FOURTH SECTION
CASE OF S.C. ZORINA INTERNATIONAL S.R.L. v. ROMANIA
(Application no. 15553/15)
JUDGMENT
Art 1 P1 • Secure the payment of taxes and of contributions or penalties • Lawful and proportionate sanctions imposed by tax authority on applicant company for failing to issue receipts for merchandise sold • Offence committed represented a part of a recurring domestic problem preventing proper functioning of the economy • Access and recourse to judicial review proceedings • No indication of unfairness or arbitrariness in decision-making process confirming imposition of sanctions • Fair balance struck between competing interests • No excessive burden
STRASBOURG
27 June 2023
This judgment will become final in the circumstances set out in Article 44 § 2 of the Convention. It may be subject to editorial revision.
In the case of S.C. Zorina International S.R.L. v. Romania,
The European Court of Human Rights (Fourth Section), sitting as a Chamber composed of:
Yonko Grozev, President,
Tim Eicke,
Faris Vehabović,
Iulia Antoanella Motoc,
Gabriele Kucsko-Stadlmayer,
Pere Pastor Vilanova,
Jolien Schukking, judges,
and Ilse Freiwirth, Deputy Section Registrar,
Having regard to:
the application (no. 15553/15) against Romania lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Romanian company, S.C. Zorina International S.R.L. (“the applicant company”), on 23 March 2015;
the decisions to give notice to the Romanian Government (“the Government”) of the complaint concerning Article 1 of Protocol No. 1 to the Convention and to declare the remainder of the application inadmissible;
the parties’ observations;
Having deliberated in private on 30 November 2021, 18 January 2022 and 16 May 2023,
Delivers the following judgment, which was adopted on that last‑mentioned date:
INTRODUCTION
1. The present case, brought under Article 1 of Protocol No. 1, concerns the applicant company’s complaint that the tax authority imposed disproportionate sanctions on it in relation to the act committed (namely selling goods worth 179 Romanian lei (RON) without issuing receipts), thus interfering with its right to the peaceful enjoyment of possessions.
THE FACTS
2. The applicant company is a Romanian limited company whose registered office is in Constanţa. It was represented before the Court by Mr Cǎlin Dumitru, who was granted leave to represent the applicant company in accordance with Rule 36 of the Rules of Court.
3. The Government were represented by their Agent, most recently Ms O. Ezer, of the Ministry of Foreign Affairs.
4. The facts of the case, as submitted by the parties, may be summarised as follows.
TAX Inspection and offence report5. On 26 March 2013 the Constanţa Finance Inspectorate (Garda Financiară) conducted an inspection at the store where the applicant company carried out its commercial activities. Following the inspection, the tax authority drew up a report indicating that the applicant company had failed to issue receipts for an amount of RON 179 (approximately 40 euros – EUR), and that no explanation for that failure had been provided by the company’s representative, Mr Cǎlin Dumitru, who was present during the inspection.
6. Pursuant to Article 10 (b), Article 11 § 1 (b) and Article 11 § 3 of Government Emergency Ordinance no. 28/1999 (“GEO no. 28/1999” – see paragraphs 13‑14 below), the applicant company was fined RON 8,000 (approximately EUR 1,900) and the sum of RON 179 was confiscated; moreover, the tax authority ordered that the applicant company’s activities be suspended for a period of three months, on the basis of the provisions of Article 14 § 2 of GEO no. 28/1999 (see paragraph 17 below).
Proceedings before the domestic courtsConstanţa District Court7. The applicant company submitted that the sanctions imposed on it had seriously endangered its commercial activities, which were based mainly on the sale of perishable goods (food and the like). It therefore challenged the tax authority’s report before the Constanţa District Court. Firstly, it argued that the amount of RON 179 did not represent the value of goods that had been sold but had been money kept in the cash register so as to enable it to have sufficient change available for customers. This was confirmed by the paper report of the cash register, although it was blurred with red ink, as the till roll had run out of paper at the relevant point. The applicant company therefore requested that the tax authority’s report and hence the sanctions be declared null and void. In the alternative, it submitted that the “sanction” applied had been disproportionately harsh in relation to the amount found to be unaccounted for and requested that the fine be replaced with a warning. It argued that the amount of the fine had been excessive, in view of the nature of the company’s activities, and that, ultimately, the suspension of its activities for three months had in itself been sufficiently onerous to serve the purpose intended.
8. On 7 October 2013 the court dismissed the applicant company’s action. It found that its allegations concerning the reason why the sum of RON 179 had been found in the cash register could not be proved, in so far as the report of the tax authority had been signed as such by the company’s representative, who at that time had been unable to provide any explanation for the money in question (see paragraph 5 above); moreover, the paper report of the cash register had red marks printed on it, making it illegible.
9. The court further considered that both sanctions imposed in the tax authority’s report were fair and proportionate, having regard to the fact that the fine imposed represented the minimum amount prescribed by law (see paragraph 14 below) and also to the fact that the applicant company’s conduct had been one of constant denial of having committed the offence.
Constanţa Court of Appeal10. The applicant company appealed against the decision of 7 October 2013; it reiterated its previous arguments (see paragraph 7 above). In particular, it requested the court to declare the sanctions imposed on it null and void or, as an alternative, to replace the fine with a warning. It added a request that the court, in general, reassess the sanctions imposed, which, taken together, were disproportionately harsh. In that vein, the applicant company argued that even the measure of suspending its activities could have been alleviated, and submitted relevant examples of domestic case-law in which other courts had replaced the sanctions applied in similar circumstances with more lenient measures.
11. On 24 September 2014 the Constanţa County Court dismissed the appeal and upheld the lower court’s judgment. The court held that the role of the impugned sanctions was preventive and educational in nature, and not one of reparation. The legislature had opted to penalise acts such as that committed by the applicant company by imposing high fines, precisely because official statistics revealed a noticeable upsurge in tax offences. It followed that what was at stake was not the amount of money found in the applicant company’s cash register that was not accounted for by receipts, but the social value protected by the applicable legal provisions.
12. The fact that there had been other national courts which in similar situations had reconsidered one of the sanctions, or the set of sanctions, imposed on companies and alleviated them could not constitute an argument supporting the requests of the applicant company, in view of the particularities of its situation, which did not justify any such alleviation.
RELEVANT LEGAL FRAMEWORK AND PRACTICE
Government emergency ordinance no. 28/1999 and its SUBSEQUENT amendments13. GEO no. 28/1999 regulates the obligation on traders to use cash registers and the implementation framework for that obligation.
14. Article 10 (b), as in force at the relevant time, provided, inter alia, that failure to issue receipts for all goods sold and services provided constituted a tax offence, for which a fine would be imposed. The corresponding amount of the fine ranged from a minimum of RON 8,000 up to RON 10,000, as set out in Article 11 § 1 (b). Article 11 § 3 stated that the amount of money for which no receipts had been issued was subject to confiscation.
15. Article 12 § 3 provided that the provisions of GEO no. 28/1999 were complemented by the provisions of the general law relating to administrative offences, namely Government Ordinance no. 2/2001 (“GO no. 2/2001” – see paragraph 19 below).
16. As of 30 December 2014, the version of Article 12 adopted on that date provided in paragraph 5 that by way of derogation from the provisions of Article 7 § 3 of GO no. 2/2001 (see paragraph 19 below), the sanction of a warning could not be applied for, inter alia, offences committed in breach of Article 10 (b).
17. Article 14 § 2 stated that the tax offence described under Article 10 (b) also triggered the suspension of the company’s activities (“atrage şi suspendarea activităţii unităţii”) for a period of three months. Article 14 § 2 was repealed on 30 December 2014, but the sanction remained in place under Article 11, with the new provisions stating that the suspension was to be applied for a period of between one and three months, depending on the severity of the offence.
18. Those provisions were amended on 8 May 2015 to the effect that failure to issue receipts was punishable by means of a warning if the sum that was unaccounted for amounted to less than RON 300. Moreover, any suspension of the offender’s activities was for a period of thirty days and would only be applied the second time that the tax offence had been committed. The amended provisions set out that for any other offences, the courts could not replace the fine with a warning.
Government Ordinance no. 2/2001 of 12 July 2001 Governing administrative offences19. Under Articles 32 and 33 of GO no. 2/2001, which constituted the general law governing administrative offences, the domestic courts were entitled to assess the lawfulness, as well as the necessity and the proportionality, of the sanctions applied.
Article 5 § 5 and Article 21 § 3 provided that the sanction applied had to be proportionate to the degree of social danger of the offence, due account of the specific circumstances of each case being taken.
Article 7 provided for the sanction of a warning, which could be applied if the offence committed was minor, and paragraph 3 of that Article specified that this could also be done when the lex specialis did not explicitly make mention of that particular sanction.
20. Under the provisions of GO no. 2/2001, the courts could replace the sanctions applied with more lenient penalties, unless the lex specialis excluded that possibility.
Relevant domestic practiceInformation submitted by the Government21. Several appellate courts across the country had submitted information relating to the interpretation and/or application by the lower courts, where the latter had jurisdiction in that regard, of the provisions of Article 10 of GEO no. 28/1999 read in conjunction with those of GO no. 2/2001, in particular its Articles 5, 7, 21 and 34.
22. All the relevant domestic courts had confirmed that they were entitled and indeed required to assess the proportionality of the sanctions imposed by the tax authorities on the various claimants found to have carried out their commercial activities in breach of the provisions of GEO no. 28/1999. In their assessment of this issue, the courts could lower the amount of the fine imposed on the claimant, albeit not below the minimum level set out in the relevant provisions of GEO no. 28/1999, or they could, at the relevant time, replace the fine with a warning, if the particular objective and subjective circumstances of an individual case justified such an approach.
However, at the relevant time, the additional measure of suspending the activities of the claimant could not be set aside, because it was mandatory and necessarily linked to the main sanction (the fine), even when the latter was replaced with a warning. The only situation where the additional sanction could be invalidated was when the inspection report was declared null and void in its entirety as being unlawful.
The Bucharest County Court had nevertheless indicated that there were situations when, relying directly on the Court’s relevant case-law, some of the relevant lower courts had re-assessed the proportionality of the complementary measure and in some cases had invalidated it.
23. The domestic case-law submitted in support of the above‑mentioned viewpoint (concerning some twenty domestic judgments, six of which directly relevant for the time in question) revealed that the courts with which claims similar to those in the present case had been lodged regularly assessed the proportionality of the sanctions imposed on the respective claimants. Examining the particulars of each case, the courts further decided whether it was appropriate to replace the fine with a warning or, conversely, whether the sanctions imposed were proportionate to the acts committed in breach of the rules set out in GEO no. 28/1999, and that there was no call to alleviate them.
Information submitted by the applicant company24. The applicant company submitted a decision given on 21 January 2015 by the Tulcea County Court, reversing in its relevant parts the first‑instance court’s decision of 4 July 2014. Finding that the claimant company in that case had been ordered to pay a fine and to have its activities suspended for not having issued receipts for goods worth RON 555.17, and relying on the provisions of GO no. 2/2001 (see paragraph 19 above), the court maintained the fine set at the minimum level of RON 8,000 but annulled the measure of suspending that company’s activity.
The court hence considered that the overall sanction was excessive and in breach of the requirements of the relevant case-law of the European Court of Human Rights in so far as “a legal sanction should not represent an end in itself, but a means of regulating social relations, inducing a sense of responsibility that would contribute to the prevention of unlawful acts”.
THE LAW
ALLEGED VIOLATION OF ARTICLE 1 of Protocol no. 125. The applicant company complained that the sanctions imposed on it for having failed to issue receipts were disproportionate and thus did not strike a fair balance between the public interest and its property rights, as provided for in Article 1 of Protocol No. 1, which reads as follows:
“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.”
AdmissibilityIncompatibility ratione materiae26. The Government argued that the applicant company’s complaint that, as a consequence of the sanctions imposed on it, it was no longer able to receive a future income was incompatible ratione materiae with the provisions of the Convention and the Protocols thereto because future earnings did not constitute possessions save in specific circumstances, which were not found in the present case.
27. The applicant company submitted that its complaint referred to the interference represented by the disproportionate sanctions imposed on it (see paragraph 25 above), which had had serious repercussions on its commercial activities (see paragraph 37 below).
28. The Court reiterates that the imposition of a fine will in principle constitute an interference with the right guaranteed by the first paragraph of Article 1 of Protocol No. 1, as it deprives the person concerned of an item of property, namely the sum that has to be paid (see Phillips v. the United Kingdom, no. 41087/98, § 50, ECHR 2001‑VII). Similarly, in cases concerning the grants of licences or permits to carry out a business, the Court has indicated that the revocation or withdrawal of a permit or licence interfered with the applicants’ right to the peaceful enjoyment of their possessions, including the economic interests connected with the underlying business (Malik v. the United Kingdom, no. 23780/08, §§ 91-92, 13 March 2012 with further references).
29. In the present case the applicant company was ordered to pay a fine of RON 8,000 and had its commercial activities suspended for a period of three months, on account of its failure to issue receipts for some of the goods sold (see paragraph 6 above). Article 1 of Protocol No. 1 is therefore applicable (see, for instance and mutatis mutandis, Valico S.R.L. v. Italy (dec.), no. 70074/01, 21 March 2006, and DELTA PEKÁRNY a.s. v. the Czech Republic, no. 97/11, § 125, 2 October 2014 relating to the imposition of fines, and, mutatis mutandis, O’Sullivan McCarthy Mussel Development Ltd v. Ireland, no. 44460/16, § 89, 7 June 2018, relating to a temporary prohibition amounting to a restriction placed on the applicant company’s business permit). The Court therefore dismisses the Government’s objection of incompatibility ratione materiae.
Non-exhaustion30. The Government argued that the applicant company had failed to exhaust all domestic remedies, in so far as in its complaint lodged with the Constanţa District Court, it had challenged only the fine; furthermore, on appeal, it had not specifically challenged the sanction concerning the suspension of its activities, whereas that sanction constituted the core of its main complaint before the Court.
31. The applicant company did not submit any comments on this issue.
32. The Court refers to the general principles regarding the requirement to exhaust domestic remedies (see, Vučković and Others v. Serbia (preliminary objection) [GC], nos. 17153/11 and 29 others, §§ 69‑77, 25 March 2014) and notes that the applicant company consistently challenged before the domestic courts the severity of the measures taken against it following the tax inspection, which allegedly had had serious repercussions on its commercial activities (see paragraphs 7 and 10 above). Indeed, while focusing specifically on requesting that the fine be replaced with a warning, the applicant company also relied on the fact that the impact of the sanctions on its activities had been disproportionate. At the same time, both the first‑instance court and the appellate court addressed the two aspects in question by referring to the two sanctions imposed on the applicant company and finding them to have been proportionate (see paragraphs 9 and 11 above).
33. The Court considers, therefore, that the applicant company raised its complaint, at least in substance, before the domestic courts, affording them the opportunity to provide an effective remedy for the alleged violations of the Convention. Therefore, the Government’s objection regarding non-exhaustion of domestic remedies must be dismissed.
Other grounds for inadmissibility34. The Court notes that this complaint is neither manifestly ill-founded nor inadmissible on any other grounds listed in Article 35 of the Convention. It must therefore be declared admissible.
MeritsThe parties’ submissions(a) The applicant company
35. The applicant company contended that between 2009 and 2014 the tax authority had inspected its activities thirty-six times and had not found any irregularities, except on the one occasion when the incident underlying the complaints in the present application had occurred.
36. It further argued that the sanctions imposed on it were disproportionately harsh, considering that the actual harm caused to the State on account of the allegedly unregistered amount of RON 179 was approximately RON 3 (representing tax on the corresponding profit). It also submitted that other domestic courts had considered that the cumulative effect of imposing a fine while also suspending the company’s activities for acts such as that in issue in the present case had a disproportionate effect on the company’s ability to keep its business going (see paragraphs 10 and 24 above). Moreover, in 2015 the legislature had considered it appropriate to amend the relevant domestic law and stated that the sanction of suspending the activities of a company could only be ordered if that company had already committed several acts of non-compliance and if the amount left unregistered in the tax register was more than RON 300 (see paragraph 18 above).
37. The applicant company alleged that following the impugned measures taken against it, its activities had come to a standstill, as shown by the annual financial statements for the period between 2014 and 2019, when its turnover was nil. The only way in which it had been able to avoid bankruptcy was by borrowing money from its sole shareholder to pay its suppliers in several instalments; in 2019 it had been able to start again, although it remained dependent on its shareholder’s private capital.
(b) The Government
38. The Government argued that the measures complained of had been prescribed by law and had pursued the legitimate aim of combating tax evasion and encouraging the practice of responsible trading. Moreover, they had been proportionate, having regard also to the fact that the authorities had applied the minimum possible fine and, in doing so, had enjoyed a wide margin of appreciation and had taken into consideration factors such as the applicant company’s conduct and the social values at stake. Furthermore, the sanctions complained of had not had a severe impact on the company’s further business activities, in so far as it had never filed for bankruptcy and had continued to operate all along. In addition, there was no direct connection between the applicant company’s annual turnover and the measures taken against it in 2013; indeed, the type of commercial activities carried out by the applicant company did not ensure any specific or fixed income or guaranteed turnover, as they were more subject to the “hazards of economic life”.
39. While indicating that in accordance with the provisions of Article 7 of GO no. 2/2001 (see paragraph 19 above), the national courts could set aside the sanctions or replace the fine with a warning (see also paragraphs 21‑23 above), the Government maintained that such decisions had to be taken on a case-by-case basis and, in any event, fell within the national authorities’ margin of appreciation in such matters.
The Court’s assessment(a) The applicable rule
40. The Court notes at the outset that the impugned interference falls within the scope of the second paragraph of Article 1 of Protocol No. 1, concerning measures for “the control of the use of property”, and more particularly, in respect of the fine, measures “to secure the payment of taxes or other contributions or penalties” (see Phillips, cited above, § 51, and, in respect of taxation, Buffalo S.r.l. in liquidation v. Italy, no. 38746/97, § 32, 3 July 2003; in respect of an interference with an applicant’s business activities, see Werra Naturstein GmbH & Co KG v. Germany, no. 32377/12, § 41, 19 January 2017).
41. In this connection, the Court reiterates that it is in the first place for the national authorities to decide what kind of taxes or contributions are to be collected. Decisions in this area will commonly involve an appreciation of political, economic and social questions which the Convention leaves within the competence of the Contracting States. The margin of appreciation of the Contracting States is therefore a wide one (see Gasus Dosier- und Fördertechnik GmbH v. the Netherlands, 23 February 1995, § 60, Series A no. 306‑B, and Baláž v. Slovakia (dec.), no. 60243/00, 16 September 2003) and the Court will respect the legislature’s assessment in such matters unless it is devoid of reasonable foundation (see National & Provincial Building Society, Leeds Permanent Building Society and Yorkshire Building Society v. the United Kingdom, 23 October 1997, § 80, Reports of Judgments and Decisions 1997-VII).
42. This does not, however, mean that the Court’s supervisory role on this issue is entirely excluded, as it must verify whether Article 1 of Protocol No. 1 has been correctly applied (see Orion-Břeclav, s.r.o., v. the Czech Republic (dec.), no. 43783/98, 13 January 2004; Valico S.r.l., cited above; and DELTA PEKÁRNY a.s., § 125, cited above).
43. According to the Court’s well-established case-law, an interference, including one resulting from a measure to secure the payment of taxes, must strike a “fair balance” between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights. The concern to achieve this balance is reflected in the structure of Article 1 as a whole, including the second paragraph: there must therefore be a reasonable relationship of proportionality between the means employed and the aims pursued (see National & Provincial Building Society, Leeds Permanent Building Society and Yorkshire Building Society, cited above, § 80). Consequently, any financial liability arising out of a fine may undermine the guarantee afforded by that provision if it places an excessive burden on the person or entity concerned or fundamentally interferes with the latter’s financial position (see Valico S.r.l., cited above, and Konstantin Stefanov v. Bulgaria, no. 35399/05, § 55, 27 October 2015).
44. The fair balance also requires procedural guarantees to establish an applicant’s liability, whereby he or she is afforded an adequate opportunity to put his or her case to the responsible authorities in order to plead, as the case may be, illegality or arbitrary and unreasonable conduct (see Yildirim v. Italy (dec.), no. 38602/02, ECHR 2003‑IV, and Konstantin Stefanov, cited above, § 55; see also, mutatis mutandis, Credit Europe Leasing Ifn S.A. v. Romania, no. 38072/11, § 76, 21 July 2020).
(b) Compliance with Article 1 of Protocol No. 1
(i) Whether the interference was prescribed by law
45. The Court notes that in the instant case cumulative sanctions were imposed on the applicant company as a consequence of a tax inspection which concluded that it had failed to comply with the legal provisions rendering mandatory the issuing of receipts for merchandise sold (see paragraphs 5‑6 above). The sanctions applied were all provided for by Article 10 (b), Article 11 §§ 1 (b) and 3 and Article 14 § 1 of GEO no. 28/1999 (see paragraphs 13‑14 and 17 above). The interference was therefore prescribed by law.
(ii) Pursuit of a legitimate aim
46. Furthermore, the Court accepts the Government’s statement that the interference pursued the legitimate aim of combating tax evasion and improving financial responsibility among traders (see paragraph 38 above).
(iii) Proportionality of the interference
47. It remains to be determined whether a fair balance was struck between the demands of the general interest and the requirements of the protection of the applicant company’s fundamental rights.
48. In the present case, the offence committed by the applicant company represented part of a recurring problem at national level, which, as established by the national courts, prevented the economy from functioning properly and efficiently (see paragraph 11 above). In this connection, the Court acknowledges that the aims pursued by the relevant legislation also concern issues going beyond the mere pecuniary damage incurred by the State as a consequence of traders’ not issuing receipts for every product sold, such issues falling within the more general context of combating tax evasion.
49. The issue of whether such conduct should be punished by one or several financial sanctions with a deterrent effect comes within the margin of appreciation of the State. That margin is a wide one and the Court will respect the legislature’s assessment in such matters unless it is devoid of reasonable foundation (see the case-law quoted in paragraph 41 above).
50. Turning to the facts of the present case, the Court is of the opinion that the applicant company’s argument that the actual damage incurred by the State amounted to approximately RON 3 (see paragraph 36 above) must be considered while having regard to the more general context and to the State’s fiscal policy at the relevant time, which was, as mentioned above, one of attempting to encourage more discipline and responsibility in the field of business and accounting (see paragraph 46 above)
51. Furthermore, and equally importantly, the applicant company had at its disposal a procedural guarantee by which to challenge the sanctions, specifically the possibility of bringing judicial review proceedings in respect of the fine and the other sanctions imposed. It made use of that remedy (see paragraphs 7‑12 above) and there is nothing to show that the decision-making process confirming the imposition of the sanctions complained of was unfair or arbitrary.
52. Indeed, the national courts upheld the sanctions imposed by the tax authority, as they were fully in accordance with the law; moreover, even if in accordance with the law, the domestic courts had the discretion to apply more lenient sanctions by, for instance, replacing the fine with a warning (see paragraphs 19‑20 and 22-23 above), they considered, having regard to the circumstances of the applicant company’s case, that the sanctions, including the fine applied in its minimum amount, were proportionate to the aim pursued, which at the relevant time was of particular importance at national level (see, in particular, the domestic courts’ findings summarised in paragraphs 9 and 11 above). Such an assessment must be regarded as being within the domestic courts’ margin of appreciation to interpret and apply the relevant law, notwithstanding the fact that one other court in another similar case concluded differently as regards the measure of suspending that company’s activity (see paragraph 24 above).
53. Lastly, the Court accepts that even though the fine imposed on the applicant company was the minimum amount possible under the relevant legal provision, that sanction, coupled with the suspension of the applicant company’s business activities for three months, must have had a certain impact on its financial situation (see paragraph 37 above); however, that impact was of a temporary nature. Thus, the parties’ submissions show that the applicant company never had to file for bankruptcy and managed to stay operational, even if, admittedly, in more difficult circumstances (see paragraphs 37 and 38 above).
54. Therefore, in view of the overall context, the restrictive measures imposed on the applicant company were neither prohibitive nor oppressive or otherwise disproportionate (see, for a similar approach, Allianz – Slovenská poist’ovňa, a.s., and Others v. Slovakia (dec.), no. 19276/05, 9 November 2010, and DELTA PEKÁRNY a.s., cited above, § 129).
55. In these circumstances, the Court finds that the national authorities struck a fair balance between, on the one hand, the general interest and, on the other, respect for the applicant company’s right of property. The interference did not, therefore, impose an excessive burden on the applicant company such as to make the measure complained of disproportionate to the legitimate aim pursued.
56. Accordingly, it finds that there has been no violation of Article 1 of Protocol No. 1 to the Convention.
FOR THESE REASONS, THE COURT
Declares, unanimously, the application admissible;Holds, by six votes to one, that there has been no violation of Article 1 of Protocol No. 1 to the Convention.Done in English, and notified in writing on 27 June 2023, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Ilse Freiwirth Yonko Grozev
Deputy Registrar President
In accordance with Article 45 § 2 of the Convention and Rule 74 § 2 of the Rules of Court, the separate opinion of Judge Pere Pastor Vilanova is annexed to this judgment.
Y.G.R.
I.F.
DISSENTING OPINION OF JUDGE PASTOR VILANOVA
(Translation)
1. I voted against the finding that there has been no violation of Article 1 of Protocol No. 1 in this case. Unlike the majority, I consider that the national authorities have severely breached the principle of respect for the applicant company’s property and have upset the fair balance to be struck between the protection of the right of property and the requirements of the general interest.
2. I agree with the majority, however, that the interference with the applicant company’s right to the peaceful enjoyment of its possessions was indisputable, was provided for by law and could be regarded as pursuing an aim that was in the general interest, namely, preventing tax evasion.
3. In contrast, I consider that the domestic courts did not carry out the review required by our Court’s case-law; in other words, they are expected, in the first place, to verify that there exists a reasonable relationship of proportionality between the means employed and the aim pursued by the legislation.
4. The facts of the case are objective and do not lend themselves to discussion. The applicant company owns a food store. The tax authorities stated that, during an inspection carried out on 26 March 2013, they found that sales receipts had not been issued for an approximate total amount of 40 euros (EUR) (179 Romanian lei (RON)). It is not disputed by the parties that this omission would have resulted in a tax shortfall that was equivalent to EUR 0.60 (RON 3). It should be emphasised that this is a simple administrative offence, and that neither the applicant company nor its owner have ever been the subject of criminal prosecution. On account of this offence, the applicant company was ultimately ordered: (a) to pay a fine of EUR 1,900 (RON 8,000); (b) to hand over to the State the full amount in respect of which no sales receipt had been issued (40 euros); and (c) to suspend all commercial activity for three months.
5. Thus, on account of fraud amounting to EUR 0.60, the applicant company was required to pay a fine equivalent to EUR 1,940 (that is, more than 3,200 times the amount defrauded) and, in addition, it was obliged to close its store, containing perishable goods, for three months.
6. In my opinion, the cumulative nature of these clearly punitive penalties undoubtedly represented a disproportionate burden, especially since this had been a single and one-off offence. It is not disputed that the applicant company had been inspected 36 times since 2009, and that the tax authorities had never found a single irregularity. Indeed, one wonders what objective reasons could justify this administrative “zeal”, given the economic nature of the applicant company’s business and its legal status (a private limited liability company).
7. It appears that the applicant company did indeed complain before the domestic courts about the excessive nature of the penalties imposed. The first-instance court (the Constanţa District Court) merely responded that the fine imposed corresponded to the minimum amount set out in the relevant provisions (RON 8,000, or EUR 1,900) and noted that the applicant company had consistently denied that it had committed the offence. The court of appeal (the Constanţa Court of Appeal) emphasised the “educational” and “preventive” nature of the sanctions, the interest protected by the law and the “particularities of the situation”, without giving further details.
8. In my humble view, it should be noted that the domestic courts did nothing other than confirm the sanctions imposed by the tax authorities, through a mechanical application of the law. They never considered imposing more lenient penalties, although this possibility was permitted by the law and the applicant company made requests to that effect (see paragraphs 19, 20, 23 and 24). This inflexibility was confirmed by laconic reasoning which had no regard whatsoever to the proportionality assessment required by the Court. No account was ever taken of the numerous previous favourable inspections, the small amount of the unpaid tax, the nature of the commercial activity affected by the suspension measure, the applicant company’s capacity to recover, the intentional or non-intentional nature of the offence, the fact that the store was the tool of the applicant company’s trade, and so on. Accordingly, I consider that the review carried out by the domestic courts was too narrow to satisfy the requirement of striking a “fair balance”, inherent in the second paragraph of Article 1 of Protocol No. 1 (see Krayeva v. Ukraine, no. 72858/13, § 30, 13 January 2022; Sadocha v. Ukraine, no. 77508/11, § 33, 11 July 2019; Gyrlyan v. Russia, no. 35943/15, § 30, 9 October 2018; and Paulet v. the United Kingdom, no. 6219/08, § 68, 13 May 2014).
9. Over and above this “procedural approach”, totally absent from the domestic courts’ reasoning, I also consider that the accrual of imposed penalties was disproportionate in view of the gravity of the offence and/or the minimal harm caused to the tax authorities (see Grifhorst v. France, no. 28336/02, § 105, 26 February 2009; Ismayilov v. Russia, no. 30352/03, § 38, 6 November 2008; and Mamidakis v. Greece, no. 35533/04, §§ 47‑48, 11 January 2007). In Mamidakis v. Greece, for example, a fine corresponding to “ten times the taxes imposed on the subject-matter of the offence” (§ 47) was found to be disproportionate by the Court. In the present case, the multiplication factor was more than 3,200. Furthermore, I am not aware of a comparative-law situation where an administrative offence such as that in issue in the present case can give rise to suspension of economic activity for such a long period.
10. I note in passing that the Romanian legislation was amended in 2015 and that suspension of the offender’s economic activities is now possible only in the event of a repeat offence. This proves, if proof were needed, the excessive nature of the previous legislation.
11. For their part, the majority argue that the domestic courts did not exceed their margin of appreciation and that the penalties imposed on the applicant company were proportionate and temporary in nature, especially as it was not required to file for bankruptcy (see § 53 of the judgment). The fact remains, however, that the applicant company has explained that it received a loan from its sole shareholder in order to survive. This statement has not been contested by the respondent Government and, in consequence, must be considered truthful. With all due respect, the majority’s argument thus seems moot, since the applicant company’s survival does not detract from the excessive nature of the penalties imposed. Furthermore, I consider that to link a finding of a violation of Article 1 of Protocol No. 1 to a company’s bankruptcy is not only extreme, but also unprecedented in the Court’s case‑law. Lastly, the majority rely on the case of DELTA PEKÁRNY a.s. v. the Czech Republic (no. 97/11, 2 October 2014) to justify the proportionality of the interference (see § 54 of the judgment). In my view, however, that judgment is not relevant, given that the company Delta Pekárny a.s. was never obliged to close its offices and that the circumstances of that case (partial obstruction of an inspection of the company’s premises by the Czech Competition Authority) were completely different to those of the present case.
12. To conclude, I consider that this case raises a new issue for the Court, namely whether it is reasonable for the tax authorities to be entitled to suspend a company’s economic activity for having committed a minor administrative offence. Moreover, it also raises a methodological question. In practice, there appear to be two lines of case-law in this type of dispute: a procedural approach (see paragraph 8 above) and a substantive approach (see paragraph 9 above). Should one be given priority over the other? If so, in what circumstances? Can the two approaches be combined? It seems to me that clarification of the current case-law is needed.