The presumption of innocence was violated when a non convicted due to a statute of limitations for tax evasion was later sentenced to compensation on the grounds that he had committed the same crime!
JUDGMENT
Agapov v. Russia 06.10.2020 (app. no. 52464/15)
SUMMARY
Tax evasion, presumption of innocence and protection of property.
The applicant, in his capacity as CEO of the company, was charged with tax evasion as the company had failed to pay VAT. The prosecutor did not prosecute the statute of limitations, but the State brought an action against the applicant seeking damages for the damage suffered by the non-payment of taxes. The domestic courts held the applicant liable and ordered him to pay a certain amount.
The ECtHR found that the domestic courts, even in the language they used, found the applicant guilty even though he had never been convicted of the same tax offense and had never had the opportunity to exercise his rights of defense in criminal proceedings. It considered that the applicant had been treated in a manner incompatible with the presumption of innocence, and had therefore been infringed (Article 6 § 2 of the ECHR).
It further found that the national courts had accepted the claims of the tax authorities, without examining any evidence or conducting an independent inquiry into whether the applicant was liable for non-payment of taxes. Consequently, the ECtHR found a violation of Article 1 of the First Additional Protocol and awarded monetary compensation for its non-pecuniary damage in the amount of EUR 7,800.
PROVISIONS
Article 6§2,
Article 1 of the First Additional Protocol
PRINCIPAL FACTS
The applicant, Anatoliy Agapov, is a Russian national who was born in 1967 and lives in Krasnodar
(Russia).
The case concerned his complaint that he had been made to pay tax arrears owed by the company,
Argo-RusCom Ltd, for which he was the managing director.
In 2013 the tax inspection authorities audited Argo-RusCom Ltd and found that the company had
evaded payment of value-added tax. They ordered payment of tax arrears. The case was then
examined by the commercial courts, which confirmed the lawfulness of the authorities’ claims in a
final decision in 2015.
The applicant’s company, not being able to pay the sum owed, was liquidated and deregistered in
2015.
In the meantime, in 2014 the investigating authorities refused to institute criminal proceedings
against the applicant on the charge of tax evasion as prosecution was time-barred.
The tax authorities then sued the applicant for damages. The civil courts, referring to the audit
report and investigator’s decision of 2014, found him liable for his company’s debt, stating in
particular that he had committed “illegal acts with a criminal intent to evade the payment of taxes”.
All his appeals were unsuccessful, ultimately in November 2015.
Relying on Article 6 § 2 (presumption of innocence) of the European Convention, the applicant
complained that the civil courts’ decision had pronounced him guilty of tax evasion, despite the fact
that he had never been convicted of such a crime. Also relying on Article 1 of Protocol No. 1
(protection of property) to the Convention, he complained that the decision finding him liable for his
company’s tax arrears had constituted an unlawful interference with his property rights.
THE DECISION OF THE COURT…
Article 6 § 2 (presumption of innocence)
Turning to the circumstances of the present case, the Court observes that on 2 June 2014 the investigator refused to institute criminal proceedings against the applicant on the charge of tax evasion as prosecution of the offence was time-barred. In other words, the applicant was never tried or convicted of that offence by a court competent to determine questions of guilt under criminal law.
The Court further observes that, in the subsequent civil proceedings, the national courts granted the claims lodged by the tax authorities to recover damages as a result of the LLC’s failure to pay taxes. The courts found the applicant liable for the LLC’s debt, stating that he had committed “illegal acts with a criminal intent to evade the payment of taxes”. They considered that fact established by the investigator’s finding that the applicant had evaded payment of VAT.
The question for the Court in the present case is whether the above wording used by the civil courts should be construed as imputing criminal liability to the applicant. The Court will look at the context of the proceedings as a whole and their special features in order to determine whether by using such a statement the civil courts breached Article 6 § 2 of the Convention.
As regards the language used by domestic civil courts, the Court considers that it did constitute a statement about the applicant’s criminal guilt. The judicial authorities did not limit their analysis to the establishment of facts. They claimed that the applicant had committed the illegal acts with a criminal intent: the domestic courts did not only determine the actus reus, which would have been permissible, under the circumstances. They went further and stated that the applicant’s acts were made with the requisite mens rea.
Having examined the context of the proceedings, the Court discerns nothing in the materials submitted that would justify the impugned choice of words made by the domestic courts.
Firstly, the Court takes into account the fact that, when suing the applicant for damages, the tax authorities claimed that the damage had resulted from a criminal offence committed by him. The civil courts did not invite the plaintiff to recharacterise the claims. Nor did they do so of their own motion. The Court further notes that the civil courts based their decision to grant the claims against the applicant exclusively on the findings as to his criminal liability as set out in the investigator’s decision of 2 June 2014. They did not evaluate any evidence or assess the facts or conclusions made by the investigator or the tax inspectorate. Instead, they simply referred to a mere existence of the investigator’s decision and the audit report confirming the LLC’s obligations to pay taxes. They construed the absence of an acquittal in the applicant’s criminal case as an automatic and sufficient ground to hold him liable for the damage resulting from the non‑payment of taxes by the LLC.
Against such a background, the Court considers that the wording used by the civil courts was not merely unfortunate. It reflected those courts’ unequivocal opinion that a criminal offence had been committed and that the applicant was guilty of that offence, even though he had never been convicted of that offence and had never had the opportunity to exercise his rights of defence in a criminal trial. In the Court’s view, the civil courts’ statement was inconsistent with the discontinuation of the criminal proceedings against the applicant and amounted to a pronouncement that the applicant had committed a criminal offence. Having examined the material before it, the Court finds no justification for such a statement imputing criminal liability to the applicant.
Regard being had to the above, the Court concludes that the applicant was treated in a manner inconsistent with his right to be presumed innocent and holds that there has been a violation of Article 6 § 2 of the Convention.
Article 1 of the First Additional Protocol
The Court notes at the outset that the tax authorities and subsequently the commercial courts established that the LLC had failed to comply with its tax obligations and, as a result, caused damage to the State budget (see paragraph 6 above). When the LLC was unable to fulfil its obligations and was subsequently declared insolvent, the tax authorities chose to bring the relevant claims against the applicant, alleging that the damage had resulted from a crime committed by him.
In this connection, the Court observes that, pursuant to Russian law, a person can be declared guilty only in an effective judgment delivered in the course of a procedure established by law. In the present case, no such judgment was delivered against the applicant. The investigator refused to institute criminal proceedings against him. Nevertheless, the national courts granted the tax authorities’ claims and considered it sufficient to conclude that the applicant was liable for the damage resulting from the LLC’s failure to pay taxes merely by referring to the investigator’s finding that the applicant had evaded payment of VAT, without examining any evidence or making independent findings of their own under the applicable provisions of civil law that the applicant was in fact responsible for non-payment of taxes. Furthermore, none of the facts cited by the investigator in the relevant decision and relied upon by the civil courts was scrutinised or validated in any adversarial manner either in the criminal or civil proceedings.
Admittedly, the national courts took into consideration the fact that the applicant had been the managing director of the LLC which had failed to pay taxes. However, the national courts did not refer to any existing laws or judicial practice that would have allowed them to pierce the corporate veil and to hold the applicant responsible for the LLC’s failure to pay taxes while the LLC was not yet deregistered.
Lastly, contrary to the Government’s argument made in the context of Article 6 § 2 of the Convention, the Court finds it irrelevant that the applicant did not appeal against the investigator’s decision of 2 June 2014 refusing to open a criminal investigation. There is no indication in the Government’s submissions that domestic law allowed such a failure to appeal to be construed as proof of guilt or a ground for civil liability.
Regard being had to the above, the Court considers that the order for the applicant to pay damages to the tax authorities was made in an arbitrary fashion and was therefore contrary to the requirement of lawfulness under Article 1 of Protocol No. 1.
The Court thus concludes that there has been a violation of that provision. This finding makes it unnecessary for the Court to establish whether or not a fair balance was struck.
Just satisfaction: 688 euros (EUR) (pecuniary damage) and EUR 7,800 (non-pecuniary damage)
