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Municipalities win a ground breaking case before the Supreme Court

14. May, 2019

The Supreme Court today awarded in favour of Grimsnes and Grafnings municipality, in a case filed by Óskar Sigurðsson, a partner at LEX law offices, on behalf of the municipality against the Icelandic state because of the Equalization municipality fund. Four other municipalities, Skorradalshreppur, Hvalfjarðarsveit, Ásahreppur and Fljótsdalshreppur, had filed similar cases against the Icelandic state, and this judgment is a precedent for these court cases. At the same time, similar demands were made by the municipalities in question for the years that have passed since the lawsuits were filed against the Icelandic state.

In the case, it was questioned whether in a regulation it was permissible to provide for municipalities that had total municipal income tax and property tax that were significantly above the national average should not receive specific contributions from the Equalization municipality fund.

In the Supreme Court’s ruling, it was stated in the explanatory memorandum of a bill to the Constitutional Act no. 97/1995 with the rule that became paragraph 2. Article 78 that its purpose was to establish the fact that a decision on municipal income sources should fall under the legislative authority and thus not under the governmental authority. In view of the constitutional status of municipalities and the instructions of the second paragraph article 78 of the Constitution would not be interpreted in any other way than that it was not permissible to abolish all or part of local government revenue streams, except by law. Therefore, it would not be done by regulation.

The total amount of claims due to these cases and other similar requirements of the municipalities that have been concluded, amounts to approx. ISK 1.4 billion.

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