SECOND SECTION
DECISION
AS TO THE ADMISSIBILITY OF
Application no. 45600/99
by X.G.R. AUERBACH
against the Netherlands
The European Court of Human Rights, sitting on 29 January 2002 as a Chamber composed of
MrJ.-P. Costa, President,
MrL. Loucaides,
MrC. Bîrsan,
MrK. Jungwiert,
MrV. Butkevych,
MrsW. Thomassen,
MrsA. Mularoni, judges,
and Mrs S. Dollé, Section Registrar,
Having regard to the above application lodged on 23 December 1998 and registered on 21 January 1999,
Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicant,
Having deliberated, decides as follows:
THE FACTS
The applicant, Mr X.G.R. Auerbach, is fiscal consultant. He is a Dutch national, who was born in 1968 and lives in Eindhoven. He was represented before the Court by Professor M.W.C. Feteris of the Fiscal Law Department of the Rotterdam Erasmus University, who also works as a fiscal advisor in Amsterdam.
A. The circumstances of the case
The facts of the case, as submitted by the parties, may be summarised as follows.
In 1993, the applicant’s employers provided him with a company car. The car’s catalogue price was NLG. 33,090. The applicant used this car at least three days a week for transport from his home to his office. The distance between both places was more than 30 kms. The applicant further used this car for private purposes. The distances travelled for private purposes in 1993 exceeded 1,000 kms.
On 28 February 1995, the Eindhoven Tax Inspector issued the income tax assessment (aanslag inkomstenbelasting) for 1993 in respect of the applicant. In the determination of the applicant’s taxable income for 1993, the Tax Inspector had added – pursuant to the 1964 Netherlands Income Tax Act (Wet op de Inkomstenbelasting; “ITA”) as amended in 1990 – an amount of NLG. 7,491 (i.e. 24% of the catalogue price of the applicant’s company car) to the applicant’s taxable income.
On 6 April 1995, the applicant filed an objection (bezwaar) with the Eindhoven Tax Inspector against the 1993 assessment. He complained that the 24% increase of his taxable income instead of 20% was contrary to the principle of equality (gelijkheidsbeginsel) as guaranteed by, inter alia, Article 26 of the International Covenant on Civil and Political Rights. He submitted that, under Article 42 of the ITA, there is a difference in treatment between two categories of persons who are in a same situation, namely – on the one hand – persons who, because of Article 42 § 4 of the ITA, have to add to their taxable income 24% of the catalogue price of the car placed at their disposal; these persons are taxed for their private use of this car (20%) and for their “excess” commuter travel (where a one-way journey from their home to their place of work exceeds a distance of 30 kms) (4%); and – on the other hand – persons in identical circumstances apart from the fact that they use their company car for less than 1,000 kms a year for private purposes, and are fully exempted from adding a percentage of the car’s catalogue price to their taxable income.
Thereby, according to the applicant, the taxation of the “excess” commuter travel is made dependent on the number of kilometres travelled for private purposes with a company car. He argued that this difference in treatment lacked any objective and reasonable justification and that, therefore, Article 42 § 4 of the ITA should not be applied. He requested that his taxable income be reduced by NLG. 1,323 (i.e. the difference between 20% and 24% of his company car’s catalogue value), which would result in a reduction of NLG. 661 for the income tax due for 1993.
The Tax Inspector rejected the applicant’s objection on 14 August 1995. On 8 September 1995, the applicant appealed to the ‘s‑Hertogenbosch Court of Appeal (Gerechtshof).
In its judgment of 18 December 1995, the Court of Appeal found in favour of the applicant. It held that the reasons stated by the legislator for creating the difference in treatment at issue could not be regarded as constituting an objective and reasonable justification. Consequently, it quashed the Tax Inspector’s decision of 14 August 1995 and reduced the determination of the applicant’s taxable income accordingly. The Court of Appeal further ordered the Tax Inspector to reimburse the applicant’s legal costs, including the court fees paid by him.
On 29 January 1996, the State Secretary of Finances (Staatssecretaris van Financiën) filed an appeal in cassation with the Supreme Court (Hoge Raad) against the judgment of 18 December 1995. In the State Secretary’s first complaint in cassation, it was argued, inter alia, that the Court of Appeal’s judgment of 18 December 1995 created in effect a new and significantly more serious inequality of treatment between, on the one hand, persons living more than 30 kms from their place of work and who commute to work either with their own car or with public transport, and, on the other, persons living more than 30 kms from their place of work and who commute to work with a company car. In the State Secretary’s third cassation complaint, it was stated that the problems concerning Article 42 ITA as identified in the Supreme Court’s judgment of 22 March 1995, reported in “Beslissingen in Belastingzaken Nederlandse Belastingrechtspraak” (Netherlands Fiscal Law Reports – “BNB”) no. 1995/140, were under discussion in the Working Group on fiscal-technical reform regarding income tax/wage tax and that, in the light of the signal given by the Supreme Court, it was to be expected that the legislative measures resulting from the Working Group’s study would also include a termination of the possible inequality of treatment identified by the Supreme Court. According to the State Secretary, it followed from a Supreme Court judgment of 6 October 1993 (BNB, no. 1993/332c*) that the judicial authorities in cases like the present refrain from interfering where a removal of an inequality in law is to be expected. On this basis, the State Secretary argued that there was no need for the judicial authorities to interfere, as there were indications that an amendment, in which the difference in treatment complained of would be removed, was being prepared.
In its judgment of 15 July 1998, the Supreme Court ruled that the applicant was treated unequally without justification. However, it upheld the Tax Inspector’s decision of 14 August 1995. Consequently, the Supreme Court quashed the judgment of 18 December 1995 with the exception of the costs order against the Tax Inspector, and further ordered the State Secretary to reimburse the applicant’s legal costs in the cassation proceedings. This judgment, insofar as relevant, reads as follows:
“3.2. In objecting to the application of this so-called increased fixed amount for car costs (verhoogde autokostenforfait), the 3.4. In answering the question whether it concerns an inequality in treatment prohibited by these Treaties [including Article 14 of the Convention in conjunction with Article 1 of Protocol No. 1], it must be stated at the outset that they do not prohibit every inequality in treatment of equivalent cases. The legislator has a certain margin of appreciation in answering the question whether cases, for the purposes of the application of these Treaties, are to considered as equivalent and, if so, whether there is an objective and reasonable justification for nevertheless regulating those cases in a different manner. 3.5. The difference in treatment challenged by the 3.7. It thus follows from the 3.8. This entails that the addition of four percent of the catalogue price of the 3.9. The considerations set out in 3.6. to 3.8. lead to the conclusion that the legislator, by not prescribing the addition of four percent of the catalogue price in cases where there is no or only a limited private use of the 3.10. Members of the Netherlands Parliament (Staten-Generaal) have shown doubts as to the legitimacy of that unequal treatment. It has been stated in justification on the Government side that, from the point of view of transport arranged by the employer, the employees privileged by the proposed regulation are on a par with employees who, either collectively or not, are transported by their employer in minibuses and the like. That contention is, however, in all reasonability untenable. Within the group of employees whose transport is arranged by the employer, those disposing of a 3.11. Moreover, the Supreme Court has not found outside this legislative history any grounds of a fiscal or non-fiscal nature that can justify the unequal treatment at issue. 3.12. Further, it cannot be said that the unequal treatment results in a quantitatively unimportant advantage as, with the addition of 4% of the catalogue price of a 3.13. Even taking into consideration the margin of appreciation of the legislator, the above also leads to the conclusion that the legislator cannot in all reasonability have held that it concerns here unequal cases, or that there is a reasonable and objective justification for the unequal treatment of those cases. The 3.14. The B. Relevant domestic law and practice i.Fiscal law Pursuant to Article 42 § 3 of the 1964 Netherlands Income Tax Act (Wet op de Inkomstenbelasting), employees disposing of a company car provided by their employer must add a fixed amount to their taxable income because of the use of such a car for private purposes. The wording of this provision fixes this amount, the so-called fixed amount for car costs (autokostenforfait), at 20% of the catalogue price of the car concerned. Following the adoption of the Act of 4 July 1990 amending income tax and salaries tax [capping of the tax allowance for commuters] (Wet tot wijziging van de inkomstenbelasting en de loonbelasting [aftopping reiskostenforfait]), this fixed amount was increased by 4% (i.e. to 24%) in those cases where an employee habitually travels at least three days a week between his or her home and work place when the distance of a one‑way journey between these two places exceeds 30 kms (Article 42 § 4). Article 42 § 5 of the Income Tax Act provides that the rules contained in Article 42 §§ 2 - 4 are not applied where it appears that, on an annual basis, the company car has been used for private purposes for a total distance not exceeding 1,000 kms. In that situation no fixed amount for car costs has to be added to the taxable income, but the actual benefit must be added on the basis of a fixed amount per kilometre, e.g. 500 kilometres at 60 cents per kilometre. The underlying rationale of the Act of 4 July 1990 was of an environmental nature, i.e. to reduce commuter traffic by encouraging employees to live closer to their place of work, as well as to reduce the use of cars for commuter travel by encouraging employees to opt either for public transport or other forms of collective transport arranged by the employer. In the original proposal contained in the Bill, which resulted in the Act of 4 July 1990, the existing possibilities for tax deduction of costs for commuting to work and the exemption from taxes of compensation paid by employers in respect of commuting costs were limited to a maximum (aftopping). Costs for commuting to work for distances in excess of 30 kms were to be considered as “private” and no longer eligible for tax allowances. As to the application of the fixed amount for car costs in cases concerning a company car, the commuter traffic in excess of 30 kms was to be considered as “private“ and lead to the application of a higher percentage. This would only apply, however, where a car was also being used for private purposes. If the car would only be strictly used for work purposes, including commuting, the fixed amount for car costs would not come into play. As this approach met with the objection that only one single kilometre driven by a company car for private purposes could result in the addition to the taxable income of the fixed amount for car costs, the Bill was amended. The fixed amount for car costs would be applied when a company car was to be used for private purposes involving a distance of 1,000 kms or more a year. In the determination of this question, the distance between the home and place of work – whether or not it was more than 30 kms – would be irrelevant. If the limit of 1,000 kms for private use were exceeded, an addition of 20% of the car’s catalogue price would be applied where the commuting to work remained limited to a distance of less than 30 kms from the home. For commuting involving a distance between the home and place of work of more than 30 kms, a percentage of 24% would be applied. Although some critical questions were put during the parliamentary debate the system as amended was adopted by the Act of 4 July 1990. In a judgment of 22 March 1995 (BNB no. 1995/140), the Supreme Court held that: “In the present proceedings, the question has not been raised whether the rules contained in Article 42 §§ 4 and 5 [ITA] entail a prohibited unequal treatment in respect of those case in which a car made available by an employer is used for private purposes for less than 1,000 kms per year. That question must at present, however, remain unresolved, since its answer also requires an investigation of the facts for which there is no scope in cassation proceedings.” The rules contained in Article 42 of the ITA remained in force until 1 January 2001 when fiscal reform legislation came into force - the Income Tax Act 2001. This Act provided that the distance between the home and place of work is no longer relevant in the determination of the addition of the fixed amount for car costs in respect of company cars. Only the distance for private purposes for which the company car is used is relevant. In case this use is less than 500 kms per year, no fixed amount has to be added to the taxable income. For a distance between 501 - 4,000 kms, 15% of the car’s catalogue value must be added to the taxable income, for distances between 4,001 - 7,000 kms, 20%, and for distances exceeding 7,000 kms, 25%. Commuter travel is considered to be work-related. ii.Constitutional law Article 1 of the Constitution (Grondwet), provides: "All persons present in the Netherlands shall be treated in the same way in similar situations. Discrimination on the ground of religion, philosophical convictions, political leanings, race, sex, or any other ground whatsoever shall not be allowed." Article 120 of the Constitution reads: "The courts shall not rule on the constitutionality (grondwettigheid) of statutes and treaties." Under Article 120 of the Constitution, as interpreted in the constant case‑law of the Supreme Court, the judiciary is not permitted to examine the lawfulness of Acts of Parliament. The courts can, however, review the lawfulness of subordinate legislation and of all other acts of the administration including the lawfulness of decisions which have a general character such as regulations, plans or directives (cf. Hoge Raad, 1 December 1993, Beslissingen in Belastingzaken 1994, no. 64). Article 93 of the Constitution provides that provisions of international treaties and decisions of international (intergovernmental) organisations which, according to their content, may be binding on anyone shall have binding force after they have been published. Pursuant to Article 94 of the Constitution, such provisions of international treaties and decisions of international organisations take precedence over domestic statutory rules in case of conflict. As regards the prohibition on discrimination, the Netherlands Supreme Court recognised in a judgment of 2 February 1982 (Nederlandse Jurisprudentie – “NJ”, 1982, no. 424 [corrected in NJ 1982, no. 475]), that Article 26 of the International Covenant on Civil and Political Rights is a provision of an international treaty which, according to its content, may be binding on anyone, and must therefore in principle be applied directly by the Netherlands courts. However, in a number of judgments the Supreme Court has declined to construe Article 26 of the Covenant in such a way as to deprive national legislation of its effect even if it considered that a given measure constituted unlawful discrimination, holding that – where various options were open to the national authorities to remove such discrimination – the choice should be left to the legislator in view of the social and legal implications attending each possible course of action (Hoge Raad, 12 October 1984, NJ 1985, no. 230; and Hoge Raad, 23 October 1988, NJ 1989, no. 740). In its judgment of 16 November 1990 (NJ 1991, no. 475), cited in the Court’s Kroon and Others v. the Netherlands judgment of 27 October 1994, the Supreme Court came to a similar finding with regard to Article 14 of the Convention taken together with Article 8 (Series A no 297-C, p. 50, § 14). COMPLAINTS 1. The applicant complains that the application of Article 42 § 4 of the Income Tax Act in his case constitutes discriminatory treatment contrary to Article 14 of the Convention in conjunction with Article 1 of Protocol No. 1 in that he was taxed higher than other taxpayers with a company car who, like himself, live more than 30 kms from their place of work, but who drive less than 1,000 kms per year for private purposes with a company car. He submits that these comparable employees also pollute the environment with their commuter travel, although this was the very reason for imposing the additional tax related to an extra 4% of the car catalogue price. 2. The applicant further complains under Article 13 of the Convention that he did not have an effective remedy in respect of the discriminatory treatment at issue. Although the Supreme Court agreed that he had suffered discrimination, it did not provide for any redress. The applicant submits that a mere declaratory judgment does not constitute an effective remedy within the meaning of Article 13 of the Convention. THE LAW 1. The applicant complains that the application of Article 42 § 4 of the Income Tax Act in his case constitutes discriminatory treatment contrary to Article 14 of the Convention in conjunction with Article 1 of Protocol No. 1. Article 14 of the Convention reads: “The enjoyment of the rights and freedoms set forth in [the] Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.” Article 1 of Protocol No. 1 provides: “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 Government submit that since the entry into force of the Income Tax Act 2001, on 1 January 2001, the situation that has given rise to the application can no longer occur. The Government do not dispute that, under the Income Tax Act in force until 1 January 2001, the applicant was treated unequally compared with a person who, unlike the applicant, made little or no private use of a company car but whose other circumstances were the same. However, the Government argue that there was an objective and reasonable justification for this difference in treatment and that there was reasonable proportionality between the distinction made and the objective pursued. The Government contend that the Act of 4 July 1990 was designed to achieve an important social and political objective: the reduction of commuter traffic, in particular car use. Given the very high population density of the Netherlands, this objective was given a high priority, not only for environmental reasons but also because it would benefit the economy and reduce road congestion. To achieve this aim, it was felt necessary to cap the tax allowance for commuters. The Bill that resulted in the Act of 4 July 1990 gave cause to a lengthy debate in Parliament, during which problems and undesired consequences were identified. Various ways of achieving the Bill’s objective were examined and it was found that, whatever solution was chosen, social or fiscal problems remained. The principle of equality in particular was at the centre of attention during the legislative process. In the light of this principle, it was noted that, without additional measures, a certain category of motorists living more than thirty kilometres from their work place would not be affected by the capping of the tax allowance for commuters, namely those travelling in a company car. To ensure that this category, which included the applicant, would also make a financial sacrifice comparable to the capping of tax allowances for commuters, a requirement to add 4% of the catalogue price of the car to the taxable income was introduced. In this manner, the extra charges deemed socially desirable would be spread evenly amongst taxpayers living at least thirty kilometres from their work place and using a company car for commuting, and taxpayers not using a company car for commuting. The 4% requirement did not apply to taxpayers who, living at least thirty kilometres from their work place, could show that they used their company car for private purposes – including commuter travel to work – less than 1,000 kilometres per year. This specific category, which was assumed to be a very small one, was seen as forming a part of a broader group of people who were using other transport arranged by their employer. The Government are of the opinion that this exceptional position of a few individuals, who constituted a minority within a minority, was of such little social significance that it could not justify the abandonment of the major social objective of the Act of 4 July 1990. To abolish the 4% rule, as sought by the applicant, would have created a new inequality which would not only affect far more persons, but which would also be much harder to justify in that, for persons living at least thirty kilometres from their work place, persons having a company car would be favoured over persons who did not. The only possible way of preventing this more extensive form of unequal treatment would have been to withdraw the measure altogether, thus completely losing sight of its important social objective. The Government finally submit that, although unequal treatment existed, the issue raised in the present application is not so much the treatment of the applicant in relation to other taxpayers, but the slight advantage enjoyed by a few people compared with the very large group to which the applicant belongs. Ending the unequal treatment retroactively would lead either to much inequality or to unacceptable social consequences, compared with which the individual benefit for the applicant pales into insignificance. The applicant submits at the outset that although it is theoretically correct that, under the rules in force at the material time, persons with a company car whose private use was less than 1,000 kilometres per year had to add the actual value of the private use to their taxable income, in practice this did not happen. Where such a person proved that the private use was less than 1,000 kilometres, the tax inspector did not add any extra amount to the taxable income. The applicant, relying on the Supreme Court’s findings in his case, refutes the Government’s arguments that there was an objective and reasonable justification for the discriminatory difference in treatment of which complaint is made. He further disagrees with the Government that any measure that would have removed this discriminatory treatment would have been impractical. The new Income Tax Act 2001 shows that there was a practical solution to the problem. The applicant further submits that another solution in line with the previous system would have been to make all taxpayers with a company car and living more than thirty kilometres from their work place liable to the extra taxable income equal to 4% of the catalogue value of the car, irrespective of the extent of the private use of the car. This would not have affected a large number of persons and would not have entailed further discrimination. The applicant admits that although this would have been a solution from which he would not have derived any benefit, that is not the issue at this stage of the proceedings. However, it refutes the Government’s argument that any solution would have led to serious practical problems and that the disputed difference in treatment was therefore justified. In the applicant’s opinion, there is no reason under the Convention to take a different approach in cases concerning a discriminatory difference in treatment where the number of privileged persons is relatively limited. The principle of non-discrimination in tax cases has its historical roots in the rule that privileges in the field of taxation are unacceptable. As to the Government’s argument that putting an end to the unequal treatment retroactively would lead to unacceptable social consequences “compared with which the applicant’s individual benefit pales into insignificance”, the applicant argues that the purpose of the Convention is to protect the rights of individuals, irrespective of the extent of the group to which they belong, even if their financial interest is relatively limited. Moreover, different financial treatment with retroactive effect would only have consequences for the State Budget. The environment would not be influenced as taxpayers cannot change their means of transport retroactively. The Court will first examine the question whether or not the applicant can claim to be a victim within the meaning of Article 34 of the Convention. It reiterates that a decision or measure favourable to an applicant is not in principle sufficient to deprive him of his status as a “victim” unless the national authorities have acknowledged, either expressly or in substance, and then afforded redress for, the breach of the Convention (cf. Amuur v. France, judgment of 25 June 1996, Reports of Judgments and Decisions 1996-III, p. 846, § 36, and Dalban v. Romania [GC], no. 28114/95, § 44, ECHR 1999-VI). Moreover, as a general rule, the question whether an applicant may claim to be a victim depends on the legal interest which the applicant may have in a determination by the Court that his Convention rights have been breached. In assessing this interest, any material or immaterial damage suffered by the applicant as a result of the alleged violation must be taken into account (cf. Schader v. Austria (dec.), no. 30193/96, 7.3.2000, and Eur. Comm. HR, No. 9320/81, Dec. 15.3.84, D.R. 36, p. 24). The Court notes that, in its judgment of 15 July 1998, the Supreme Court expressly accepted that the difference in treatment complained of by the applicant was contrary to Article 14 of the Convention, in that there was no reasonable and objective justification for the unequal treatment. However, it also accepted that to render Article 42 § 4 of the Income Tax Act inoperative on this ground would have resulted in an equally unjustifiable inequality in treatment which could only be remedied by the non-application of all regulations on the capping of tax allowance for commuters, which would have constituted a disproportionate consequence of its finding under Article 14 of the Convention. It concluded that, in these circumstances, it could not go beyond the task of the judiciary to resolve this issue and that it was for the legislator to do so. Having regard to the new Income Tax Bill that was to be submitted to Parliament in the then near future, the Supreme Court accepted that the legislator was in fact about to resolve the problem raised by the applicant. The remaining question is therefore whether, in these circumstances, the applicant can be regarded as having been afforded adequate redress. On this point the Court observes in the first place that, both in the proceedings before the Court of Appeal and the Supreme Court, the fiscal authorities were ordered to reimburse the applicant’s legal costs. The Court further notes that one of the possibilities to remedy the unequal treatment could have been maintaining the additional 4% in the applicant’s case and prescribing this additional 4% also in cases where no or only a limited private use of the company car is made (see para. 3.9 of the Supreme Court’s judgment of 15 July 1998). This would not have changed the applicant’s situation, but would have resulted in higher taxation for others. In these particular circumstances, and bearing in mind that the Court itself has held in various cases that a finding of a violation in itself constituted adequate just satisfaction under Article 41 of the Convention for any non‑pecuniary damages suffered, the Court accepts that the Supreme Court’s finding of a violation of the applicant’s rights under Article 14 of the Convention in conjunction with the cost orders issued in the applicant’s favour, and its instruction to the legislator to enact new legislation which has in fact occurred, may be regarded as adequate redress. Consequently, the applicant cannot be regarded as having a continuing legal interest warranting a determination by the Court that his rights under Article 14 of the Convention have been breached. The Court is therefore of the opinion, as regards his complaint under Article 14 of the Convention, that the applicant cannot claim to be a victim within the meaning of Article 34 of the Convention. It follows that this part of the application is incompatible ratione personae with the provisions of the Convention, within the meaning of Article 35 § 3, and must be rejected, in accordance with Article 35 § 4. 2. The applicant further complains under Article 13 of the Convention that he did not have an effective remedy in respect of the discriminatory treatment at issue. Article 13 of the Convention reads: “Everyone whose rights and freedoms as set forth in [the] Convention are violated shall have an effective remedy before a national authority notwithstanding that the violation has been committed by persons acting in an official capacity.” The Court is of the opinion, having regard to its above findings in respect of the applicant’s complaint under Article 14 in conjunction with Article 1 of Protocol No.1, that the applicant did have an effective remedy within the meaning of Article 13 of the Convention (cf. Kudła v. Poland [GC], no. 30210/96, ECHR 2000-XI, § 157). Consequently, this part of the application must be rejected as being manifestly ill-founded within the meaning of Article 35 §§ 3 and 4 of the Convention. For these reasons, the Court unanimously Declares the application inadmissible. S. DolléJ.-P. Costa
RegistrarPresident
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