The case concerns the applicant’s complaints under Article 1 of Protocol No. 1 to the Convention that a tax audit of her financial affairs had been procedurally flawed, and that she had been ordered to pay taxes for periods in respect of which the right of the State to collect those taxes had become time-barred

Last Updated on February 13, 2024 by LawEuro

European Court of Human Rights (Application no. 64806/16)

The Court considers that the domestic authorities’ decision ordering the applicant to pay a certain amount of money in profit tax constituted an interference with her property rights guaranteed by Article 1 of Protocol No. 1, it being understood that such an interference is to be examined from the standpoint of the rule in the second paragraph of Article 1 of Protocol No. 1 under which the States have the right to enforce such laws as they deem necessary to secure the payment of taxes.

It remains to be determined whether the interference was lawful and compatible with the proportionality principle inherent in that provision, having regard to the wide margin of appreciation enjoyed by the State in the tax sphere.

When speaking of “law”, Article 1 of Protocol No. 1 alludes to the very same concept as that to which the Convention refers elsewhere when using that term – a concept that comprises statutory law as well as case-law and implies qualitative requirements.

Furthermore, where the tax sphere is concerned, the Court’s well‑established position is that States may be afforded some degree of additional deference and latitude in the exercise of their fiscal functions under the lawfulness test.

In the present case, in assessing the applicant’s tax liability for 2003, the first-instance tax ruling explicitly stated that the tax authority had included in her tax base for 2003 certain sums which should have been due for the previous two years. The Government did not deny that the applicant had been ordered to pay certain amounts as a result of her financial activities in 2001 and 2002.

The competent tax authorities explained that under section 100(5) of the General Tax Act, a tax audit could be extended to earlier periods if there were facts which indicated that such an extended tax audit might alter the calculation of tax liability to a significant extent. The Government further explained that the extension of the assessment of the applicant’s tax liability by taking into account her financial activities for the years 2001 and 2002 had further been foreseeable on the basis of the instructions on the calculation of the profit tax for the year in issue, which had been published on the tax authorities’ website.

While it would have been desirable for the Administrative Court of the Republic of Croatia to have given a clear answer to the applicant’s complaint as regards the expiration of the statutory limitation period in her case, the Court sees no reason to question the domestic courts’ interpretation and application of the relevant legislation to the applicant’s case, considering that it is primarily for the national authorities, notably the courts, to interpret and apply domestic law, in particular bearing in mind that in taxation matters the States may be afforded an additional degree of latitude in the exercise of their fiscal functions under the lawfulness test.

In the Court’s view, it must in this respect be noted that no reassessment of the tax liability for the years 2001 or 2002 took place in the applicant’s case. The reassessment was limited to the subsequent years starting with 2003, in line with the substantive tax law in force at the time. For 2001 and 2002 the accounts and tax declarations were indeed checked, but only with a view to establishing whether and how those facts had an impact on the tax liability for 2003 and any following year. To consider, as the domestic tax authorities and courts did, that this was not precluded by the provisions on statutory limitation period for the determination of tax liabilities and the scope of audits, is a matter of interpretation and application of domestic law which the Court finds was neither arbitrary nor manifestly unreasonable in the circumstances of the present case.

Consequently, the Court concludes that in the present case there existed a sufficiently clear legal basis for ordering the applicant to pay profit tax for 2003.

The Court considers that the domestic authorities’ decisions pursued an aim that was in the general interest – that is to say to secure the payment of taxes, as envisaged by legislation, in an area where the State has a wide margin of appreciation.

It remains to be determined whether a fair balance was struck between the demands of the general interest and the requirements of the protection of the applicant’s property rights.

The Court observes at the outset that as a result of the tax audit at issue, the applicant was ordered to pay approximately EUR 68,500 in respect of unpaid profit tax and interests for 2003. Neither that amount, not the applicable tax rate, which amounted to 20%, could in the Court’s view from the quantitative standpoint be considered exorbitant.

Furthermore, there is nothing to indicate, nor has it been suggested by the applicant, that the levying of such a sum in profit tax fundamentally undermined her financial situation or that of her notary office – one of the factors to which the Court has given weight when gauging whether a fair balance has been struck in a given case.

Finally, and equally importantly, the applicant had at her disposal a procedural guarantee by which to challenge the imposed sums, specifically the possibility of bringing judicial review proceedings. She made use of that remedy and, contrary to her claims, she was able to effectively participate in those proceedings and raise her various complaints before the domestic authorities. There is nothing to show that the decision‑making process confirming the imposition of the amount of taxes complained of was unfair or arbitrary.

The Court is satisfied that, subject to its findings in respect of the lawfulness of the decisions delivered by the domestic authorities, ordering the applicant to pay profit tax for 2003 in the above amount, constituted a proportionate measure that was undertaken in pursuance of the legitimate aim of securing the payment of taxes.

Having regard to the above considerations and the wide margin of appreciation enjoyed by the State in the tax sphere, the Court considers that the decision ordering the applicant to pay profit tax was lawful and did not amount to a disproportionate burden on her. There has accordingly been no violation of Article 1 of Protocol No. 1 to the Convention in the present case.

CASE OF MAROSLAVAC v. CROATIA (European Court of Human Rights) 64806/16. Full text of the document.

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