FOURTH SECTION
CASE OF I.B. AND OTHERS v. HUNGARY
(Application no. 57053/12)
JUDGMENT
STRASBOURG
18 July 2017
This judgment is final but it may be subject to editorial revision.
In the case of I.B. and Others v. Hungary,
The European Court of Human Rights (Fourth Section), sitting as a Committee composed of:
Vincent A. De Gaetano, President,
Georges Ravarani,
Marko Bošnjak, judges,
and Andrea Tamietti, Deputy Section Registrar,
Having deliberated in private on 27 June 2017,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 57053/12) against Hungary lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by eleven Hungarian nationals, Mr I.B., Mr L.C., Mr A.D., Mr E.F., Mr E.J., Mr J.K., Mr Z.J.K., Mr G.N., Mr I.S., Mr S.S. and Mr F.V. (“the applicants”), on 28 August 2012. The President of the Section acceded to the applicants’ request not to have their names disclosed (Rule 47 § 4 of the Rules of Court).
2. The applicants were represented by Mr D.A. Karsai, a lawyer practising in Budapest. The Hungarian Government (“the Government”) were represented by Mr Z. Tallódi, Agent, Ministry of Justice.
3. On 16 December 2015 the applicants’ complaints under Article 1 of Protocol No. 1 to the Convention concerning the imposition of 98% tax on part of their severance payments were communicated to the Government and the remainder of the application was declared inadmissible pursuant to Rule 54 § 3 of the Rules of Court.
THE FACTS
4. The applicants were all employed at a State-owned limited liability company. Their employment was terminated as of 3 July 2012.
5. The first applicant, I.B. was born in 1957 and lives in Budapest. A certain part of his severance payment was subject to the 98% special tax in the amount of 3,557,737 Hungarian forints (HUF) (approximately 11,900 euros (EUR)).
6. The second applicant, L.C. was born in 1963 and lives in Budapest. Part of his severance payment was subject to the 98% special tax in the amount of HUF 3,675,702 (approximately EUR 12,200). The second applicant withdrew his application on 25 February 2016.
7. The third applicant, A.D. was born in 1968 and lives in Budapest. Part of his severance payment was subject to the 98% special tax in the amount of HUF 2,824,844 (approximately EUR 9,400).
8. The fourth applicant, E.F. was born in 1959 and lives in Monor. Part of his severance payment was subject to the 98% special tax in the amount of HUF 2,650,902 (approximately EUR 8,800).
9. The fifth applicant, E.J. was born in 1954 and lives in Solymár. Part of his severance payment was subject to the 98% special tax in the amount of HUF 5,696,384 (approximately EUR 19,000). Due to subsequent amendments of the relevant legislation, the tax rates applicable to the fifth applicant’s severance payment changed retroactively. Accordingly, the National Tax Authority found that part of the applicant’s severance payment had been subject to a flat-rate public charge of 20% in the amount of HUF 746,808 and another part of his severance payment had been subject to a flat-rate public charge of 75%, amounting to HUF 1,558,949. Therefore, the applicant was reimbursed HUF 3,390,627 by the National Tax Authority. The overall tax burden imposed on the applicant’s severance payment was 30.7 %.
10. The sixth applicant, J.K. was born in 1956 and lives in Budapest. Part of his severance payment was subject to the 98% special tax in the amount of HUF 2,099,845 (approximately EUR 7,000).
11. The seventh applicant, Z.J.K. was born in 1955 and lives in Budapest. Part of his severance payment was subject to the 98% special tax in the amount of HUF 3,119,393 (approximately EUR 10,400).
12. The eighth applicant, G.N. was born in 1960 and lives in Budapest. Part of his severance payment was subject to the 98% special tax in the amount of HUF 2,886,807 (approximately EUR 9,600). The eighth applicant withdrew his application on 14 January 2015.
13. The ninth applicant, I.S. was born in 1957 and lives in Szolnok. Part of his severance payment was subject to the 98% special tax in the amount of HUF 3,972,297 (approximately EUR 13,200).
14. The tenth applicant, S.S was born in 1965 and lives in Monor. Part of his severance payment was subject to the 98% special tax in the amount of HUF 2,376,658 (approximately EUR 7,900).
15. The eleventh applicant, F.V. was born in 1955 and lives in Budapest. Part of his severance payment was subject to the 98% special tax in the amount of HUF 3,345,040 (EUR 11,100).
THE LAW
I. PRELIMINARY QUESTION
16. The second and the eighth applicants withdrew their complaints under Article 1 of Protocol No. 1 on 25 February 2016 and on14 January 2015 respectively (see paragraph 6 and 12 above). In the absence of any special circumstances regarding respect for the rights guaranteed by the Convention or its Protocols, the Court, in accordance with Article 37 § 1 (a) of the Convention, considers that it is no longer justified to continue the examination of the application in respect of these two applicants. It is appropriate to strike the application out of the list in so far as it concerns the second and the eighth applicants.
II. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL NO. 1 TO THE CONVENTION IN RESPECT OF THE FIRST, THIRD, FOURTH, SIXTH, SEVENTH, NINTH, TENTH AND ELEVENTH APPLICANTS
17. The first, third, fourth, sixth, seventh, ninth, tenth and eleventh applicants complained that the imposition of 98% tax on part of their remuneration due on termination of their employment had amounted to a deprivation of property in breach of Article 1 of Protocol No. 1 to the Convention.
The Government did not dispute these applicants’ allegations.
18. The Court notes that the complaints are not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that they are not inadmissible on any other grounds. They must therefore be declared admissible.
19. The Court observes that virtually identical circumstances gave rise to a violation of Article 1 of Protocol No. 1 in the case of R.Sz. v. Hungary (no. 41838/11, §§ 54-62, 2 July 2013); and is satisfied that there is no reason to hold otherwise in the present complaints.
20. It follows that there has been a violation of Article 1 of Protocol No. 1 in respect of the first, third, fourth, sixth, seventh, ninth, tenth and eleventh applicants.
III. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL NO. 1 TO THE CONVENTION IN RESPECT OF THE FIFTH APPLICANT
21. The fifth applicant complained that the imposition of 98% tax on part of his remuneration due on termination of his employment had amounted to a deprivation of property in breach of Article 1 of Protocol No. 1 to the Convention.
22. The Government contested that argument. They argued that following the introduction of the flat-rate public charge and the subsequent reimbursement, the criteria for finding a violation of Article 1 of Protocol No. 1 was not met any longer in the fifth applicant’s case.
23. The Court recalls that in the area of social and economic legislation including in the area of taxation as a means of such policies States enjoy a wide margin of appreciation, which in the interests of social justice and economic well-being may legitimately lead them, in the Court’s view, to adjust, cap or even reduce the amount of severance normally payable to the qualifying population. However, any such measures must be implemented in a non-discriminatory manner and comply with the requirements of proportionality (see N.K.M. v. Hungary, no. 66529/11, § 65, 14 May 2013).
24. In the present case, when considering the proportionality between the means employed and the aim sought, it is to be noted that after the fifth applicant was reimbursed, the overall tax burden imposed on him was 30.7% which cannot be considered disproportionate (see, a contrario, N.K.M. v. Hungary, cited above, § 66). The interference did not, therefore, impose an excessive burden on the fifth applicant.
25. It follows that the fifth applicant’s complaint is manifestly ill‑founded and must be rejected in accordance with Article 35 §§ 3 and 4 of the Convention.
IV. APPLICATION OF ARTICLE 41 OF THE CONVENTION
26. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
27. The applicants claimed the following amounts in respect of pecuniary and non-pecuniary damages combined:
- the first applicant: HUF 3,557,737 (approximately EUR 11,900);
- the third applicant: HUF 2,824,844 (approximately EUR 9,400);
- the fourth applicant: HUF 2,650,902 (approximately EUR 8,800);
- the sixth applicant: HUF 2,099,845 (approximately EUR 7,000);
- the seventh applicant: HUF 3,119,393 (approximately EUR 10,400);
- the ninth applicant: HUF 3,972,297 (approximately EUR 13,200);
- the tenth applicant: HUF 2,376,658 (approximately EUR 7,900);
- the eleventh applicant: HUF 3,345,040 (approximately EUR 11,100).
28. The Government did not present observations on this point.
29. Having regard to the fact that, in the absence of the 98% tax rate, the applicants’ severance would have been in all likelihood subject to the general personal income taxation, the Court awards the applicants the following amounts in respect of pecuniary and non-pecuniary damage combined:
- the first applicant (Mr I.B.): EUR 7,400;
- the third applicant (Mr A.D.): EUR 5,800;
- the fourth applicant (Mr E.F.): EUR 5,500;
- the sixth applicant (Mr J.K.): EUR 4,400;
- the seventh applicant (Mr Z.J.K.): EUR 6,500;
- the ninth applicant (Mr I.S.): EUR 8,200;
- the tenth applicant (Mr S.S.): EUR 5,000;
- the eleventh applicant (Mr F.V.): EUR 7,000.
B. Costs and expenses
30. The applicants claimed EUR 1,500 each for the costs and expenses incurred before the Court.
31. The Government did not present observations on this point.
32. Having regard to all materials in the case file, the Court finds it reasonable to award the applicants EUR 500 each, plus any tax that may be chargeable.
C. Default interest
33. The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
1. Decides to strike the application out of its list of cases in accordance with Article 37 § 1 (a) of the Convention in so far as it relates to the complaints of the second and the eighth applicants (respectively, Mr L.C. and Mr G.N.);
2. Declares the application admissible in so far as it concerns the first, third, fourth, sixth, seventh, ninth, tenth and eleventh applicants (respectively, Mr I.B., Mr A.D., Mr E.F., Mr J.K., Mr Z.J.K., Mr I.S., Mr S.S. and Mr F.V.);
3. Declares the application inadmissible in so far as it concerns the fifth applicant (Mr E.J.);
4. Holds that there has been a violation of Article 1 of Protocol No. 1 to the Convention with regard to the first, third, fourth, sixth, seventh, ninth, tenth and eleventh applicants (respectively, Mr I.B., Mr A.D., Mr E.F., Mr J.K., Mr Z.J.K., Mr I.S., Mr S.S. and Mr F.V.);
5. Holds
(a) that the respondent State is to pay the first applicant, Mr I.B., within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) EUR 7,400 (seven thousand four hundred euros), plus any tax that may be chargeable, in respect of pecuniary and non-pecuniary damage combined; and
(ii) EUR 500 (five hundred euros), plus any tax that may be chargeable to the first applicant, in respect of costs and expenses;
(b) that the respondent State is to pay the third applicant, Mr A.D., within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) EUR 5,800 (five thousand eight hundred euros), plus any tax that may be chargeable, in respect of pecuniary and non-pecuniary damage combined; and
(ii) EUR 500 (five hundred euros), plus any tax that may be chargeable to the third applicant, in respect of costs and expenses;
(c) that the respondent State is to pay the fourth applicant, Mr E.F., within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) EUR 5,500 (five thousand five hundred euros), plus any tax that may be chargeable, in respect of pecuniary and non-pecuniary damage combined; and
(ii) EUR 500 (five hundred euros), plus any tax that may be chargeable to the fourth applicant, in respect of costs and expenses;
(d) that the respondent State is to pay the sixth applicant, Mr J.K., within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) EUR 4,400 (four thousand four hundred euros), plus any tax that may be chargeable, in respect of pecuniary and non-pecuniary damage combined; and
(ii) EUR 500 (five hundred euros), plus any tax that may be chargeable to the sixth applicant, in respect of costs and expenses;
(e) that the respondent State is to pay the seventh applicant, Mr Z.J.K., within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) EUR 6,500 (six thousand five hundred euros), plus any tax that may be chargeable, in respect of pecuniary and non-pecuniary damage combined; and
(ii) EUR 500 (five hundred euros), plus any tax that may be chargeable to the seventh applicant, in respect of costs and expenses;
(f) that the respondent State is to pay the ninth applicant, Mr I.S., within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) EUR 8,200 (eight thousand two hundred euros), plus any tax that may be chargeable, in respect of pecuniary and non-pecuniary damage combined; and
(ii) EUR 500 (five hundred euros), plus any tax that may be chargeable to the ninth applicant, in respect of costs and expenses;
(g) that the respondent State is to pay the tenth applicant, Mr S.S., within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) EUR 5,000 (five thousand euros), plus any tax that may be chargeable, in respect of pecuniary and non-pecuniary damage combined; and
(ii) EUR 500 (five hundred euros), plus any tax that may be chargeable to the tenth applicant, in respect of costs and expenses;
(h) that the respondent State is to pay the eleventh applicant, Mr F.V., within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) EUR 7,000 (seven thousand euros), plus any tax that may be chargeable, in respect of pecuniary and non-pecuniary damage combined; and
(ii) EUR 500 (five hundred euros), plus any tax that may be chargeable to the eleventh applicant, in respect of costs and expenses;
(i) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the awarded amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
6. Dismisses the remainder of the applicants’ claim for just satisfaction.
Done in English, and notified in writing on 18 July 2017, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Andrea TamiettiVincent A. De Gaetano
Deputy RegistrarPresident
Full & Egal Universal Law Academy