FOURTH SECTION
FINAL DECISION
AS TO THE ADMISSIBILITY OF
Application no. 61557/00
by ANDRIA OY and Kari KARANKO
against Finland
The European Court of Human Rights (Fourth Section), sitting on 13 March 2007 as a Chamber composed of:
SirNicolas Bratza, President,
MrJ. Casadevall,
MrG. Bonello,
MrK. Traja,
MrS. Pavlovschi,
MrJ. Šikuta,
MrsP. Hirvelä, judges,
and Mr T.L. Early, Section Registrar,
Having regard to the above application lodged on 10 July 2000,
Having regard to the partial decision of 27 April 2004,
Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicants;
Having deliberated, decides as follows:
THE FACTS
The first applicant is a Finnish limited liability company Andria Oy (hereafter “the applicant company”), owned by the second applicant Mr Kari Karanko, a Finnish national, who was born in 1958 and lives in Velkua (hereafter “the second applicant”). The applicants are represented before the Court by Mr Tapio Karhunen, a lawyer practising in Turku. The respondent Government are represented by their Agent, Mr Arto Kosonen of the Ministry for Foreign Affairs.
A. The circumstances of the case
The facts of the case, as submitted by the parties, may be summarised as follows.
1. The taxation proceedings concerning the VAT liability of the applicant company
The applicant company’s main field of activity consisted of producing and selling clothes as well as selling and renting mobile homes. Having conducted a tax inspection of the applicant company, the Regional Tax Office of Lounais-Suomi (verovirasto, skatteverk) found in its inspection report of 12 November 1997 that some vouchers were missing which made it impossible to ascertain the company’s exact turnover. It also found that the second applicant had made transfers of company funds to and from his own bank account and that some of the mobile home rental turnover had not been accounted for.
On 18 December 1997 the Regional Tax Office assessed the applicant company’s value-added tax (VAT) liability incurred from the sale of clothes from April 1995 to March 1996 and the company’s turnover and VAT tax liability incurred from the mobile home rental turnover from October 1993 to December 1996. It levied assessed taxes on the applicant company and ordered it to pay tax surcharges (veronkorotus, skatteförhöjning) amounting to 50 per cent of the reassessed tax liability as regards the selling of clothes and mobile home rental and selling, and to 10-48 per cent as regards its other business activities. The total amount of taxes imposed on the applicant company seems to have been approximately 425,341 Finnish marks (FIM, corresponding to 71,537 euros (EUR)). According to the applicant the tax surcharges amounted to EUR 11,981.
The applicant company appealed to the Uusimaa County Administrative Court (lääninoikeus, länsrätten; as of 1 November 1999 the Helsinki Administrative Court (hallinto-oikeus, förvaltningsdomstolen). It requested an oral hearing, at which, for example, the tax inspector should be heard. On 16 February 1999 the County Administrative Court dismissed all of the applicant company’s claims. It held that an oral hearing was manifestly unnecessary in the matter as it would not have adduced any relevant arguments or evidence regarding the reliability of the accounting or the alleged seasonal changes in the turnover of mobile house rental. The court also noted that the applicant company had been given an opportunity to submit its observations on the tax inspection. It further accepted the amounts of tax surcharges imposed, holding that the applicant company’s tax declarations were deliberately misleading.
The applicant company sought leave to appeal to the Supreme Administrative Court (korkein hallinto-oikeus, högsta förvaltnings-domstolen), requesting that the decision of the County Administrative Court be quashed or, in the alternative, a retrial with an oral hearing. On 12 January 2000 the Supreme Administrative Court refused leave to appeal.
On 22 May 2000 the second applicant was convicted by the Turunseutu District Court (käräjäoikeus, tingsrätten) of tax fraud and bookkeeping offences and sentenced to 10 months’ imprisonment. The conviction was based on the same facts as described in the tax inspection report mentioned above. The Turku Court of Appeal (hovioikeus, hovrätten) upheld the judgment on 29 June 2001. It reduced, however, the sentence to six months’ imprisonment, suspended. On 14 February 2002 the Supreme Court refused leave to appeal.
2. The taxation proceedings concerning the second applicant
On 10 May 1999 the Tax Rectification Committee (verotuksen oikaisulautakunta, prövningsnämnden i beskattningsärenden) of Lounais-Suomi upheld the tax assessment of the second applicant for the fiscal year 1993 and levied tax surcharges in the amount of FIM 1,500 (EUR 252) with interest based on veiled dividends (peitelty osinko, förtäckt dividend) totalling FIM 15,488 (EUR 2,605), as he had received benefits from the applicant company without declaring them as his salary. As to the fiscal year 1994 it found that he had received veiled dividends totalling FIM 172,085 (EUR 28,943) and levied tax surcharges in the amount of FIM 17,200 (EUR 2,893) with interest. As to the fiscal year 1995 it found that the second applicant had received veiled dividends totalling FIM 372,675 (EUR 62,679) and levied tax surcharges in the amount of FIM 55,900 (EUR 9,401) with interest.
The second applicant appealed to the County Administrative Court of Turku and Pori (later Turku Administrative Court), requesting that the said tax decisions be quashed. He requested an oral hearing, relying on Article 6 § 1 of the Convention. He wanted to have heard, inter alia, the tax inspector about the instructions which he had given and the tax clerk about the conduct of the tax inspection. On 28 September 2000 the Turku Administrative Court rejected the bulk of the second applicant’s claims; it however reduced his tax liability and tax surcharges for the fiscal years 1993-1995 by some 30 per cent. It also found an oral hearing manifestly unnecessary for the following reasons:
“Taking into account that a tax inspection had been conducted in [the applicant company] and that the [second] applicant had, both on his own and the company’s behalf, been provided with an opportunity to submit observations on the circumstances established in the inspection not only before the tax reassessment but also in the Tax Rectification Committee and the Administrative Court, it cannot be considered that an oral hearing would have adduced any further evidence influencing the matter, given also the evidence appearing in the documents.”
The Supreme Administrative Court refused leave to appeal on 31 December 2001.
3. The taxation proceedings concerning the applicant company
On 10 December 1998 the Tax Rectification Committee also rejected the applicant company’s appeal concerning the reassessed taxation of its business profits and income for the fiscal year 1997. It found that the applicant company’s income was higher than declared and upheld the imposed tax surcharge totalling FIM 25,000 (EUR 4,204). On 11 December 1998 the Tax Rectification Committee upheld a previous decision of the local Tax Office to reassess the applicant company’s taxation for the fiscal year 1996 by which a tax surcharge totalling FIM 71,000 (EUR 11,941) had been levied.
On 28 September 2000 the Turku Administrative Court rejected the applicant company’s appeals in large part; the tax surcharge for the fiscal year of 1997 was, however, reduced to FIM 15,000 (EUR 2,523), and for the fiscal year of 1996 to FIM 30.000 (EUR 5,045). Again, no oral hearing was held for the same reasons as in the tax proceedings concerning the second applicant.
The Supreme Administrative Court refused leave to appeal on 31 December 2001.
4. The civil proceedings
On 26 July 1994 a company E., lodged a writ of summons against Mr S. before the Vantaa District Court, requesting payment for an order of children’s clothing made by S. in the amount of FIM 5,327 (EUR 896) with interest and damages in the amount of FIM 24,850 (EUR 4,179). The summons was served on the defendant on 20 October 1994. The defendant contested the claims, alleging that he had cancelled the order in time.
The court held a preparatory hearing on 19 May 1995, in which the plaintiff E. was represented by the second applicant. According to the Government, the plaintiff had stated that it would file a supplementary writ of summons and a claim for damages. The District Court considered it appropriate to examine all the claims together as it appears that at some stage the applicant company joined to the proceedings. The applicants, on their part, alleged that any additional claims to be submitted had been requested only by E. On 5 July 1995 E.’s representative R. and the court agreed on the phone that the supplementary claims were to be submitted by 15 August 1995.
Around February – March 1997 the applicant company was informed that a preparatory hearing would be held in May 1997 and was reminded that it had not lodged a supplementary summons. On 25 April 1997 the applicant company, represented by the second applicant, filed one. The preparatory hearing concerning the first writ of summons, scheduled for 29 May 1997, was cancelled. The new writ of summons was served on the defendant, who submitted his response on 25 July 1997. On 10 June 1998 the court joined the actions and served the defendant’s responses on the applicants.
On 15 April 1999 and 31 May 1999 the court held preparatory hearings. The main hearing was held on 23 August 1999, at which one witness was heard. The court also examined seven items of written evidence. On 6 September 1999 it rejected all of the applicant company’s claims and ordered it, together with the second applicant, to pay the defendant’s legal expenses. It found that the second applicant had negligently caused S. to incur legal costs. In its judgment it also noted the following:
“It was not possible for the District Court to eliminate entirely the lack of clarity in the claims of the parties, especially those of the plaintiff’s, and the grounds of and evidence for these claims. ... It has examined the case to the extent that the parties have presented their claims and the grounds for them, and what had been the matter in question in the District Court’s view.”
The applicants appealed to the Court of Appeal, which upheld the judgment on 27 December 2000, without holding an oral hearing.
The applicant company sought leave to appeal to the Supreme Court (korkein oikeus, högsta domstolen), complaining, inter alia, about the length of the proceedings. Leave to appeal was refused on 10 October 2001.
B. Relevant domestic law and practice
1. Tax legislation
Section 177, subsection 1 of the Act on Value-Added Tax (arvonlisäverolaki, mervärdesskattelag; Act no. 1501/1993) provides that if a person obliged to pay taxes has failed to pay the taxes, or clearly paid an insufficient amount of taxes or failed to give required information to the tax authorities, the Regional Tax Office (verovirasto, skatteverk) must assess the amount of unpaid taxes.
Section 179 provides that a tax assessment (jälkiverotus, efterbeskattning) may be conducted where a person has failed to make the required declarations or has given false information to taxation authorities. The taxpayer may be ordered to pay unpaid taxes or taxes that have been wrongly refunded to the person.
Section 182 provides, inter alia, that a maximum tax surcharge of 20 per cent of the tax liability may be imposed if the person has without a justifiable reason failed to give a tax declaration or other document in due time or has given essentially incomplete information. The tax surcharge may amount at the most to twice the amount of the tax liability, if the person has failed without a justifiable reason to fulfil his or her duties fully or partially even after being expressly asked to provide information.
In the Finnish judicial reference book Encyclopædia Iuridica Fennica a tax surcharge is defined as an administrative sanction of a punitive nature imposed on the tax payer for conduct contrary to tax law.
Under Finnish practice, the imposition of a tax surcharge does not prevent the bringing of criminal charges for the same conduct.
Section 27 of the Act on Assessment Procedure (laki verotusmenettelystä, lag om beskattningsförfarande; Act no. 1558/995) provides that if no tax return has been submitted, or if it cannot be used as the basis for taxation, the taxation must be based on assessment.
2. Oral hearing
Section 38, subsection 1 of the Administrative Judicial Procedure Act (hallintolainkäyttölaki, förvaltningsprocesslagen; Act no. 586/1996) provides that an oral hearing must be held if requested by a private party. An oral hearing may however be dispensed with if a party’s request is ruled inadmissible or immediately dismissed or if an oral hearing would be clearly unnecessary due to the nature of the case or other circumstances.
Section 38, subsection 1 of the said Act provides that if a party requests an oral hearing, he shall state why the conduct thereof is necessary and what evidence he would present at the oral hearing.
The explanatory part of the Government Bill (no. 217/1995) for the enactment of the Administrative Judicial Procedure Act considers the right to an oral hearing as provided by Article 6 and the possibility in administrative matters to dispense with the hearing when it would be clearly unnecessary, as stated in section 38(1) of the said Act. There it is noted that an oral hearing contributes to a focused and immediate procedure but since it does not always bring any added value, it must be ensured that the flexibility and cost effectiveness of the administrative procedure is not undermined. An oral hearing is to be held when it is necessary for the clarification of the issues and the hearing can be considered beneficial for the case as whole.
COMPLAINTS
1. The applicants complained under Article 6 § 1 of the Convention about the lack of an oral hearing in the different sets of taxation proceedings.
2. The applicants also complained under Article 6 § 1 of the Convention about the length of the civil proceedings.
THE LAW
1. The applicants alleged that the tax proceedings in which a tax surcharge was imposed had been unfair as the court did not hold an oral hearing. Article 6 § 1 in reads, insofar as relevant, as follows:
“In the determination of ... any criminal charge against him, everyone is entitled to a fair ... hearing ... by [a] ... tribunal...”
Applicability of Article 6
As to the applicability of Article 6 the Court refers to the recent judgment in the case of Jussila v. Finland ([GC], no. 73053/01, §§ 29-38, 23 November 2006), and finds that Article 6 under its criminal head applies to the proceedings in the present case.
Compliance with Article 6
The Government were of the opinion that in the present case there were circumstances which justified dispensing with an oral hearing. They submitted that a hearing was only a supplementary method of establishing facts in the Finnish administrative judicial procedure and that hearings were held mainly in order to receive evidence which was not available in writing or, alternatively, when the reliability of the evidence had to be assessed. Further, tax matters, like social security matters, were technical in nature. Besides, there were other considerations, including procedural efficiency and economy, which the domestic courts had to take into account.
The Government further argued that according to the established domestic court practice, the tax authority had the burden of proof to show that no reliable business accounts based on bookkeeping were available on which the taxation could have been based.
The Government emphasised that the applicants had the possibility to submit their observations on the tax inspection reports both during the inspection, i.e. before the imposition of the tax, and also in their appeals to the domestic courts. Due to the nature of the matter, the material supplementing the accounts had to be produced in written form (e.g. purchase and sales receipts, deeds of sales, etc.). In addition, in the present case the imposition of tax surcharges was not a separate question for which the request for an oral hearing would have had any independent significance.
The applicants maintained that their legal protection required an oral hearing to be held in order to clarify the facts, to support their appeals and to hear witnesses. An oral hearing would have been of vital importance: the case file was voluminous, containing thousands of pages of evidence. In their view it was not possible to establish all the facts and present evidence only by means of a written procedure. They also wished to have some ten witnesses heard whose testimony would, in the applicants’ view, have supported their case. By hearing the witnesses the entire tax-assessment made would have been placed in doubt. Consequently, their claims would have been accepted and the imposed taxes and tax surcharges revoked. They also emphasised the impact the tax proceedings had had on the criminal proceedings against the second applicant. Had their claims been accepted in the tax proceedings, the second applicant would not have been convicted of any offences.
The Court recalls that the applicable principles are outlined in the Court’s judgment in the case of Jussila v. Finland (mentioned above, §§ 40-45).
In the present case, the applicants’ purpose in requesting hearings was to clarify the supporting facts and evidence in order to prove that the tax assessments were incorrect. Allegedly, their claims would also have been supported by hearing witnesses. The Court finds that the reasons for requesting hearings therefore concerned in large part the validity of the tax assessment, which as such fell outside the scope of Article 6, although there was the additional question of tax surcharges. The administrative courts found in the circumstances of each set of proceedings that an oral hearing was manifestly unnecessary as it would not have adduced any further evidence influencing the matter.
The Court further observes that the applicants were not denied the possibility of requesting an oral hearing, although it was for the courts to decide whether a hearing was necessary (see, mutatis mutandis, Martinie v. France [GC], no. 58675/00, § 44, ECHR 2006‑...). The administrative courts supported these considerations with reasons. Since the applicants were given ample opportunity to put forward their case in writing and to comment on the submissions of the other party, the Court finds that the requirements of fairness were complied with and did not necessitate an oral hearing.
It follows that this complaint is manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 and 4 of the Convention.
2. The applicants also complained that the civil proceedings were in breach of the “reasonable time” requirement laid down in Article 6 § 1, which reads in its relevant part as follows:
“In the determination of his civil rights and obligations ..., everyone is entitled to a fair ... hearing ... by [a] ... tribunal...”
The Government considered that the proceedings lasted from 20 October 1994 until 10 October 2001. They were, however, of the opinion that the conduct of the applicants and of the other parties affected the length. The examination of the case by the District Court was delayed by some two years because the plaintiff did not file the promised supplementary writ of summons until 25 April 1997, although it had promised to file it by 15 August 1995. Furthermore, the applicants presented new claims during the preparatory and main hearings. The defendant then required an extension of the time-limit to reply. In the Government’s view the case was also ambiguous, somewhat complex and involved problematic questions of evidence. Settling the matter was on the whole complicated.
The applicants submitted that the length of the proceedings, almost seven years, was excessive and, apart from some one-month extensions of time-limits, they did not contribute to the length. They submitted that the District Court judge had admitted that he had been responsible for the delays in the proceedings. The applicants further asserted that they were not aware of any correspondence between the court and E. concerning the supplementary writ of summons or its timetable. In any event, should the Court find that the two years’ delay in submitting the supplementary writ of summons had been the fault of the applicants the length of the proceedings was still, in their view, excessive. They also argued that the case was not at all complex.
The Court considers, in the light of the parties’ submissions, that the complaint raises serious issues of fact and law under the Convention, the determination of which requires an examination of the merits. The Court concludes therefore that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. No other ground for declaring it inadmissible has been established.
For these reasons, the Court unanimously
Declares admissible, without prejudging the merits, the applicants’ complaint relating to the excessive length of the civil proceedings;
Declares inadmissible the remainder of the application.
T.L. EarlyNicolas Bratza
RegistrarPresident
Full & Egal Universal Law Academy