Last Updated on November 3, 2022 by LawEuro
Information Note on the Court’s case-law
November 2022
Vegotex International S.A. v. Belgium [GC] – 49812/09
Judgment 3.11.2022 [GC]
Article 6
Administrative proceedings
Article 6-1
Fair hearing
Tax debt time-barred by retroactive effect of new case-law but subsequently reinstated, while dispute still pending, by retrospective but foreseeable legislation restoring legal certainty: no violation
Facts – In 1995 the tax authorities corrected a tax return filed by the applicant company and applied a penalty on the amount due. The applicant appealed and pending these proceedings the following occurred: (i) in October 2000, in accordance with the standard administrative practice, the tax authorities issued a summons to pay with the aim of interrupting the limitation period before the tax debt became time-barred; (ii) in a judgment of 10 October 2002 the Court of Cassation ruled against this practice and adopted new case-law with retroactive effect which resulted in the recovery of tax debt being time-barred (this case-law was confirmed in further judgments in 2003-2004); (iii) in 2004 the legislature intervened to reverse this development and to restore the previous administrative practice by means of a law that was immediately applicable to pending proceedings (the Miscellaneous Provisions Act (“MPA”) of 9 July 2004, Section 49 in fine). This legislation was then applied to the applicant’s case by the Court of Cassation, which consequently dismissed its appeal on points of law. The domestic courts eventually upheld the 50% surcharge in respect of one part of the tax imposed on the applicant company and, with regard to the remainder, had reduced the surcharge to 10% of the tax deemed to be payable.
In a judgment of 10 November 2020 (see Legal Summary), a Chamber of the Court held unanimously that there had been no violation of Article 6 § 1 in respect of the legislature’s intervention in the proceedings, which was found to have been driven by a compelling reason of general interest. The Chamber also held, unanimously, that there had been no violation of Article 6 § 1 (right to an adversarial procedure and right of access to a court) on account of the substitution of grounds of appeal carried out by the Court of Cassation of its own motion; and that there had been a violation of Article 6 § 1 on account of the length of the proceedings.
On 8 March 2021 the case was referred to the Grand Chamber at the applicant’s request.
Law – Article 6 § 1:
(a) Applicability – The Grand Chamber agreed with the Chamber that the civil limb of Article 6 was not applicable. As regards the criminal limb of this provision, the tax surcharge imposed did not fall within the scope of Belgian criminal law but was covered by fiscal legislation. Nevertheless, it had been based on a general provision applicable to taxpayers generally and had served a purpose that was both deterrent and punitive. Furthermore, the penalty which the applicant company had been liable to incur had been substantial: a surcharge of up to 50% of the tax it had been found to owe.
Conclusion: Article 6 § 1 inapplicable under its civil limb and applicable under its criminal limb.
(b) Implications of the applicability of the criminal limb of Article 6 in examining the present case –
– Taking into account the proceedings for recovery of the tax – The proceedings had concerned both the recovery of the tax, which did not per se come within the scope of the criminal limb of Article 6 § 1, and the tax surcharge, which was covered by that provision. Nevertheless, under Belgian law the proceedings relating to those two aspects formed a whole, at both the administrative and the judicial stage. In the present case, if the domestic courts had found that recovery of the tax debt had become time-barred, this would have necessarily meant that no tax surcharge had been due. Thus, it was particularly difficult to distinguish the aspects of the proceedings concerning the “criminal charge” from those that concerned other matters. Accordingly, examining the proceedings in relation to the tax surcharge would inevitably require the Court to take into consideration the aspects of the proceedings concerning the supplementary tax assessment.
– Scope of Article 6 in tax matters – Unlike criminal fines in the strict sense, a sum due by way of a tax penalty represented in a sense an extension of the tax debt. In the instant case the tax surcharge, in accordance with the applicable legislation, had constituted a percentage of the unpaid tax. Furthermore, in accordance with the case-law of the Court, as tax surcharges differed from the hard core of criminal law, the guarantees of Article 6 did not necessarily apply with their full stringency.
(c) Merits – In the context of civil disputes, the Court had repeatedly ruled that although, in principle, the legislature was not prevented from regulating, through new retrospective provisions, rights derived from the laws in force, the principle of the rule of law and the notion of fair trial enshrined in Article 6 precluded any interference by the legislature with the administration of justice designed to influence the judicial determination of a dispute, save on compelling grounds of the general interest. There were dangers inherent in the use of retrospective legislation which had the effect of influencing the judicial determination of a dispute to which the State was a party, including where the effect was to make pending litigation unwinnable. Respect for the rule of law and the notion of a fair trial therefore required that any reasons adduced to justify such measures be treated with the greatest possible degree of circumspection. The Court had found that those principles, which were essential elements of the concepts of legal certainty and protection of litigants’ legitimate trust, were also applicable to criminal proceedings. In the Court’s view, this applied equally in a tax‑related case such as the present one, in which only the part relating to the tax surcharge came within the scope of the criminal limb of Article 6.
The question arose whether the legislature’s intervention had undermined the fairness of the proceedings brought by the applicant company by influencing the outcome of the dispute between the applicant company and the State while the proceedings had been ongoing. The impugned legislative provision had entered into force while the applicant company’s case had been pending before the Court of Appeal and had settled the issue of interruption of the limitation period in ongoing tax proceedings, including those brought by the applicant company. While the Court of Appeal had found that the limitation period in the instant case had been suspended, rather than interrupted, the Court of Cassation had replaced that ground, referring specifically to the interruption of the limitation period as set out in the new section 49 of the MPA. The application by the Court of Cassation of section 49 of the MPA required the Grand Chamber to continue its reasoning on the basis of the sole premise that, had the case-law commencing with the Court of Cassation judgment of 10 October 2002 been applied to the applicant company’s case, the tax debt in question would have had to be considered time-barred. The Court had therefore to ascertain whether, in the circumstances of the present case, the legislative intervention in question had been based on compelling grounds of the general interest.
With regard, firstly, to the protection of the Treasury’s rights, the Court had ruled repeatedly that the State’s financial interests alone did not, in principle, justify the retrospective application of legislation. The impact of the impugned case-law of the Court of Cassation would not be so great as to threaten the financial stability of the State, as it had led to the expiry of the limitation period only in a relatively small number of cases.
Secondly, efforts to combat large-scale tax fraud constituted a relevant general-interest ground. While the present case had not concerned large-scale tax fraud, by their nature, legislative initiatives regulated situations in general and abstract terms, such that the reasons that had motivated the legislature did not lose their legitimacy merely because they might not be relevant in respect of each of the persons potentially affected.
Furthermore, the Court also regarded as relevant the objective of not creating arbitrary discrimination between those taxpayers who had waived of their own accord the part of the limitation period that had elapsed by paying their tax debt, and those who had not done so.
Lastly, the enactment of section 49 of the MPA could be necessary to correct the Court of Cassation’s case-law and thus ensure legal certainty. In exceptional circumstances, retrospective legislation might be justified, especially in order to interpret or clarify an older legislative provision, to fill a legal vacuum or to offset the effects of a new line of case-law.
The Court assessed the compelling nature of the relevant grounds referred to above as a whole and in the light of the following elements:
(i) Whether or not the line of case-law overturned by the legislative intervention complained of had been settled – In its judgment of 10 October 2002 the Court of Cassation had ruled for the first time on the specific issue whether the demand for payment had interrupted the limitation period in a valid manner where there had been no amount indisputably due. This judgment might have been in line with the role of a supreme court to resolve possible contradictions or uncertainties resulting from judgments containing divergent interpretations. Nevertheless, the Court of Cassation’s interpretation had not corresponded to the administrative practice followed previously, which consisted in issuing the taxpayers concerned with a “demand for payment interrupting the limitation period”. It had therefore had a significant impact on cases, such as the one in issue here, in which the tax assessment had been disputed by the taxpayer in the competent courts. Unlike other supreme courts the Belgian Court of Cassation was not empowered to limit the temporal effects of its judgments by ruling exclusively with effect for the future. Thus, it was because of the retrospective effect of the impugned Court of Cassation judgment on all pending proceedings concerning those matters that the legislature had felt compelled to act.
(ii) The manner and timing of the enactment of the legislation – The impugned legislation had been enacted relatively quickly: just over a year and a half after the impugned Court of Cassation ruling. In taking that action the legislature had expressly departed from the Court of Cassation’s interpretation. However, in a State governed by the rule of law, the legislature could amend legislation in order to correct an interpretation of the law given by the judiciary, subject however to compliance with the legal rules and principles which were binding even on the legislature, including those set out above and elaborated upon below.
(iii) The foreseeability of the legislature’s intervention – It could not be said that legal certainty and hence the protection of litigants’ legitimate trust had been undermined by the legislature’s intervention. On the contrary, the legislature had sought, in view of the unexpected development in the case-law of the Court of Cassation, to restore legal certainty by re‑establishing the previous administrative practice, which had been followed at the time the applicant company had brought proceedings in the domestic courts. Thus, the applicant company could not have expected, or hoped, that its tax debt and the corresponding tax surcharge would be declared time‑barred when it had commenced proceedings in 2000. It would appear that the applicant company had hoped rather than expected to benefit from the “windfall” resulting from the development in the Court of Cassation’s case-law following the judgment of 10 October 2002. While the applicant company could not be criticised for taking advantage of a new line of case-law that had been favourable to it, the intervention by the legislature could not be said to have put an end to a legitimate expectation on the applicant company’s part that had existed when it had commenced proceedings.
(iv) The scope of the legislation and its effects – The legislature’s intervention had made it possible to continue with a “prosecution” notwithstanding the fact that, following the Court of Cassation case-law originating in the judgment of 10 October 2002, the limitation period could have been considered to have expired. Such intervention undoubtedly required stronger justification than in the case of the extension of a limitation period that was still running. In this regard, and in a different context, the Court had recently held that the revival of criminal responsibility after the expiry of a limitation period had been incompatible with the overarching principles of legality and foreseeability enshrined in Article 7 of the Convention. Nevertheless, the present case was to be distinguished from the situation described in the Advisory opinion on the applicability of statutes of limitation to prosecution, conviction and punishment in respect of an offence constituting, in substance, an act of torture [GC]. While the limitation period could have been considered to have expired following the Court of Cassation ruling of 10 October 2002, that fact had not yet been established by a judicial decision, still less one with res judicata effect. Furthermore, unlike in Antia and Khupenia v. Georgia, the limitation period had not expired either when the tax surcharge had been imposed on the applicant company, or when the applicant company had challenged it in the Court of First Instance. It was only during the Court of Appeal proceedings, and especially as the result of an unexpected development in the case-law of the Court of Cassation, that the applicant company had argued that the limitation period had not been interrupted in a valid manner and that it had therefore expired. Lastly, the present case concerned Article 6 and not Article 7, and as tax surcharges primarily fell within the sphere of tax law and differed from the hard core of criminal law, the guarantees of Article 6 would not necessarily apply with their full stringency.
Having regard to the specific circumstances of the present case, the Court concluded that in seeking to combat large-scale tax fraud, avoid arbitrary discrimination between taxpayers and offset the effects of the Court of Cassation judgment of 10 October 2002 in order to restore legal certainty by re‑establishing the settled administrative practice, reflected furthermore in the predominant case‑law of the lower courts in the matter, the foreseeable intervention by the legislature had been justified on compelling grounds of the general interest.
Conclusion: no violation (ten votes to seven).
The Court found, unanimously, that there had been no violation of Article 6 § 1 on account of the substitution of grounds of appeal by the Court of Cassation. The Court also found, unanimously, a violation of Article 6 § 1 on account of the length of the proceedings (over thirteen years and six months).
Article 41: finding of a violation sufficient in respect of non-pecuniary damage; no award in respect of pecuniary damage.
(See also Zielinski and Pradal and Gonzalez and Others v. France [GC], 24846/94 et al., 28 October 1999, Legal summary; OGIS-Institut Stanislas, OGEC Saint-Pie X and Blanche de Castille and Others v. France, 42219/98 and 54563/00, 27 May 2004, Legal summary; Arnolin and Others v. France, 20127/03 et al., 9 January 2007, Legal summary; Petko Petkov v. Bulgaria, 2834/06, 19 February 2013, Legal summary; Hôpital local Saint‑Pierre d’Oléron and Others v. France, 18096/12 et al., 8 November 2018, Legal summary; Antia and Khupenia v. Georgia, 7523/10, 18 June 2020; Advisory opinion on the applicability of statutes of limitation to prosecution, conviction and punishment in respect of an offence constituting, in substance, an act of torture [GC], P16-2021-001, Armenian Court of Cassation, 26 April 2022, Legal summary)
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