European Court of Human Rights

Information Note on the Court’s case-law No.

May 2013

N.K.M. v. Hungary - 66529/11

Judgment 14.5.2013 See: [2013] ECHR 430 [Section II]

Article 1 of Protocol No. 1

Article 1 para. 1 of Protocol No. 1

Peaceful enjoyment of possessions

Disproportionately high taxation of applicant’s severance pay:

violation

 

Facts - The applicant, who had been a civil servant for thirty years, was dismissed on 27 May 2011 with effect from 28 July 2011. On dismissal, she was statutorily entitled to her salary for June and July 2011, a sum corresponding to unused leave of absence, and eight months’ severance pay. These sums were subsequently taxed pursuant to a law that had entered into force on 14 May 2011 raising tax levels on severance pay in the public sector. As a result, the applicant had an overall tax burden of approximately 52% on her severance pay, compared to the general personal income-tax rate of 16% at the relevant time.

Law - Article 1 of Protocol No. 1: The severance pay constituted a substantive interest which “had already been earned or was definitely payable” and so was to be regarded as a “possession” for the purposes of Article 1 of Protocol No. 1. The fact that tax was imposed on this income demonstrated that it was regarded as existing revenue by the State, since imposing tax on a non-acquired property or revenue would be inconceivable. The impugned taxation represented an interference with the applicant’s right to the peaceful enjoyment of her possessions. The applicant had been notified of her dismissal approximately ten weeks after the entry into force of the amended legislation in May 2011; accordingly, the taxation complained of was not retroactive. Although certain issues as to the constitutionality of the legislation had been raised, it could nevertheless be accepted as providing a proper legal basis for the measure in question. The Court accepted that the impugned measure was intended to protect the public purse against excessive expenditure.

As to the question of proportionality, the States enjoyed a wide margin of appreciation in the area of taxation, which in the interests of social justice and economic well-being might legitimately lead them to adjust, cap or even reduce the amount of severance pay normally due. At 52%, the overall tax rate applied in the applicant’s case considerably exceeded the rate applied to all other revenues, including severance pay in the private sector. The personal situation of the applicant, who had suffered a substantial deprivation of income as a result of her unemployment, was also relevant. In the Court’s view, she and a group of other dismissed civil servants had been made to bear an excessive and disproportionate burden without the legislature having afforded her a transitional period of adjustment to the new scheme. Moreover, the tax had been directly deducted by the employer from the severance pay without any individualised assessment of her situation and was imposed on income related to activities prior to the material tax year. Taxation at a considerably higher rate than that in force when the revenue was generated could be regarded as an unreasonable interference with the right protected by Article 1 of Protocol No. 1. In conclusion, the measure applied in the applicant’s case was not reasonably proportionate to the legitimate aim pursued.

Conclusion: violation (unanimously).

Article 41: EUR 11,000 in respect of pecuniary and non-pecuniary damage.

 

 

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