Retroactive application of a law extending the statute of limitations for tax violations. Grounds of public interest. Non-violation of a fair trial

JUDGMENT

Vegotex International S.A. v. Belgium 10.11.2020 (app. no. 49812/09)

see here 

SUMMARY

Retroactive application of tax law for extension of limitation period. Fair trial and legislative intervention. Adversarial process and reasonable time.

Following a tax audit, tax violations of the applicant company were found. The applicant company has challenged the payment of sums before the competent administrative courts. According to the settled case law of the Court of Cassation, the company’s debt was statute-barred. Whilw its case was pending before the Administrative Court of Appeal, a new law was issued with retroactive effect, under which the limitation period was extended. The company brought an action for violation of the fair trial due to illegal interference of the legislative power, violation of the equality of arms and for violation of the reasonable duration of the trial.

The Court noted that while the state’s financial interests are not a reason for retroactivity of a law, it does not dispute that the fight against increased tax evasion is a public interest justifying retroactive application in order to achieve legal certainty and equal treatment among taxpayers. It therefore held that the interference of the legislature with the enactment of a retroactively stricter law by which the statute of limitations was extended did not violate a fair trial.

Accordingly, as regards the breach of the equality of arms, it found that the applicant company had every right to put a written Memorandum on the rapporteur of the case before the Court of Cassation or to request an adjournment, and was not surprised by the new law and had time to refute arguments to the contrary. Thus, the Court did not find a violation of Article 6§1.

Finally, the ECtHR ruled that the trial, which lasted all three levels of jurisdiction, 8 years and 3 months, violated the reasonable time and found a violation of Article 6§1 in terms of reasonable duration. He therefore claimed an amount of 5,000 euros.

PROVISIONS

Article 6§1

PRINCIPAL FACTS

The applicant is a Belgian company with its registered office in Antwerp (Belgium).

The case concerned tax-assessment proceedings in which the applicant company had been ordered
to pay approximately 298,813 euros (EUR) together with a 10 per cent surcharge.

The applicant company complained in particular about the retrospective application of section 49 of
the Financial Planning Act of 9 July 2004, which entered into force during the appeal proceedings. It
argued that if this provision had not been applied retrospectively to its case, its tax debt would have
become time-barred in accordance with the case-law of the Court of Cassation as established in a
judgment of 10 October 2002.

In the present case the proceedings began in October 1995 when the tax authorities informed the
applicant company of their intention to rectify the company’s tax return and impose a surcharge.
They ended in March 2009 when the Court of Cassation dismissed an appeal on points of law lodged
by the applicant company.

Relying on Article 6 § 1 (right to a fair hearing within a reasonable time) of the European Convention
on Human Rights, the applicant company complained in particular about the legislature’s
intervention during the proceedings. It further alleged a breach of its right to adversarial
proceedings before the Court of Cassation and of its right to have its case heard within a reasonable
time

THE DECISION OF THE COURT…

Article 6§1

Regarding the change of the legislation during the trial before the Court of Appeal

The question that arises is whether the legislature’s intervention through the order of 9 July 2004 undermined the legal nature of the proceedings by influencing, during the trial, its outcome.

From the outset, the Court observed that, when appealing against the judgment at first instance on 15 April 2004, the applicant company could reasonably have expected that its tax debt would have become statute-barred in accordance with the case-law of the Court of Appeal.

However, Article 49 of the Law of 9 July 2004, which entered into force while the case was pending before the Court of Appeal, definitively and retroactively defines the issue of the limitation period for current tax debts.

This legislative intervention has resulted in the recovery of the tax due and the relative increase of cases such as the present. The Court noted that the Government did not dispute that, without the retroactive application of Article 49 of the 2004 Law, the applicant’s tax debt would have become statute-barred, although this had not yet been established by a court decision. Therefore, merely because of the retroactive application of the provision in question, the applicant’s tax debt has not been declared time-barred.

It remains to be seen whether the retroactivity of the aforementioned Article 49 was based on overriding reasons in the public interest.

The Court has already ruled that the financial interest of the State alone does not in principle justify the retroactive application of a law. The preservation of the rights of the State relied on by the Government can therefore not be a sufficient reason to justify the disputed retroactive application.

The Court does not dispute that the fight against increased tax evasion is in the public interest. He considers, however, that he was not serious enough in the circumstances of this case. There is no indication that the applicant ‘s case falls within the scope of the fight against tax evasion, which, moreover, is not raised by the Government. Furthermore, neither the government’s comments indicate the number of possible cases involved or the amount of sums that would have been time-barred without the legislative intervention in question.

The Court also had to take into account the fact that it was not simply a matter of safeguarding the financial interests of the State. This also included securing the payment of taxes by taxpayers.

The legislature intervened to ensure legal certainty and, as the Constitutional Court observed, to avoid discrimination between taxpayers (see Constitutional Court decision of 7 December 2005). These legislative intentions need to be understood in the light of the chronology of the present case. On 24 October 2000, the payment order, expressly stating that it was to interrupt the limitation period, was served on the applicant company. The new case-law of the Court of Cassation entered into force on 10 October 2002, while the applicant ‘s appeal was pending before the Court of Appeal, laying down the obligation arising from the payment order.

It therefore appears that, until the judgment of the Court of Cassation of 10 October 2002, the applicant considered that the limitation period had been interrupted by the service of the payment order of 24 October 2000.

Therefore, in the particular circumstances of the case, there were compelling reasons of public interest. Restoring the interruption of the limitation period in orders issued long before the decision of the Court of Cassation in 2002, and therefore allowed the settlement of disputes pending before the courts, without, however, affecting the substantive rights of taxpayers.

Finally, the Court noted that the conclusion reached was consistent with the assessment of the Constitutional Court and the Court of Cassation. Nor did the latter consider that the legislator’s intervention was illegal.

In the light of the foregoing, the Court held that the legislature ‘s retroactive intervention under Article 49 of the Law of 9 July 2004 was dictated by overriding reasons in the public interest.

Consequently, it found that there had been no violation of the right to a fair trial (Article 6 § 1 of the Convention).

On the right to a fair trial

From the outset, the Court found no problem with the principle of equality of arms relied on by the applicant. This principle requires each party to be offered a reasonable opportunity to present his/her case under conditions which do not place him at a disadvantage compared to his/her opponent. In the present case, however, neither the material of the file nor the arguments of the parties showed that they were treated differently with regard to the rapporteur’s suggestion or the change in the law.

It is not for the Court to consider whether, in the present case, the conditions laid down in the case-law of the Court of Cassation for the amendment of the law are satisfied, since it has not found or was aware of any material or legal errors committed by a domestic court, unless and to the extent that the rights and freedoms guaranteed by the ECHR could have been violated.

Consequently, only the possible non-notification of the Court of Cassation to the parties of its intention to apply the new law ex officio could create a problem under the Convention.

In the present case, the Court found that the question of the application of Article 49 of the Law of 9 July 2004 was not raised by the applicant in the application for annulment. The Antwerp Court of Appeal held that that provision was not applicable. The applicant therefore had no interest in supporting that point in its application for annulment.

On the other hand, and above all, the parties received a copy of the rapporteur’s written observations calling on the Court of Cassation to proceed with the implementation of the new law. Even if the Government did not dispute that the applicant received the rapporteur’s observations only a few days before the scheduled hearing before the Court of Cassation, the fact remains that the applicant was able, under Article 1107 of the Code of Administrative Procedure, to submit a Memorandum in response to the rapporteur’s conclusions and request the adjournment of the debate in order to respond orally or by Memorandum to these conclusions.

In those circumstances, the Court held that the application of the newer law by the Court of Cassation did not infringe either the right of adversarial proceedings or the right of access to a court.

There has therefore been no violation of Article 6 § 1 of the Convention in this respect.

Regarding the issue of reasonable time

The Court held that the trial had begun on 5 October 1995, when the applicant was informed of the intention of the tax authorities to challenge its tax return and charge it additional tax. It was concluded by the judgment of the Court of Cassation of 13 March 2009. The proceedings against the applicant therefore lasted 13 years and 6 months, for administrative proceedings at the three levels of jurisdiction.

The processing of the complaint by the regional director took 4 years and 7 months for a single case, without this duration being explained by reasons other than the delay of the administration in processing the tax complaints. It should be noted, however, that from 6 April 1999 the applicant could go to court without waiting for the outcome of the administrative procedure. The period taken into account for the examination of the reasonableness of the length of the proceedings should therefore be deducted from the period between 6 April 1999 and 14 December 2000, the date on which the action was brought.

Subsequently, the judicial phase which began with the filing of the appeal on 14 December 2000 and which ended with the decision of the Court of Cassation of 13 March 2009 lasted 8 years and 3 months. More than 3 years and 3 months passed between the filing of the appeal and the first instance decision, and then almost 3 years for the issuance of the decision of the Court of Appeal. The decision of the Court of Cassation was issued almost a year and 7 months after the submission of the application for annulment.

The case certainly had, as the government pointed out, a certain complexity. It is also true that the case raised complex issues concerning the limitation period and that the applicant had submitted a third set of additional observations and summaries before the Court of Appeal. The Court considers, however, that this is not enough to explain why the proceedings were so lengthy, which, on the whole, was too time-consuming.

Consequently, there has been a violation of Article 6 § 1 of the Convention due to the exceeding of the reasonable time.

Just satisfaction: 5,000 euros (EUR) for costs and expensesreasonable time,


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