BERNH LARSEN HOLDING AS AND OTHERS v. NORWAY

27 November 2009

FIRST SECTION

Application no. 24117/08
by BERNH LARSEN HOLDING AS and Others
against Norway
lodged on 19 May 2008

STATEMENT OF FACTS

THE FACTS

The applicant companies are three limited liability companies, Bernh Larsen Holding AS, Kver AS and Increased Oil Recovery AS (hereinafter referred to as “B.L.H.”, “Kver” and “IOR”, respectively), all three registered in Norway. They are represented before the Court by Mr T. Hatland, a lawyer practising in Bergen.

A. The circumstances of the case

The facts of the case, as submitted by the applicant companies, may be summarised as follows.

The three applicant companies (together with two further companies) had their business address in Hopnesvein 127, Bergen (Western Norway). For their respective information technology systems the companies used a common server and e-mail server (hereinafter referred to as “the server”). The server contained the applicant companies’ electronic archives and private information (private e-mail correspondence, family pictures etc.) of their employees and other persons working for the companies.

B.L.H.’s data was stored on the server in the user areas dedicated to three persons, Mr Svenheim, Mrs Hjønnevåg and Mrs Pettersen. They were employed by Bergen Underwater Service AS – a daughter company of B.L.H. – which carried out management services for several companies, including B.L.H. The data in question was accessed by entering those persons’ user areas, through their respective user names and passwords.

1.Accountancy audit

In January 2003 Bergen Tax Office (likningskontor) warned B.L.H. that an accountancy audit would be carried out with respect to the company for the taxation year 2001. On 9 March 2004 a meeting was held between representatives of B.L.H., on the one hand, and the Bergen Tax Office and Hordaland County Tax Office (fylkesskattekontor), on the other hand. The meeting took place at B.L.H.’s offices in Bergen. During the meeting the tax authorities presented B.L.H. with a list of questions and required B.L.H. to enable the auditors to take a copy of all data on the server, which contained inter alia information about B.L.H.’s accountancy.

The representatives of B.L.H. complied with the request to grant access to the server, including offering the representatives the necessary passwords. They refused, however, when the representatives of the tax authorities further demanded a mirror copy of the (entire) server.

B.L.H’s Managing Director, Mr Svenheim, argued inter alia that the server did not belong to B.L.H. which only rented server capacity.

He further made reference to the fact that other companies also made use of the server. The owner of the server was stated to be Kver (at the time named Larsen Oil & Gas AS). The Managing Director of Kver was called. He too refused to allow the tax authorities to mirror copy the server.

The information and documents stored on the server were in part linked to different companies, (with the necessary access control) and in part linked to the employees working for the different companies rather than the companies as such. The access to the home directorates and e-mails (including the map "private files and pictures") belonging to the different employees were protected by passwords.

The server contained information belonging to the applicant companies and also information belonging to other companies and persons.

In the ensuing discussions after Kver and B.L.H. refused to grant access to the server, alternatives to a complete copy of the server were considered. The discussion related first and foremost to whether the tax authorities would have to limit themselves to demanding copies of part of the server administered by B.L.H. or persons working for B.L.H. The Managing Director of B.L.H. explained to the tax authorities how they could obtain (all and only) the documents belonging to B.L.H.

When Kver, as a co-user and the owner of the server, opposed the tax authorities’ demand to seize the entire server, they responded by issuing a notice that Kver would also be subject to a tax audit and further ordered Kver to “hand over all electronically stored information".

After further discussions, the parties compromised and agreed that the previous months’ backup tape was to be handed over to the tax authorities and sealed pending decision on their complaint. The backup tape contained 112,316 files in 5,560 folders totalling 41 Giga Bytes. Only a minor part of this was relevant for the tax audit of B.L.H.

Both Kver and B.L.H. immediately filed a complaint with the Directorate of Taxation, a central tax authority ranging under the Ministry of Finance, and requested the immediate return of the backup tape.

On 25 March 2004 Kver informed the Bergen Tax Office that three other companies, including IOR (the third applicant company), also used the server and had therefore been affected by the seizure of 9 March 2004. On 26 March 2004 the Tax Office put also these companies on notice that tax audits would be carried out with respect to them as well.

On 1 April 2004 IOR filed complaint wit the Directorate.

2.Directorate of Taxation’s decisions of 1 June 2004

The Directorate decided the applicant companies’ complaints on 1 June 2004.

As regards the second and third applicant companies, the Directorate withdrew the Tax Office’s warning that accountancy audit would be carried out and its order on these companies to hand over data. The Directorate observed that the tax audit concerned the first applicant company and that section 4-10 of the Tax Assessment Act did not authorise the measures at issue where the purpose of the audit was to collect information about third parties.

As regards the first applicant company, the Directorate confirmed the Tax Office’s order to hand over/give access to the server. The Directorate further decided that during the Tax Office’s review of the server a representative of B.L.H. was to be given the opportunity to be present. The Tax Office’s access to each area of the server was to be limited to those areas that were (also) used by B.L.H.

In reaching the above conclusion, the Directorate noted that the Ministry of Finance had in their letter to the Directorate of 20 May 1997 observed inter alia that the term document in sections 4-8 and 4-10 of the Tax Assessment Act was not limited to information and contents physically appearing on paper, plastic cards etc but covered also texts and figures etc stored electronically on a computer. Furthermore, the duty to hand over documents also applied to electronically stored documents. The tax authorities could choose whether to ask for paper printouts, for electronically readable medium or for transmission to their own computers.

In the Directorate’s view, the question at issue concerned the delimitation of the tax authorities’ access to the “company’s archives” under section 4-10(1) (b) of the Act. In instances where the documents were stored on a server, the server was to be considered as an archive for the purposes of this provision. In the present instance the Tax Office had “seized” (“tatt beslag”) the server and the question was to what extent the Office could inspect this. The extent to which an obligation could be imposed under section 4-10 to hand over each document in the archive ought to be considered in the concrete circumstances.

The Directorate moreover noted that the tax subject was not under a duty to produce documents which exclusively concerned the rights and business relationships of other tax subjects. A further limitation was that the documents in question ought to be significant for the tax subject’s tax assessment. Accordingly, documents of exclusively private character fell outside. This distinction was important for the extent to which the tax authorities could themselves go through the server (the archive) or whether it would be for the tax subject to decide which areas of the server should be handed over.

The provision in section 4-10(1) (b) had been added in order to give the tax authorities an opportunity to take affirmative action to inspect archives in order to find documents of importance for the activity concerned. It was thus clear that the authority to control did not just extend to passively receiving information handed out by the person subjected to control. The Directorate continued:

"When several tax subjects share an archive, one must, in the opinion of the Directorate, distinguish the cases in which the archives are clearly physically separated and the cases in which there is a common archive (mixture). Whether or not an area shall be considered as clearly separated must be assessed in the specific case. The Directorate underlines that, at present, there is insufficient information in this case to make this assessment."

Moreover, the Directorate noted, section 4-10 of the Act applied to control of the tax subject. The handing over of documents relating to other tax subjects ought to be based on Chapter 6. In instances where there were physically delimited archives (into parts of the server), section 4-10 did not authorise the imposition of access to the archives of other enterprises. In the present instance Chapter 6 did not apply.

To the extent that a joint archive was not physically divided but was mixed, the tax subject could not refuse the tax authorities access to the archive. In the preparatory works, it had been emphasised that the purpose of an audit should not be undermined by the tax subject withholding documents. In the Directorate’s view, this ought also to apply in relation to access to the tax subject’s archives. The tax subject could thus not refuse the tax authorities access to its archives on the ground that contained documents concerning other tax subjects. The duty to hand over each document contained in the archives should however be limited to documents of importance for the tax subject’s tax assessment (section 4-10 (1), see (2)).

In practice, in order to solve the problem of avoiding access being exercised to archives (the server) in respect of documents that were insignificant for the tax subject’s tax assessment, the tax subject was to be present during the review of the archive (section 4-10(3)). Accordingly, the Directorate stated, a representative of B.L.H. was to be present during the tax authorities’ review.

3.Appeals to the City Court and the High Court

The applicant companies lodged an appeal against the Directorate of Taxation’s decision of 1 June 2004 in respect of B.L.H. to the Oslo City Court, asking it to quash the decision and to order the return of the backup tape to Kver. On 10 June 2005 the City Court found in favour of the State and rejected the applicant companies’ appeal.

In its judgment, the City Court found that the measure imposed by the tax authorities could comprise the copying of data for subsequent review at the tax office to the same extent that access could be imposed with respect to data on the server on the spot. It also found that the server in the present instance ought to be considered in the same way as mixed paper archives.

On a further appeal by the applicant companies, the Borgarting High Court, by a judgment of 30 April 2007, upheld the City Court’s judgment, essentially on the same reasoning.

4.Appeal to the Supreme Court

On 2 June 2007 the applicant companies appealed to the Supreme Court, disputing in the main the High Court’s application of the law.

On one point the applicant companies also disputed the High Court’s assessment of the facts. The High Court had rejected the applicant companies’ contention, which the State had disputed, that on 9 March 2004 B.L.H. had offered the tax authorities access to the areas of the server used by the three persons working for B.L.H. In the High Court’s view, the argument had been without importance for the case, which concerned whether the Tax Office should have access to and obtain a copy of all the data on the server.

The applicant companies argued inter alia as follows. The relevant provisions in section 4-10(1) laid down clear limits in that inspection could only be carried out in the relevant tax payer’s archives and that an order to hand over documents should be limited to relevant material contained therein. The tax authorities had been offered access to and provision of data from B.L.H.’s archives in accordance with the law. However, the authorities had showed no interest for this. It was further clear that they had not carried out the prescribed review of the archives. Instead they had carried out what ought to be described as a general seizure of the server, without prior review. The seizure was to be implemented by imposing an obligation to provide a mirror copy of the server. For practical reasons the order had been implemented by the provision of a back-up tape of the entire contents of the server. The authorities had been aware that the server contained material belonging to other tax subjects. They had thus transgressed the limits of the law.

In this regard the tax authorities’ position regarding the legal basis for the measure had been inconsistent. Whilst the authorities in March 2004 had signalled that the order in respect of B.L.H. had not been sufficient, in June 2004 the Directorate of Taxation had concluded that the order had been lawful. According to the Directorate, had they addressed their order only to B.L.H., the tax authorities would have achieved the same purpose as by addressing it to all the companies. The Directorate’s decision had opened for arbitrariness in that very extensive inspection orders were regarded as lawful provided that the authorities own indication of the purpose of the measure was deemed acceptable.

As to the scope of the legal basis for authorising inspection, the threshold for accepting access beyond the relevant company’s own archives ought to be high. Not least, this was because of the right of inspection in relation to B.L.H. being extended to other tax subjects using the server that were not subject to tax audit and to any private and confidential information that might be stored on the server.

In this connection, the applicant companies referred to Article 8 of the Convention, according to which an interference with “home” and “correspondence was not permitted unless it was “in accordance with the law” and “necessary in a democratic society”. The applicant submitted that, according to the European Court’s judgment in Société Colas Est and Others v. France (no. 37971/97, ECHR 2002‑III), Article 8 also protected companies. In that case, they pointed out, Article 8 had been found to have been violated on account of ransacking and seizure carried out in a company’s premises.

Empowering the authorities to have full access to and demand copies of the server would also include personal data pertaining to the employees working for the different companies and any private correspondence that they might have stored on the server or received on their respective e-mail addresses. Also in this regard, the case had an aspect going to Article 8 of the Convention, and to laws and regulations regarding the processing of personal data.

Since the tax authorities had acted in a manner that was contrary to the national legal provisions relied on, the imposition of inspection into the archives of others entities than B.L.H. lacked a basis in section 4-10(1) (b) and Article 8 of the Convention.

It followed from the scheme set up under the Act that the tax authorities had to base themselves on the tax subject’s indications of where to find its archives.

The applicant companies further disputed the application of the mixed archive doctrine to their case, which neither had a legal basis nor was a practice that was clear, established and applicable. Nor had the tax authorities documented that there was a mixed archive in the instant case. It ought to be a condition for accepting a seizure that adequate attempts had been made to delimit the seizure to those parts which concerned the activity at issue. Referring to the Supreme Court’s case-law the applicant companies argued that this meant that in so far as investigations that were practical to carry out on the spot revealed that one or more documents were without importance as evidence, the documents could not be seized for further investigation. The same would also follow from Article 8 of the Convention. However, it was clear that the tax authorities did not make any attempt to review the material on the spot in order to determine whether it was impossible to separate B.L.H.’s archives from those of others.

The right of the authorities to carry out inspections was to be exercised through review on the spot. The wording of the Act, the legislative purpose of the right of inspection and the system of the act were all factors suggesting that the inspection should be carried out in the company’s premises. The main purpose of the tax authorities’ “visit”, “review” and “inspection” of the company’s archives was to clarify whether there was a ground for requiring the production of relevant documents.

In light of the above, the applicant companies were of the opinion that the Directorate of Taxation’s decision of 1 June 2004 lacked a legal basis and ought to be quashed due an error of substantive law.

Secondly, the applicant companies disputed that there was a legal basis for the authorities to take a full back-up copy of the server. The Act had also been used in relation to paper based archives. In the absence of the tax subject’s consent and any prior review, the tax authorities were not entitled to take away the whole paper archive in order to go through all the material at the tax office. The same ought to apply in relation to electronically stored documents, the only difference being that they had to be printed out rather than being photocopied. In this manner the intents and purposes of the act would be fully taken care of.

For the authorities to visit a company to take a copy of the whole archive constituted an interference, at least as great as ransacking and seizure, but without the legal safeguards that followed form the Code of Criminal Procedure.

The copying of the server constituted an interference that could not be viewed as proportionate or necessary for the purposes of Article 8 of the Convention.

Even in the context of ransacking and seizure pursuant to the Code of Criminal Procedure, for the authorities to take way the archives en bloc, without making a prior assessment of the relevance and the possibilities for specifying and delimiting the seizure, would be to go too far. It would be paradoxical if the tax authorities under the guise of an audit warning should obtain unlimited access and possibility to take away full copies –without adequate legal safeguards – and in this manner go further than if the tax subject was charged and enjoying the safeguards of full judicial review of their lawfulness.

It was a far greater interference to copy and subsequently review electronically stored material than taking paper copies. Important in this connection was that electronically stored information could be searched through with advanced search tools. The possession of such material made it possible to use search engines on documents that had not been identified as a part of the company’s archives and without the purpose of the search having been defined. Files opened on the computers of the tax authorities’ computers would generate temporary files which could later be retrieved and reconstructed. Also in this regard the copying of electronically stored material (en bloc) would be more far reaching than paper copies produced following an order with the alternative that copies deemed irrelevant were returned to the tax subject.

There were no guidelines which clearly defined or limited the ramifications of such audits. With the approach adopted by the tax authorities in the instant case they could freely and arbitrarily seek material on the server. The tax subject had no right as such to be present, such presence being only considered as desirable by the authorities. In addition, the companies which had had their archives copies had been requested to appoint one joint representative to be present at the review.

The authorities’ review of the tape was factual act, not a decision that could form the subject of an appeal. The only avenue of challenge would be to appeal against a decision on the handing over of material, presumably after the documents had been reviewed.

The applicant companies submitted that the interference entailed by copying and subsequent review could not be justified as being necessary or proportionate for the purposes of Article 8 of the Convention.

Finally, the applicant companies emphasised that the present case raised issues of general principle. During the City Court hearing the representative of the State had informed that this was the first time that the tax authorities’ had proceeded with such a degree of compulsion. The tax authorities’ attempt to establish new practice for electronic media was a central feature. The tax subjects had this not been in a position to prepare themselves or adapt themselves in accordance with such a practice, for instance by organising their electronic archives in a different manner. The High Court’s judgment had left an unfortunate legal uncertainty; its interpretation constituted an exorbitant expansion of the tax authorities control powers. This should have been left to the legislator to decide.

5.The Supreme Court’s judgment

In its judgment of 20 November 2007 the Supreme Court stated that the Appeals Leave Committee of the Supreme Court had granted the applicant companies leave to appeal against the High Court’s application of the law but had refused them such leave with regard to its assessment of the facts. This decision was mentioned in paragraph 9 of the Supreme Court’s judgment and was apparently notified to the applicant companies at the same time as the judgment. By four votes to one the Supreme Court upheld the High Court’s judgment and held that no award should be made for costs.

(a) Opinion of the majority

Mrs Justice Stabel, whose opinion was endorsed in the main by the other members of the majority, observed inter alia as follows. The purpose of the provision in item (b) of section 4-10(1) was to give the tax authorities a basis for assessing whether the tax subject possessed documents the production of which could be imposed under item (a). The duty to produce documents was not limited to accountancy documents. What was decisive was whether the documents were significant for the tax payer’s tax assessment and the authorities’ control of the latter. It was clear that also electronically documents were covered by item (a).

The provision in item (b) should naturally be interpreted in light of its purpose. The purpose of an inspection was to find out whether the archive could contain documents which could have an importance for the tax payer’s tax assessment. The access ought therefore to comprise all archives where the tax authorities had reason to assume that contained information of importance for the tax assessment, not just those archives or those parts of archives which included accountancy material. In the interest of efficiency of the tax control, the access at this stage should be relatively wide. Therefore, the companies’ argument that it would be up to each tax subject to give binding indications as to which parts of the archive could contain documents of importance of the tax assessment or the control ought to be rejected.

Access to archives could not be compared with ransacking and seizure. Measures taken under Chapter 4 of the Tax Assessment Act formed part of ordinary administrative treatment and control with a view to secure a correct tax assessment. An accountancy audit could be initiated independently of any suspicion of the commission of a criminal offence. The principle of the duty to submit tax returns, supplemented by the tax subject’s duty of information, presupposed that it should be possible to verify and depart from the information provided by the tax subject. The consequences of a refusal of cooperation by the tax subject were exclusively administrative (discretionary tax assessment).

As to the argument that the server contained archives belonging to several companies, Mrs Justice Stable observed that where several companies shared an archive and the areas belonging to different users were clearly separated, the authorisation to exercise access was limited to the tax subject concerned. The problem arose where it was not possible, at least in advance, to affirm that the respective parts were clearly separated, typically where the data were stored electronically on a common server. On this point she agreed with the Directorate of Taxation’s understanding quoted above:

"When several tax subjects share an archive, one must, in the opinion of the Directorate, distinguish the cases in which the archives are clearly physically separated and the cases in which there is a common archive (mixture). Whether or not an area shall be considered as clearly separated, must be assessed in the specific case. The Directorate underlines that, presently, there is not sufficient information in this case to undertake this assessment."

She further agreed with the High Court that, as a starting point, where full access was not given, it ought to be possible to impose full access where the archive was organised in a manner making the tax authorities dependent on indications by the tax subject in order to identify relevant information. It would be up to the companies whether they wished to organise themselves in the form of clearly separated archives or whether they wished a form of mixed archives that in practice would lead to an extension of the tax authorities’ possibilities for control.

In the present instance, B.L.H. did not have their own administration but was serviced by a small number of persons in Bergen Underwater Services AS. B.L.H. did not have its own user area, but the persons who provided services to the company stored the company’s documents under their own user names and passwords. It would not have been possible for the tax authorities to straight away identify on which areas of the server the relevant information was stored. The archive was not organised with clear separations between the different companies and the distribution between each service person’s user area was not such as to enable the identification or definition of information of importance for the tax assessment. Mrs Justice Stabel agreed with the High Court that in this situation they could not depend on the B.L.H. designating which files could be relevant for the tax assessment of the company. Therefore, the authorities therefore ought to have been enabled to perform control of all data on the server.

As to the further question concerning the manner in which review of the material in question ought to take place, Mrs Justice Stabel took note of the fact that all the material on the server had been recorded on a back-up tape which had been sealed and been brought to the tax office, pending a final judgment in the case. Unlike a mirror tape, which had been the primary wish of the tax authorities, a back-up tape contained all stored files but not the computer programs and deleted material.

The question was whether a right to demand access in order to take copies for review at the tax office could be deduced from the right to demand access to the company’s archives. The answer did not follow directly from section 4-10(1) (b) of the Tax Assessment Act. Unlike item (a) which expressly stated different alternatives for access to documents, item (b) was silent as to how review should take place. This provision was supplemented by section 4-10(3) which authorised the tax authorities to demand that a representative of the tax subject be present and provide the necessary guidance and assistance and access to office- and company premises.

The question of copying was twofold: Did the tax authorities have a right to require a copy and, if so, could review of the tape take place at the tax office?

The preparatory works were very sparse and said nothing on this particular point. Since archives were almost exclusively paper based at the time when the Act had been adopted, the question of copying a whole archive would then hardly arise. In view of its purpose there was no reason to interpret the provision to the effect that it hindered the imposition of a requirement to take a copy where the review of a copy was desirable. The central question was whether the measure imposed by the tax authorities could also include the taking of material to the tax office.

The rationale behind item (b), namely to remove obstacles to an effective control occasioned by the tax authorities having to show that the archives contained specific documents of importance for the tax assessment, militated strongly in favour of espousing an interpretation adapted to the present day situation. According to the Directorate of Taxation, review on the spot would be particularly time-consuming and if the authorites were unable to take copies for review at the tax office they would face difficulties in implementing the control.

It could be question whether access would entail such an additional burden for the tax subject that the above interpretation would be incompatible with the principle of legality (legalitetsprinsippet). In the view of Mrs Justice Stabel, it was difficult to see that this could be the case. The review as such would be less burdensome in that the tax subject at no time would be deprived of access to the archive. Requisite safeguards were preserved in that the tax subject had a right under section 3-5(1) to be notified about and to be present during the authorities’ review of the tape. If the measure were to be the subject of an appeal, the material was to be sealed pending examination of the appeal (section 3-6(4)). In most instances there was reason to believe that it would also be in the tax subject’s interest that review took place at the tax office. In any event, there was little reason to oppose this.

Mrs Justice Stable agreed that interests of protection of the personal sphere (“personvernhensyn”) militated against because the review was not limited to accountancy documents; it included also other documents in the archives where the tax authorities had reason to believe that one might find documents of relevance for the tax assessment. However, the tax authorities would also be able to access such sensitive information even if the review were to be carried out at the tax subject’s place. Even though theoretically there would always be a danger of abuse and this would possibly be somewhat greater if the copied material were to be brought to the tax office, this risk would hardly be so great as to be decisive.

It had not been alleged that the back-up copy contained more material than what would have been accessible if the review had been carried out on the spot. The legal safeguards described above would be taken care of during the review. It was further understood that after the review had been completed, the copy would either be deleted or destroyed and that all traces of the contents would be deleted form the tax authorities’ computers and storage mediums. In addition, the review was to provide a basis for orders pursuant to section 4-10(1) (a). The authorities would not be authorised to withhold documents from the material that had been taken away unless the tax subject accepted the measure.

(b) Dissenting opinion

The dissenting member of the Supreme Court, Mr Justice Skoghøy, agree with the view held by the majority that the authorities could require B.L.H. to give access in order to enable them to carry out an inspection of the server used jointly by the applicant companies.

As to the further issue, whether the tax authorities could demand a copy of the server on which the archive was stored with a view to subsequent review at the tax authorities’ office, Mr Justice Skoghøy observed as follows. In his view section 4-10(1) (b) could not reasonably be understood to mean that it authorised them to demand a copy of the archive. The provision was limited to “review”. To demand a copy was something else and a lot more far reaching.

The reason why the majority in Parliament in 1980 had been in favour of conferring on the tax authorities a power to demand ransacking and seizure was that they should be able to ensure that important documents be not “hidden or disappear (notably burned)”. If one gave the tax authorities powers to demand a copy of the archive, one would in reality give them such powers of seizure that the majority in Parliament in 1984 had not wished to give.

As stated above, the right to review archives under section 4-10(1) (b) comprised not only archives which contained accountancy material but all archives which potentially contained documents of importance for the tax assessment. This meant that the archived material which the tax authorities could demand to review included a great quantity of sensitive personal data. If the tax authorities were to be empowered to demand the copying of archives, the risk of dissemination and abuse of sensitive personal date would increase considerably beyond what followed from a review in the tax payer’s office premises. This applied especially if one authorised the copying of electronic archives. The search facilities for an electronic archive were different from those used for a traditional paper based archive. Even if electronically stored date were deleted it would be possible to make a reconstruction. Also, electronically stored data might be disseminated far easier and more effectively than information on paper. The right of the tax subject to be present when the tax authorities opened and reviewed the archive in no way constituted a guarantee against abuse. There was no way of controlling that this right had been respected. Therefore, weighty considerations of legal security and protection of the personal sphere militated against conferring on the tax authorities a right to demand a copy of the archive. As pointed out by the majority in Parliament in the context of the legislative amendment in 1984, the requirements of legal security and protection of the personal sphere was an overriding political aim in a democratic society. In particular, since the majority of Parliament so strongly had gone against ransacking and seizure, and since copying for subsequent review at the tax office in reality would be a form of seizure, Mr Justice Skogoy found it clear that the tax authorities should not be empowered to require a copy without the question being first considered by the legislator and a clear statutory power was given for imposing copying.

On this ground Mr Justice Skoghøy voted for invalidating the Directorate of Taxation’s decision of 1 June 2004 in respect of B.L.H. authorising the imposition of a requirement to copy the server.

B. Relevant domestic law

Pursuant to section 4-10(1) of the Tax Assessment Act, the tax authorities may order a tax payer:

"(a) To present, hand out or dispatch its books of account, vouchers, contracts, correspondence, governing board minutes and accountancy minutes and other documents of significance with respect to the tax assessment of the tax payer and the control thereof. ...

(b) To grant access for on-site inspection, survey, review of the companies archives, estimation etc. of real estate, constructions, devices with accessories, counting of livestock, stock of goods and raw materials etc. "

Section 3-5(1) of the Tax Assessment Act gave the tax payer a right to be present during the review of the archive:

"The tax payer or the party that has an obligation to disclose information shall be given reasonable notification and have the right to be present and express their viewpoints during the investigation that takes place pursuant to section 4-10(1)(b), or section 6-15. This only applies as far as it takes place without risking the objective of the investigation. "

Section 3-6 of the Tax Assessment Act laid down a right to complain in cases where the tax payer had been ordered to give access to archives pursuant to section 4-10(1) (b):

Section 3-6(1)

"Those ordered to provide information or to cooperate in controls pursuant to chapter 4 or 6, can lodge a complaint if the person or company considers that he has no duty, or is prohibited by law, to comply. "

Section 3-6(4)

"The Instruction [e.g. to grant access to archive] shall be adhered to even if the complaint is not decided, unless he who has given the instruction decides to grant suspensive effect. Suspensive effect should be granted where the person who has given the instruction finds that the complaint raises reasonable doubt as to the legality of the instruction. Suspensive effect shall be granted where the instruction regards presentation of documents and these are sealed and deposited according to regulations from the Ministry."

COMPLAINTS

The applicant companies complained that their right to respect for privacy, home and correspondence under Article 8 of the Convention had been infringed as a result of the Norwegian Supreme Court’s judgment of 20 November 2007 upholding the Directorate of Taxation’s decision of 1 June 2004. The latter had confirmed the local tax authorities’ order of 9 March 2004 on B.L.H. to make a copy of the contents of the server located at Hopsnesveien 127 available for review in the tax authorities’ offices. The applicant companies disputed that the interference was “in accordance with the law”. It had exceeded the wording of the relevant statutory provisions and the law in question failed to fulfil the quality requirements in the Court’s case-law. Moreover, the reasons relied on by the Supreme Court, although in part relevant, had not been sufficient to convincingly establish that the seizure of the backup tape had been necessary in a democratic society. Effective safeguards against abuse had been absent. In any event, the interference could not be considered strictly proportionate to the legitimate aims pursued. The seized backup tape had contained a significant part of information which was irrelevant for tax audit purposes and had included private material pertaining to employees and other persons working for the applicant companies. The Supreme Court’ majority had underestimated the seriousness of the interference stemming from the risk of spreading and misuse of sensitive personal data.

QUESTIONS TO THE PARTIES AND REQUESTS

1. Did the applicant companies pursue their complaints under the Convention at the national level to a sufficient degree to enable the Supreme Court to take a stance on their alleged grievances for the purposes of the rule of exhaustion of domestic remedies in Article 35 § 1 of the Convention?

2. Did the matters complained of entail an interference with a right of the applicant companies protected by Article 8 of the Convention? In this regard, did the measure adversely affect a right of the applicant companies to respect for (a) “private life”, (b) “home” and/or (c) “correspondence”?

3. Was the interference in question “in accordance with the law”? In this connection:

(a) Did the imposition of an obligation to provide a backup copy of the entire server for review at the tax office have a sufficient legal basis under national law?

(b) Did the law in question fulfil the quality requirements under the Court’s case-law?

4. Was the interference necessary in a democratic society? In this connection (a) was it attended to by adequate and efficient safeguards against abuse, (b) supported by relevant and sufficient reasons and (c) proportionate to any legitimate aim pursued?

5. The Government are requested to provide an English translation of the applicant companies’ writ of appeal to the Supreme Court, dated 2 June 2007, and of the Supreme Court’s judgment of 20 November 2007.

 

Full & Egal Universal Law Academy