CASE OF SAFAROV v. UKRAINE
(Application no. 65239/14)
7 September 2023
This judgment is final but it may be subject to editorial revision.
In the case of Safarov v. Ukraine,
The European Court of Human Rights (Fifth Section), sitting as a Committee composed of:
Mārtiņš Mits, President,
Kateřina Šimáčková, judges,
and Martina Keller, Deputy Section Registrar,
Having regard to:
the application (no. 65239/14) against Ukraine lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) on 23 September 2014 by a Ukrainian national, Mr Artem Rubenovych Safarov, who was born in 1969 and lives in Kyiv (“the applicant”), and who was represented by Ms O.O. Solovyova, a lawyer practising in Kyiv;
the decision to give notice of the complaint of an unjustified interference with the applicant’s property rights under Article 1 of Protocol No. 1 to the Convention to the Ukrainian Government (“the Government”), represented by their Agent, most recently, Ms M. Sokorenko, and to declare the remainder of the application inadmissible;
the parties’ observations;
Having deliberated in private on 13 July 2023,
Delivers the following judgment, which was adopted on that date:
SUBJECT MATTER OF THE CASE
1. The application concerns the refusal of the tax authorities to refund overpaid income tax to the applicant allegedly in breach of Article 1 of Protocol No. 1 to the Convention.
2. In October 2007 the applicant signed a contract for the sale of a plot of land with Ms P., according to which the total price (9,336,405 Ukrainian hryvnias (UAH)) was to be paid to him in instalments up until January 2008. The applicant received the first payment of UAH 1,551,420 on the date of the contract.
3. The contract was certified by a notary. The relevant legislation, in particular section 11.3 of the Law on Personal Income Tax (as worded at the material time – “the Law”), provided that a notary in such cases acted as a tax agent who determined the amount of tax to be paid, supervised the payment of that tax, and reported to the tax authorities. The applicant thus paid income tax in the amount of UAH 466,820.30 (more than 62,000 euros (EUR) at the material time), which had been calculated on the basis of the total amount he would receive under the contract in question.
4. Ms P. failed to pay the totality of the agreed price and the contract was invalidated by the same notary in May 2008. The applicant refunded the first payment to Ms P.
5. In view of the above, the applicant requested a refund from the tax authorities for the income tax he had paid in relation to the invalidated contract as, essentially, in the absence of any income he had paid it erroneously. To that request he attached his income declaration for the years 2007 and 2008, showing a total income of zero.
6. The tax authorities refused his request, relying on the fifth paragraph of section 11.3 of the Law. That provision provided that “where a notary fails to complete the certification of a property transaction for which income tax has been paid, the taxpayer shall have the right to reimbursement of the erroneously paid tax on the basis of his or her tax declaration for the respective year and the documents confirming such payment”. According to the authorities, as the notary had duly certified both the conclusion of the sales contract and its invalidation, there were no grounds for the refund.
7. The applicant challenged that refusal before the courts. During the proceedings, the tax authorities further claimed that the applicant had not requested a refund in his tax declaration.
8. In the first round of proceedings, the applicant’s claim was allowed by the Kyiv Administrative Court of Appeal, which found that he had taken all the necessary steps to claim reimbursement. It rejected the tax authorities’ argument that the applicant’s tax declaration for 2007 contained no claim for a tax refund as the declaration template did not contain a section for requesting tax refunds. The court also referred to the fifth paragraph of section 11.3 of the Law as being among the applicable legal provisions.
9. The applicant’s claims were, however, ultimately rejected by the Higher Administrative Court of Ukraine in a final judgment dated 1 April 2014. The court noted, first, that the payment of income tax in connection with a contract of sale with provision for payments to be made in instalments should be made on the standard basis, that is, at the time of the conclusion of the contract and based on the total price of the property in question. It further found that the tax authorities had rightly refused the applicant’s request for reimbursement as both the contract of sale and its invalidation had been certified by a notary; in that respect, it relied on the fifth paragraph of section 11.3 of the Law. Lastly, it stated that the applicant had not claimed a tax refund in his 2007 tax declaration.
THE COURT’S ASSESSMENT
ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL NO. 1 TO THE CONVENTION
10. The applicant complained under Article 1 of Protocol No. 1 that the way in which the domestic authorities had approached his case had been unlawful and disproportionate.
11. The Court notes that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention or inadmissible on any other grounds. It must therefore be declared admissible.
12. It is not in dispute between the parties that there has been an interference with the applicant’s property rights within the meaning of Article 1 of Protocol No. 1.
13. Any interference by a public authority with the peaceful enjoyment of possessions must be lawful, serve a legitimate public (or general) interest, and be reasonably proportionate to the aim sought to be realised, the requisite fair balance not being struck where the person concerned bears an individual and excessive burden (see, for instance, Béláné Nagy v. Hungary ([GC], no. 53080/13, §§ 112-16, 13 December 2016). As to the requirement of lawfulness, the Court refers to Shchokin v. Ukraine (nos. 23759/03 and 37943/06, §§ 50-52, 14 October 2010).
14. The Government argued that the interference had been in line with clear and foreseeable legislation, had pursued the aim of the protection of the public interest and had been proportionate in view of the State’s wide margin of appreciation as regards taxation, as well as the fact that the applicant’s case had been considered in detail by the domestic courts. The applicant contended that there were legislative inconsistencies as regards the refund of overpaid income tax and that the domestic courts had failed to resolve or clarify them. He further argued that the failure to refund him the overpaid tax was disproportionate and did not serve any social interest.
15. The Court observes that in refusing the applicant’s claim for a tax refund, the authorities, including the courts, relied on the fifth paragraph of section 11.3 of the Law, which they apparently interpreted as setting out the only possible ground for the refund of erroneously paid income tax, that is, where a notary had failed to complete the certification of a contract. Together with his observations, the applicant provided a copy of a letter from the Department of State Tax Inspection in the Solomianskyi District of Kyiv dated 10 July 2008 stating, with reference to the above-mentioned provision and the applicant’s situation (namely that the contract of sale had been concluded but later invalidated), that on account of “legislative inconsistencies regarding the mechanism of income tax refunds” it had asked the State Tax Service of Ukraine for clarifications. No information has been given by the parties as to whether any clarifications have been provided by the latter authority in reply.
16. In view of the above, the Court has doubts as to whether the interference satisfied the requirement of lawfulness and was not arbitrary (see Shchokin, cited above, § 50). In any event, whether the present situation stems from a legislative vacuum, a judicial interpretation of the law, or an administrative practice, the Court cannot but find that it put an excessive burden on the applicant, who, having paid the tax in good faith in anticipation of receiving income, was unable to claim it back when he did not receive payment under the contract. The Court also fails to see how this could have served any public interest.
17. There has accordingly been a violation of Article 1 of Protocol No. 1 to the Convention.
APPLICATION OF ARTICLE 41 OF THE CONVENTION
18. The applicant claimed the full amount of the tax that he had not been reimbursed, that is, EUR 62,242.30, corresponding to the conversion of UAH 466,820.30 into euros on the basis of the exchange rate at the material time. He also claimed EUR 10,000 in respect of non-pecuniary damage. He made no claim for costs and expenses.
19. The Government contested those claims. They noted, in respect of pecuniary damage, that it was open to the applicant to request a review of his case by the Supreme Court based on the Court’s judgment, should it find a violation.
20. The Court agrees that the applicant has sustained pecuniary damage because of the violation found, corresponding to the amount of the tax that he has not been reimbursed.
21. That being so, the Court reiterates that, as a rule, the requirement that domestic remedies should be exhausted, including the option of reopening the proceedings, does not apply to just satisfaction claims submitted to it under Article 41 (see S.L. and J.L. v. Croatia (just satisfaction), no. 13712/11, § 15, 6 October 2016, with further references). In addition, it would not be reasonable in the circumstances of the case to put the burden of further domestic proceedings for that purpose on the applicant. The Court thus awards the applicant EUR 62,200 for pecuniary damage.
22. The Court also considers that the applicant must have sustained non‑pecuniary damage which cannot be compensated for solely by the finding of a violation of the Convention. It awards the applicant EUR 3,000 under this head.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
1. Declares the application admissible;
2. Holds that there has been a violation of Article 1 of Protocol No. 1 to the Convention;
(a) that the respondent State is to pay the applicant, within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement, plus any tax that may be chargeable:
(i) EUR 62,200 (sixty-two thousand two hundred euros), in respect of pecuniary damage; and
(ii) EUR 3,000 (three thousand euros) in respect of non-pecuniary damage;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
4. Dismisses the remainder of the applicant’s claim for just satisfaction.
Done in English, and notified in writing on 7 September 2023, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Martina Keller Mārtiņš Mits
Deputy Registrar President