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Cite as: [2007] ECHR 704
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SECOND SECTION
PARTIAL DECISION
AS TO THE ADMISSIBILITY OF
Application no.
19402/03
by PROVECTUS I STOCKHOLM AB and Kent LÖWENBERG
against
Sweden
The European Court of Human Rights (Second Section), sitting on 16 January 2007 as a Chamber composed of:
Mr A.B. Baka, President,
Mr I.
Cabral Barreto,
Mr R. Türmen,
Mrs A. Mularoni,
Mrs E.
Fura-Sandström,
Ms D. Jočienė,
Mr D. Popović,
judges,
and Mrs S. Dollé, Section Registrar,
Having regard to the above application lodged on 16 June 2003,
Having regard to the decision to apply Article 29 § 3 of the Convention and examine the admissibility and merits of the case together.
Having deliberated, decides as follows:
THE FACTS
The first applicant is a limited company, Provectus i Stockholm AB, trading in minerals and the second applicant is its sole owner, Mr K. Löwenberg, who is a Swedish national, born in 1943 and living in Saltsjö-Duvnäs. The applicants are represented before the Court by Mr J. Thörnhammar, a lawyer practising in Stockholm.
A. The circumstances of the case
The facts of the case, as submitted by the applicants, may be summarised as follows.
1. The Audit report
On 3 December 1992 the Tax Authority (skattemyndigheten) of the County of Stockholm decided to commence a tax audit of the first applicant since it had noted that, at the turn of the year 1990/91, the company had a deficit of approximately 5.9 million Swedish Kronor (SEK) and thus had become insolvent.
The results of the audit were set out in the Tax Authority’s audit report (revisionspromemoria) of 31 July 1995 which was communicated to the applicants. According to this report, the first applicant, upon recommendation by its bank, had made certain financial investments during 1989/90 involving foreign currency, which had caused it great economic losses. As the applicants had considered that the bank was responsible for the losses (and all the first applicant’s debts were to the bank), they had entered into negotiations with the bank to resolve the first applicant’s economic problems. In June 1991 the bank had agreed to remit a substantial part of the debt (approximately SEK 18.6 million out of SEK 23.1 million) against a payment of SEK 4.5 million. A week later, the bank and the second applicant had reached an agreement whereby the bank transferred all the first applicant’s debts to the second applicant against a sum of SEK 2 million. A prerequisite for the agreement was that the first applicant first paid off approximately SEK 2.5 million of its debts to the bank. Once all the transactions had been carried out, the second applicant converted its newly acquired debt into a conditioned shareholder contribution. In its tax return for the tax assessment year 1992, the first applicant had deducted the contribution from its profits to turn the result of 1991 into a loss, thereby not paying any taxes on the profits.
2. The 1992 tax assessment year for the first applicant
Based on the findings of the audit report, the Tax Authority, in August 1995, decided to alter the first applicant’s tax return for the tax assessment year 1992 as it considered that the agreement with the bank was in reality a composition deal (ackordsuppgörelse)1 since the bank had remitted most of the debt against a single payment, causing it substantial loss. Moreover, the second applicant had paid the bank with money taken from the first applicant. This was the same as if the first applicant had paid the bank directly. Furthermore, in its internal memos, the bank had referred to the agreement as a composition deal. As the Tax Authority found the agreement to be such a deal, the second applicant could not have acquired the debt from the bank (as it had been remitted) and, consequently, no shareholder contribution could have been made. Thus, noting that composition deals could not be deducted as losses, according to the relevant legislation, the Tax Authority found that there had been no deficit for the first applicant that year. Accordingly, the Tax Authority imposed tax surcharges amounting to approximately SEK 2.1 million (around EUR 232,000), i.e. 40 % of the additional taxes levied.
The first applicant opposed the findings and the Tax Authority’s decision, maintaining that the agreement with the bank was a binding contract of a civil law character, and not a composition deal. Thus its tax return had been correct and no tax surcharges should have been imposed. In any event, it argued that the tax surcharges were disproportionate since it had not provided the Tax Authority with any incorrect information.
On 29 November 1995 the Tax Authority held a meeting at which the applicants’ lawyers were present and the head of the bank’s legal team was heard.
On 21 December 1995 the Tax Authority decided not to change its original decision. Concerning the tax surcharges, it found that the first applicant had failed to state the circumstances forming the basis for the conditioned shareholder contribution, thereby submitting incomplete and incorrect information in its tax return. Thus, it had been justified to impose tax surcharges and no grounds for remission had been presented.
The first applicant appealed against the decision, disputing the Tax Authority’s findings and maintaining that there were no grounds for changing its tax return or imposing tax surcharges.
On 15 March 1996 the Tax Authority made the obligatory re-assessment of its decision of 21 December 1995 but decided not to change it. Following this, it forwarded the appeal to the County Administrative Court (länsrätten) of the County of Stockholm.
3. The tax assessment years 1993, 1994, 1995 and 1996 for the first applicant
Since the Tax Authority had commenced the tax audit of the first applicant, it also examined the tax returns submitted by the first applicant for the following tax assessment years. It decided to alter them in accordance with its findings from the audit, with the consequences it had for each subsequent year (i.e. since it had found that there was no deficit for the tax assessment year 1992, it refused to allow deductions for the accrued deficit, amounting to around SEK 20.5 million, for the following years). However, no tax surcharges were imposed on the first applicant in respect of these tax assessment years. The Tax Authority’s decisions were taken on 8 October 1993, 17 October 1994, 3 October 1995 and 4 November 1996, respectively, for each year.
The first applicant disputed the Tax Authority’s findings, insisting that its tax returns were correct and should not be altered. However, since the Tax Authority maintained its decisions, the first applicant appealed to the County Administrative Court. On 15 March 1996 (on 29 May 1998 for the tax assessment year 1996), the Tax Authority made the obligatory re-assessment of its decisions but decided not to change them. It then forwarded the appeals to the court.
4. The tax assessment years 1993 and 1995 for the second applicant
As the second applicant was the sole owner of the first applicant, as well as its chief executive and the only member of the board, the audit report also entailed certain consequences for him.
Thus, on 5 October 1995, the Tax Authority decided to revise his tax return for the 1993 tax assessment year by increasing his taxable income by SEK 534,919 while, at the same time, decreasing his income from capital gains by the same amount. Moreover, it imposed tax surcharges on him amounting to SEK 30,867 (approximately EUR 3,400), i.e. 40% of the increased tax liability on the above-mentioned sum, reduced by the amount of tax on the capital gain which had already been levied from him.
The second applicant objected to any changes being made to his tax return, referring to the position of the first applicant and its submissions concerning the audit report. He further stated that the imposition of tax surcharges was not justified since he had not submitted incorrect information to the Tax Authority.
On 21 December 1995 the Tax Authority confirmed its decision, against which the applicant appealed. He maintained that there were no grounds for changing his tax return or imposing tax surcharges.
On 8 January 1997 the Tax Authority made the obligatory re-assessment of its decision of 5 October 1995 but decided not to change it. It then forwarded the appeal to the County Administrative Court.
Moreover, for the 1995 tax assessment year, the second applicant declared a capital gain amounting to SEK 414,009 for having sold part of his claim on the first applicant to the first applicant. The Tax Authority decided to tax him accordingly.
The National Tax Board (Riksskatteverket) appealed against the Tax Authority’s decision to the County Administrative Court. With reference to the tax audit, it claimed that since the second applicant did not actually have a claim on the first applicant, he could not sell anything. Thus, the money he had obtained from the first applicant should be taxed as income and not as capital gains.
The second applicant disputed the National Tax Board’s appeal, insisting that his tax return had been correct and that the interpretation set out in the tax audit of his, and the first applicant’s, transactions with the bank was wrong.
5. The proceedings before the administrative courts
The applicants, the Tax Authority and the National Tax Board made further submissions before the County Administrative Court, where all the appeals had collected.
On 29 June 1998 the County Administrative Court rejected all the appeals in well-reasoned judgments, except for the National Tax Board’s appeal, concerning the second applicant’s 1995 tax assessment year, which was partly granted. Like the Tax Authority, the court found that the agreement between the applicants and the bank was in reality a composition deal which should be taxed accordingly. Moreover, since they had failed to give correct information to the Tax Authority, it had been justified to impose tax surcharges for the first year for each applicant (i.e. the 1992 tax assessment year for the first applicant and the 1993 tax assessment year for the second applicant). The court agreed with the Tax Authority that there were no grounds for remission for either of the applicants.
The applicants appealed to the Administrative Court of Appeal (kammarrätten) in Stockholm, contesting the lower court’s judgments. In particular, they claimed that there were no grounds on which to impose tax surcharges since the agreement was not a composition deal and they thus had not withheld any information from the Tax Authority. Moreover, they considered that the tax surcharges were completely disproportionate as they amounted to more than two million Swedish Kronor.
In its submissions to the appellate court, the Tax Authority argued that everyone liable to taxation was obliged to inform the Tax Authority in their tax returns about all circumstances and matters needed to make a correct tax assessment. By having failed to do so in the present case, the applicants had submitted incorrect information in their tax returns, and it had thus been correct to impose tax surcharges on them.
On 3 April 2001 the Administrative Court of Appeal held a joint oral hearing in the cases involving the applicants and, on 6 July 2001, it upheld the lower court’s judgments both with regard to the interpretation of the agreement and the tax surcharges.
The applicants appealed to the Supreme Administrative Court (Regeringsrätten), developing their grounds further, and invoking both Articles 6 and 13 of the Convention as well as Article 1 of Protocol No. 1 to the Convention. They argued that the proceedings had been of excessive length, and that the tax surcharges had been disproportionate and imposed arbitrarily; thus impossible for them to foresee.
On 23 December 2002 the Supreme Administrative Court refused leave to appeal in all cases.
6. Enforcement proceedings before the domestic courts
On 4 November 2003 the Enforcement Office (kronofogdemyndigheten) of the County of Stockholm, representing the Swedish State, filed a petition with the District Court (tingsrätten) of Stockholm, requesting that the first applicant be declared bankrupt. According to the Enforcement Office, the first applicant’s tax liability (including additional taxes, tax surcharges, penalties for late payment and the interest on these amounts) to the State, as of 4 November 2003, amounted to approximately SEK 13 million (EUR 1.44 million). The Enforcement Office claimed that an investigation had revealed that the first applicant lacked resources to pay the full amount due and was thus insolvent.
The first applicant disputed the petition, submitting that it was not insolvent since the group of companies to which it belonged had assets valued at SEK 114 million and a yearly turnover as of 2001 of SEK 1.9 billion. Moreover, the Enforcement Office had made no enforcement attempts to secure payment and the investigation referred to had taken place in October 2002, more than a year earlier.
On 3 February 2004 the District Court held an oral hearing and, on 18 February 2004, it rejected the Enforcement Office’s request to declare the first applicant bankrupt. It found that the first applicant’s inability to pay the entire debt to the State was temporary since it could sell its shares in its daughter company which was valued at much more than the tax debt to the State.
The State, through the Tax Authority, appealed to the Svea Court of Appeal (Svea hovrätt) but, on 18 May 2004, it withdrew its appeal, whereby the District Court’s decision gained legal force.
B. Relevant domestic law
Taxpayers submit yearly tax returns to the local tax authorities. To ensure that timely, sufficient and correct information is provided, the tax authorities may, under certain circumstances, impose special charges on the taxpayer in the form of tax surcharges.
The rules on tax surcharges relevant to the present case were laid down in the Taxation Act (Taxeringslagen, 1990:324). According to Chapter 5, section 1 of the Act, a tax surcharge is imposed on the taxpayer if he or she, in a tax return or in any other written statement, has submitted information of relevance to the tax assessment which is found to be incorrect. It is not only express statements which may lead to the imposition of a surcharge: concealment, in whole or in part, of relevant facts may also be regarded as incorrect information. However, if the taxpayer has given a clear account of the factual circumstances but has made an incorrect evaluation of the legal consequences thereof, no surcharge is imposed. The burden of proving that the information is incorrect lies with the tax authority. The surcharge amounts to 40% of the income tax which the tax authority would have failed to levy if it had accepted the incorrect information.
In certain circumstances, a tax surcharge will be remitted. Thus, Chapter 5, section 6, of the Act states that taxpayers will not have to pay a surcharge if their failure to submit correct information or to file a tax return is considered excusable owing to their age, illness, lack of experience or comparable circumstances. The surcharge should also be remitted where the failure appears excusable by reason of the nature of the information in question or other special circumstances, or where it would be manifestly unreasonable to impose a surcharge.
Chapter 5, section 7, of the Act stipulates that, if the facts of the case so require, the tax authorities must have regard to the provisions on remission, even in the absence of a specific claim to that effect by the taxpayer. In principle, however, it is up to the taxpayer to show due cause for the remission of a surcharge.
COMPLAINTS
The applicants complained that the presumption of innocence contained in Article 6 § 2 of the Convention had been violated since the tax surcharges had been imposed on them automatically as a result of the change to their tax assessments and were clearly excessive.
They also complained under Article 6 § 1 of the Convention that the national proceedings for all tax assessment years for both applicants had been of excessive length.
Lastly, the applicants claimed that their right to property under Article 1 of Protocol No. 1 to the Convention had been violated in that the additional taxes and the tax surcharges had been imposed on them, again, arbitrarily, on grounds which were impossible for them to foresee, and that they had been completely disproportionate to any aim pursued.
THE LAW
“Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law.”
The Court recalls that, although tax surcharges cannot be said to belong to criminal law under the Swedish legal system, it has found in several judgments concerning Sweden (see, in particular, Janosevic v. Sweden, no. 34619/97, 23 July 2002, §§ 64-71, ECHR 2002-VII, and Västberga Taxi Aktiebolag and Vulic v. Sweden, no. 36985/97, 23 July 2002, §§ 75-82) that the imposition of such measures involves the determination of a “criminal charge” within the meaning of Article 6 § 1 of the Convention. However, in the two aforementioned judgments, the Court considered that the presumptions applied in Swedish law with regard to tax surcharges had been confined to reasonable limits and that the presumption of innocence contained in Article 6 § 2 of the Convention had not therefore been breached (ibid., §§ 96-104 and §§ 108-116, respectively). This conclusion was reached having particular regard to the fact that the relevant rules on tax surcharges provided certain means of defence based on subjective elements, and that an efficient system of taxation was important to the State’s financial interests.
In the present case, the Court observes that the Tax Authority, the County Administrative Court and the Administrative Court of Appeal all examined the applicants’ objections to the imposition of the tax surcharges. However, they were rejected, finding that the applicants had provided the Tax Authority with incorrect and incomplete information in their tax returns as regards the circumstances forming the basis for the conditioned shareholder contribution. Moreover, they considered the grounds for remission of the tax surcharges but found none applicable to the situation before them. Furthermore, the Court notes that tax surcharges were only imposed on the applicants for the first tax assessment year (1992 for the first applicant and 1993 for the second applicant), and not for the following tax assessment years, even though these were altered as well. In the Court’s view, this demonstrates that the tax surcharges were not imposed automatically, but after a proper examination of the matter and to the extent that the applicants were considered to have been responsible for the incorrect information.
The Court also notes that, unlike the aforementioned applications of Janosevic and Västberga Taxi Aktiebolag and Vulic, the present case did not involve any enforcement measures to ensure the payment of the tax surcharges before the matter had been determined by the administrative courts. Moreover, even after the proceedings had been terminated, the District Court found that the first applicant had sufficient assets to pay its entire debt to the State without risking bankruptcy. Thus, although the tax surcharges concerned a substantial amount of money for the first applicant, they represented only a part of the total tax debt and, in the Court’s view, therefore cannot be said, of themselves, to have caused the first applicant serious financial consequences. The same holds true for the second applicant, for whom the surcharges concerned a significantly smaller amount. The measure cannot therefore be considered disproportionate.
In these circumstances, and having regard to the Court’s case-law referred to above, as well as the fact that the national courts made an individual assessment of the applicants’ cases, the Court finds no appearance of a violation of the applicants’ right to be presumed innocent.
It follows that this complaint must be rejected as being manifestly ill-founded, pursuant to Article 35 §§ 3 and 4 of the Convention.
“In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair ... hearing within a reasonable time by an independent and impartial tribunal...”
In so far as this complaint relates to the tax assessment years subject to tax surcharges, (i.e. 1992 for the first applicant and 1993 for the second applicant), the Court considers that it cannot, on the basis of the present state of the case file, determine the admissibility of this part of application, and that it is therefore necessary, in accordance with Rule 54 § 2 (b) of the Rules of Court, to give notice of it to the respondent Government.
As regards the remainder of the complaint involving the tax assessment years 1993, 1994, 1995 and 1996 for the first applicant, and 1995 for the second applicant, the Court observes that no surcharges were levied. It follows that these tax assessment years gave rise to purely fiscal questions which did not attract the notion of any “criminal charge” against the applicants. This aspect of the complaint thus falls outside the scope of Article 6 of the Convention (see Ferrazzini v. Italy, [GC], no. 44759/98, § 29, ECHR 2001-VII).
Consequently, this part of the complaint is incompatible ratione materiae with the Convention and must be rejected pursuant to Article 35 §§ 3 and 4.
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
The Court notes that the additional taxes and tax surcharges were imposed on the applicants by the Tax Authority and the administrative courts with reference to, and in accordance with, the applicable legislation in force at the relevant time. Thus, the Court is satisfied that the domestic decisions had an adequate legal basis for the purposes of Article 1 of Protocol No. 1 to the Convention.
The Court observes that all instances found that the applicants had submitted incomplete and incorrect information to the Tax Authority, which had made it impossible for that Authority to calculate their taxes correctly without making an investigation of its own into the matter. The tax audit had therefore been necessary in order to establish all pertinent and underlying circumstances relevant to the tax assessments. In this regard, the Court reiterates that tax surcharges were only imposed on each of the applicants for the first tax assessment year (1992 for the first applicant and 1993 for the second applicant), and not for the following tax assessment years. This showed that the Tax Authority and the national courts made a proper and fair examination of the matter before them, being aware of the consequences for the applicants and limiting them in proportion to the applicants’ responsibilities.
Thus, having regard to the State’s need to secure an effective system of taxation to ensure its financial interests (see, among others, Västberga Taxi Aktiebolag and Vulic v. Sweden, cited above, § 115), and its wide margin of appreciation in striking a fair balance between community and individual interests, the Court considers that the taxes levied and the tax surcharges imposed on the applicants, plus the interest due, cannot be considered disproportionate to the aims pursued.
It follows that this complaint must be rejected as being manifestly ill-founded, pursuant to Article 35 §§ 3 and 4 of the Convention.
For these reasons, the Court unanimously
Decides to adjourn the examination of the applicants’ complaint concerning the length of the proceedings involving the 1992 tax assessment year for the first applicant and the 1993 tax assessment year for the second applicant;
Declares the remainder of the application inadmissible.
S. Dollé
A.B. Baka
Registrar President
1 A legal agreement, based on mutual consent, whereby a creditor, or a group of creditors, accepts partial payment of a debt in full settlement from a debtor.