and a member 
of the Council of Latvijas Banka may be relieved from office by the Saeima  if: (i) he/she has 
submitted a resignation, (ii) he/she has been found guilty of serious misconduct15 in accordance 
with Article 14.2 of the Statute of the ESCB, or (iii) if other grounds of dismissal stipulated by Article 
14.2 of the Statute of the ESCB apply. The ECB understands that the draft law is merely amending 
points (ii) and (iii) to combine them into a sing le provision that states that the Governor, Deputy 
Governor and the members of the Council of Latvijas Banka may be relieved from office by the 
Saeima  if he/she has been found guilty of serious misconduct or no longer fulfils the conditions 
required for the performance of his/her duties accord ing to Article 14.2 of the Statute of the ESCB.  
2.3.2. The ECB welcomes this technical amendment. As noted above, in accordance with Article 14.2 of 
the Statute of the ESCB, a Governor may be relieved from office only if he no longer fulfils the 
conditions required for the performance of his duties or if he has been found guilty of serious 
misconduct. The principles underpinning the conditions under which a Governor may be relieved 
from office are autonomous concepts of Union law16. The application and interpretation of these 
principles do not depend on national context, irrespective of whether such concepts are also 
embedded in the draft law. Therefore, the provision of the draft law relating to relieving the 
                                                 
12  See paragraph 2.1 of Opinion CON/2014/51 and the ECB’s Convergence Report 2018, 2.2.3. 
13  See paragraph 3.3.3 of Opinion CON/2018/17. 
14 Article 22(4) of the Law on Latvijas Banka.  
15 Article 22(5) of the Law on Latvijas Banka provides that in a situation referred to in point 2 of Article 22(4) of the Law 
on Latvijas Banka, the Saeima  may decide to relieve the Governor, the Deputy Governor and members of the 
Council of Latvijas Banka from office after a court decision with a guilty verdict becomes effective.  
16  See, also, the opinion of Advocate General Kokott delivered on 19 December 2018, Rimšēvičs v Latvia , C-202/18, 
ECLI:EU:C:2018:1030, paragraph 77. 
ECB-PUBLIC 
6 Governor of Latvijas Banka from office is compatible with the Statute of the ESCB insofar as it 
replicates the wording of Article 14.2 of the Statute of the ESCB17.  
2.3.3  All members of the NCBs’ decision-making bodies must exercise their powers and carry out the 
tasks and duties conferred upon them by the Treaties and the Statute of the ESCB 
independently18. Personal independence would be jeopardised if the rules relating to security of 
tenure and grounds for dismissal of Governors were not to apply to members of NCB decision-
making bodies involved in the performance of ESCB-related tasks, especially where a governor is 
‘first among equals’ with colleagues and with equivalent voting rights, or where such members are 
involved in the performance of ESCB-related tasks19. Given that not only the Governor but also the 
Deputy Governor and the other member of the Council of Latvijas Banka are involved in the 
performance of ESCB-related tasks, the ECB welcomes that the provisions of the draft law 
regarding security of tenure apply not only to the Governor, but also to the other members of the 
Council of Latvijas Banka in order to safeguard their independence.  
2.4 Reduction of number of members of Latvijas Banka’s Board  
The Board of Latvijas Banka is an executive body appointed by the Council of Latvijas Banka to 
ensure the efficient management of Latvijas Banka20. The members of the Board of Latvijas Banka 
are employees of Latvijas Banka’s central apparatus. The Board of Latvijas Banka manages the 
operations of Latvijas Banka, implementing the resolutions of the Council of Latvijas Banka21. The 
Chairperson of the Board manages Latvijas Banka by implementing the decisions adopted by the 
Council and the Board of Latvijas Banka. The Chairper son of the Board is entitled to participate in 
the meetings of the Latvian Government when authorised by the Governor or in his/her absence 
and to represent the interests of Latvijas Banka22. The ECB understands that it is the Council of 
Latvijas Banka which is Latvijas Banka’s decision-making body involved in the performance of its 
ESCB-related tasks23. The Board of Latvijas Banka is an executive body of Latvijas Banka which 
merely implements the resolutions of the Council of Latvijas Banka. Therefore the ECB has no 
comments on the provision of the draft law which reduces the number of members of the Board of 
Latvijas Banka from six to four persons. 
2.5 Proposed legislation providing for a new governance framework of Latvijas Banka and the 
incorporation of FKTK into Latvijas Banka  
 The ECB understands that the draft law requires the Latvian Government to submit a draft law to 
the Saeima  providing for a new governance framework of Latvijas Banka and the incorporation of 
                                                 
17  See paragraphs 2.1.3 and 2.1.4 of Opinion CON/2019/19. 
18  Article 130 TFEU and Article 7 of the Statute of the ESCB. 
19  See paragraph 2.2 of Opinion CON/2014/51, paragraph 3.1.3 of CON/2018/23, paragraph 2.2 of Opinion 
CON/2019/19 and the ECB’s Convergence Report 2018, 2.2.3. 
20  Article 23 of the Law on Latvijas Banka. 
21  Article 27 of the Law on Latvijas Banka. 
22  Article 29 of the Law on Latvijas Banka. 
23  Article 26 of the Law on Latvijas Banka provides that the Council of Latvijas Banka shall adopt decisions on behalf of 
Latvijas Banka that are necessary to ensure the implementation of the tasks of Latvijas Banka, including the tasks of the European System of Central Banks. 
ECB-PUBLIC 
7 the FKTK into Latvijas Banka by 31 October 2020. The ECB understands that the Latvian 
authorities will in due course, pursuant to Article 127(4) of the Treaty, consult the ECB on this draft 
legislation, which falls within the ECB’s fields of competence. 
 
This opinion will be published on the ECB’s website. 
 
 
Done at Frankfurt am Main, 25 October 2019. 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI