Opinion of the European Central Bank of 25 October 2019 on amendments to the Law on Latvijas Banka (CON/2019/36) 
Date: 2019-10-25
Institutions: European Central Bank
Subjects: Latvia, appointment of staff, central bank, institutional activity, national budget, national law, profit

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  (nodokļu)  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 the consulting authority in the letter accompanying 

the consultation request, decreasing the term of office from six to five years is in accordance with 

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3 

Grozījumi likumā “Par Latvijas Banku”. 
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). 
Uzņēmumu ienākuma nodokļa likums. 

 
 
 
 
                                                 
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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  kapitāla  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  the  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 

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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 amends 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  first  component  of  the  twofold  calculation  of  the 

amount  payable  by  Latvijas  Banka  into  the  State  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 payable by Latvijas Banka into the State budget for the 

year 2018. 

2.1.4 The ECB understands that the second component 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 

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Likums “Par uzņēmumu ienākuma nodokli”. 
Article 18 of the Law on Latvijas Banka (likums “Par Latvijas banku”). 

Articles 4(2) and 4(9) of the CIT Law (Uzņēmumu ienākuma nodokļa likums). 
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). 

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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  calculation  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  Statute  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  security  of  tenure  of  the  Governor  and  of  other 

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11   

See the ECB’s Convergence Report 2018, 2.2.3. 
See the ECB’s Convergence Report 2018, 2.2.3. 
See  paragraph  3.3  of  Opinion  CON/2009/53.  All  ECB  Opinions  are  published  on  the  ECB’s  website  at 
www.ecb.europa.eu. 
See the ECB’s Convergence Report 2018, 2.2.3. 

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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  comes  into  effect.  This  implies  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  Governor  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  single  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 according 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  
13  
14 
15 

16  

See paragraph 2.1 of Opinion CON/2014/51 and the ECB’s Convergence Report 2018, 2.2.3. 
See paragraph 3.3.3 of Opinion CON/2018/17. 
Article 22(4) of the Law on Latvijas Banka.  

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.  

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. 

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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 Chairperson 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  
18  
19  

20  
21  
22  
23  

See paragraphs 2.1.3 and 2.1.4 of Opinion CON/2019/19. 
Article 130 TFEU and Article 7 of the Statute of the ESCB. 

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. 
Article 23 of the Law on Latvijas Banka. 

Article 27 of the Law on Latvijas Banka. 
Article 29 of the Law on Latvijas Banka. 
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. 

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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. 

ECB-PUBLIC 

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 

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