SECOND SECTION
DECISION
AS TO THE ADMISSIBILITY OF
Application no. 38884/02
by Max FISCHLER
against Sweden
The European Court of Human Rights (Second Section), sitting on 25 January 2005 as a Chamber composed of:
MrJ.-P. Costa, President,
MrA.B. Baka
MrI. Cabral Barreto,
MrR. Türmen,
MrM. Ugrekhelidze,
MrsE. Fura-Sandström,
MsD. Jočienė, judges,
and Mrs S. Dollé, Section Registrar,
Having regard to the above application lodged on 24 October 2002,
Having deliberated, decides as follows:
THE FACTS
The applicant, Mr Max Fischler, is a Swedish national, who was born in 1929 and lives in Enskede. He is represented before the Court by Mr B. Leidhammar, a lawyer practising in Stockholm.
A. The circumstances of the case
The facts of the case, as submitted by the applicant, may be summarised as follows.
1. The Audit report
In their tax returns for the tax assessment years 1993 and 1994, a substantial number of persons, including the applicant, made deductions for capital losses, after having bought and sold interest options (ränteoptioner), and for paid interest on a promissory note loan (reverslån). All transactions were made with the same opposite party, Nordisk Fondkommission AB (the Nordic Fund Commission, hereinafter referred to as the “NF”) which had also granted the loans.
Because of the substantial number of persons who had made deductions for capital losses following transactions with the NF, the Tax Authority (skattemyndigheten) of the County of Stockholm decided to make an audit of the NF. However, due to the very complex and intricate nature of the transactions and the lack of co-operation by the NF, the investigation proved difficult to carry out, for which reason the Tax Authority hired an independent expert body to carry out a part of the audit.
According to the findings of the audit, as set forth in the Tax Authority's audit report (granskningspromemorian) on 21 June 1995, the transactions made between the individuals and the NF had been based on an agreement entered into by the parties beforehand who had followed a procedure set forth therein. The transactions had included buying and selling specific interest options which the NF claimed were adjusted to conditions on the market. However, the Tax Authority found through the audit that the options had not been noted on the market nor adjusted to the market conditions, since the market price of the options had not been decisive for the determination of the price at the time of selling. Instead, the price of the options had been fixed in advance already in the agreement. Moreover, the size of the loss during the first year and the subsequent recovery the following year had also been decided beforehand. Thus, in fact, the parties had not dealt with real options, as defined in the law.
As concerned the promissory note loan, the same type of agreement had been followed. The first year, the individuals had paid a very high interest on the loan and then, at the beginning of the second year, they had paid the loan in advance, following which a part of the interest was repaid. The audit report revealed that both the cost of the interest paid the first year and the repayment of part of the interest made the second year had been predetermined in the agreement.
The audit report concluded that the individuals had been offered by the NF an agreement in which everything was predetermined and where the purpose had been to obtain tax benefits. The idea had been that, tax wise, the high interest on the loans paid the first year, and the repayment the following year, should finance the capital losses of the transactions with the options.
2. The tax assessment year 1993
On 21 June 1995, the same day that the above-mentioned audit report was finalised, the Tax Authority transmitted it to the applicant and informed him of its intention to revise the assessment of the arrears (eftertaxering) for his 1993 tax assessment and to impose tax surcharges on him. On 12 March 1997 it sent a preliminary consideration (övervägande) to the applicant, informing him that it was considering making a revised assessment for arrears and disallowing the deduction for paid interest on the promissory note loan in the amount of SEK 272,108. Further, it was considering imposing tax surcharges (skattetillägg) amounting to 40% of the increased tax liability on the sum (apparently amounting to around SEK 35,000). The applicant was requested to submit any comments he might have within two weeks.
On 10 April 1997 the Tax Authority decided to follow its preliminary consideration. With regard to the imposition of tax surcharges, it found that the applicant had submitted incorrect information by failing to provide it with information about the true conditions of the interest rates of the loan. Further, it considered that no grounds for remission had been shown and that, due to the character of the matter and the way in which it had been carried out, it could not be assumed that any such grounds existed.
On 11 June 1997 the applicant appealed against the decision, disputing the Tax Authority's findings. He maintained that there were no grounds for revising the assessment of the arrears or for imposing tax surcharges.
On 20 November 1997 the Tax Authority made the obligatory re-assessment of its decision of 10 April 1997 but decided not to change it. Following this, it forwarded the appeal to the County Administrative Court (länsrätten) in Stockholm which received it on 28 November 1997.
3. The tax assessment year 1994
On 21 June 1995, when the above-mentioned audit report was transmitted to the applicant, the Tax Authority also informed him of its intention to alter his tax assessment for the year 1994 and to impose tax surcharges on him. On 30 November 1995 the Tax Authority sent a preliminary consideration to him and, on 27 December 1995, it decided, on the basis of the findings of the audit, to decrease his income from capital gain by SEK 100,645 for capital losses but, at the same time, to increase his income from capital gain by SEK 178,040 for non-deductible interest. It further imposed tax surcharges amounting to 40% of the increased tax liability on the latter sum (apparently amounting to around SEK 22,000) since it considered that the applicant had submitted incorrect information and that no grounds for remission existed.
On 29 March 1996 the applicant appealed against the decision and requested that he be taxed in accordance with his tax return and that the tax surcharges be removed. He further stated that he would develop his grounds of appeal in a later submission.
However, the Tax Authority did not receive any further communication from the applicant. On 18 February 1997 it made its obligatory re-assessment of its original decision and decided not to change it. It noted that, even though nothing had been heard from the applicant, it was necessary to take a decision in order not to prolong the process further. The appeal was then forwarded to the County Administrative Court, which received it on 20 February 1997.
4. The proceedings before the administrative courts
The parties made further submissions before the County Administrative Court and, in a partial judgment of 8 October 1999, the court rejected the applicant's appeal concerning the question of deduction for capital losses on the options for the tax assessment year 1993.
On 17 February 2000 an oral hearing was held in the case and, on 29 February 2000, the County Administrative Court rejected the applicant's appeal. It found that the applicant had failed to provide the Tax Authority with information about the conditions for the promissory note loan in his tax assessment for 1993, for which reason the Tax Authority had been justified in making a revised assessment for that year's arrears.
With regard to the tax surcharges, the court first considered that the imposition of tax surcharges did not violate the Convention. It then found that the applicant had submitted incorrect information and that there was reason to impose tax surcharges since it was clear that he had not furnished the Tax Authority with the conditions for the promissory note loan and the interest rates. Therefore the Tax Authority had not been able to examine whether the declared deductions for interest were correct. It further found that no reasons for remission had been shown.
On 4 May 2000 the applicant appealed to the Administrative Court of Appeal (kammarrätten) in Stockholm. He maintained his claims, invoking and expanding the grounds he had presented before the lower court. Inter alia, he claimed that the imposition of tax surcharges violated the presumption of innocence contained in Article 6 § 2 of the Convention since the Tax Authority had failed to prove that he had given incorrect information intentionally or by neglect.
On 22 March 2001, the Administrative Court of Appeal held an oral hearing in the case where several witnesses were heard at the applicant's request.
In a judgment of 18 June 2001, the Administrative Court of Appeal rejected the applicant's appeal on the same grounds as the County Administrative Court, and stated that, although the imposition of tax surcharges fell within the ambit of Article 6 of the Convention, it did not violate the presumption of innocence contained therein.
On 3 September 2001 the applicant appealed to the Supreme Administrative Court (Regeringsrätten) and requested a respite until 31 October 2001 to supplement his submissions. It is not clear, however, whether he did so.
On 25 April 2002 the Supreme Administrative Court refused leave to appeal.
B. Relevant domestic law and practice
Taxpayers submit yearly tax returns to the local tax authorities. To secure that timely, sufficient and correct information is provided, the tax authorities may, under certain circumstances, impose special charges on the taxpayer in the form of tax surcharges.
The rules on tax surcharges relevant to the present case were laid down in the Taxation Act (Taxeringslagen, 1990:324). According to Chapter 5, section 1 of the Act, a tax surcharge is imposed on the taxpayer if he or she, in a tax return or in any other written statement, has submitted information of relevance to the tax assessment which is found to be incorrect. It is not only express statements that may lead to the imposition of a surcharge; concealment, in whole or in part, of relevant facts may also be regarded as incorrect information. However, incorrect claims are not penalised; if the taxpayer has given a clear account of the factual circumstances but has made an incorrect evaluation of the legal consequences thereof, no surcharge is imposed. The burden of proving that the information is incorrect lies with the tax authority. The surcharge amounts to 40% of the income tax which the tax authority would have failed to levy if it had accepted the incorrect information.
In certain circumstances, a tax surcharge will be remitted. Thus, Chapter 5, section 6, of the Act states that taxpayers will not have to pay a surcharge if their failure to submit correct information or to file a tax return is considered excusable owing to their age, illness, lack of experience or comparable circumstances. The surcharge should also be remitted where the failure appears excusable by reason of the nature of the information in question or other special circumstances, or where it would be manifestly unreasonable to impose a surcharge.
Chapter 5, section 7, of the Act stipulates that, if the facts of the case so require, the tax authorities must have regard to the provisions on remission, even in the absence of a specific claim to that effect by the taxpayer. In principle, however, it is up to the taxpayer to show due cause for the remission of a surcharge.
COMPLAINTS
The applicant complained that his rights under Article 6 § 2 of the Convention had been violated in that the national authorities revised their assessment of the arrears for the tax assessment year 1993 and imposed tax surcharges on him, without showing that he had failed to submit the necessary information intentionally or by neglect. He also claimed that the length of the two proceedings had been excessive; the proceedings for both tax assessment years lasting just over six years and ten months.
THE LAW
1. The applicant complained that the presumption of innocence contained in Article 6 had been violated in that the Tax Authority had imposed tax surcharges on him. He alleged that they had had preconceived ideas that no reasons for remission existed and that they had failed to carry out a nuanced and not too restrictive assessment of whether grounds for remission existed. Moreover, he claimed that it had been disproportionate to impose tax surcharges having regard to the complexity of the tax matters at issue, the length of the proceedings and the size of the tax surcharges imposed. Article 6 § 2 of the Convention provides as follows:
“Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law.”
The Court reiterates that, although tax surcharges cannot be said to belong to criminal law under the Swedish legal system, it has found in several judgments concerning Sweden (see, in particular, Janosevic v. Sweden, no. 34619/97, 23 July 2002, §§ 64-71, ECHR 2002-VII, and Västberga Taxi Aktiebolag and Vulic v. Sweden, no. 36985/97, 23 July 2002, §§ 75-82) that the imposition of such measures involves the determination of a “criminal charge” within the meaning of Article 6 of the Convention. However, in the two above mentioned judgments, the Court considered that the presumptions applied in Swedish law with regard to tax surcharges had been confined within reasonable limits and that the presumption of innocence contained in Article 6 § 2 of the Convention therefore had not been breached (ibid., §§ 96-104 and §§ 108-116, respectively). This conclusion was reached having particular regard to the fact that the relevant rules on tax surcharges provided certain means of defence based on subjective elements, and that an efficient system of taxation was important to the State's financial interests.
In the present case, the Tax Authority, the County Administrative Court and Administrative Court of Appeal all considered the grounds for remission of the tax surcharges but found that no such grounds were applicable. Moreover, both the Country Administrative Court and the Administrative Court of Appeal examined the applicant's objection that the imposition of the tax surcharges violated his rights under Article 6 § 2 of the Convention. However, both instances rejected the objection, finding that, although Article 6 was applicable, the imposition of tax surcharges did not violate the presumption of innocence since the courts had made an assessment of whether there were any grounds for remission.
Moreover, the Court notes that, unlike the applications of Janosevic and Västberga Taxi Aktiebolag and Vulic, the present case did not involve any enforcement measures to ensure the payment of the tax surcharges.
In these circumstances, and having regard to the Court's case-law referred to above and the fact that the national courts made an individual assessment in the applicant's case, the Court finds that the applicant's right to be presumed innocent has not been violated in the present case.
It follows that this complaint must be rejected as being manifestly ill-founded pursuant to Article 35 §§ 3 and 4 of the Convention.
2. The applicant further complained that the presumption of innocence contained in Article 6 § 2 had also been violated when the Tax Authority made a revised assessment of the arrears for his tax assessment year 1993. He claimed that the revised assessment should be considered to be a “criminal charge” for the purposes of Article 6 of the Convention and that the national authorities had had preconceived ideas that he had submitted incorrect information intentionally. Moreover, they had failed to carry out an assessment of whether it would be unreasonable to impose such a revision on the applicant.
As concerns the applicant's claim that the revised assessment of arrears should be regarded as a “criminal charge” for the purposes of Article 6 of the Convention, the Court observes the following.
According to the relevant domestic law, the Tax Authority can carry out a revised assessment of arrears when it finds that a taxpayer has submitted incorrect information in his or her tax return which has led to an erroneous decision. However, such an assessment cannot be done if it would be clearly unreasonable or if more than five years have elapsed since the taxation year. The measure is not imposed by Swedish criminal law but is an administrative measure designed to ensure an efficient and uniform system of taxation. Since the system is based on information supplied by the taxpayer, the Tax Authority must be given a reasonable time to process and verify that information and, if it is found to be incorrect, to carry out a re-assessment of the tax decision. The measure is thus of a purely fiscal nature and would not automatically entail extra charges or fees.
In these circumstances, the Court finds that, having regard to the legal classification of the matter under national law, its nature and the applicant's failure to provide correct and complete information to the Tax Authority, the revised assessment for arrears cannot be considered to have constituted a “criminal charge” against the applicant for the purposes of Article 6 of the Convention. It is thus inapplicable under its criminal head. Moreover, the Court has consistently held that, generally, tax disputes fall outside the scope of “civil rights and obligations” under Article 6, despite the pecuniary effects which they necessarily produce for the taxpayer (see, Ferrazzini v. Italy, [GC], no. 44759/98, §29, ECHR 2001-VII).
It follows that this complaint is incompatible ratione materiae with the Convention and must be rejected pursuant to Article 35 §§ 3 and 4 of the Convention.
3. The applicant next claimed that the national proceedings, for both tax assessment years 1993 and 1994, had not been finalised within a reasonable time, in contravention of Article 6 § 1 of the Convention, which, in relevant parts, reads:
“1. In the determination of his civil rights and any criminal charge against him, everyone is entitled to a ... hearing within a reasonable time by [a] ... tribunal.”
As concerns the length of the proceedings for both tax assessment years, the Court finds that the period to be taken into consideration commenced on 21 June 1995, when the Tax Authority communicated its audit report to the applicant and informed him of its intention to impose tax surcharges. It ended on 25 April 2002, when the Supreme Administrative Court refused leave to appeal. Thus the overall duration of these proceedings, which involved one administrative and three judicial levels, was just over six years and ten months.
The Court reiterates that the reasonableness of the length of the proceedings must be assessed in the light of the circumstances of the case and with reference to the criteria established by the Court's case-law, particularly the complexity of the case, the conduct of the applicant and of the relevant authorities and what was at stake for the applicant in the dispute (see, among other authorities, Humen v. Poland [GC], no. 26614/95, § 60, 15 October 1999).
In the present case, the Court finds that the subject matter was of a complex nature, which is reflected in the fact that part of the Tax Authority's audit had to be carried out by an independent expert body. Moreover, it concerned a rather sophisticated financial set-up involving a large group of people (apparently 54 persons), which undoubtedly made the Tax Authority's investigation more difficult. Although the proceedings were somewhat simplified by the fact that most of the individuals concerned were represented by the same lawyer and that the national courts could consider the cases concurrently, they still had to do an individual assessment of each case.
Turning to the conduct of the applicant and the national authorities, the Court first notes that the Tax Authority had to make the calculations in each individual case depending on the individual's involvement in the financial set-up and the amount of money he or she had invested in it. Moreover, it had to make a preliminary consideration, a decision and a re-assessment of its decision for each person, and for the separate tax assessment years, which clearly rendered its work difficult and time consuming.
The Court finds nothing to indicate that the duration of the proceedings concerning the tax assessment year 1994 before the Tax Authority was unreasonable. It observes that a delay of about one year before the Tax Authority must be attributed to the applicant since he, in his appeal of 29 March 1996 against the Tax Authority's decision of 27 December 1995, had stated that he would develop his grounds of appeal in a later submission but never did so. Thus, in order not to prolong the process any further, the Tax Authority made its obligatory re-assessment on 18 February 1997 and then forwarded the appeal to the County Administrative Court.
The only administrative phase of the proceedings which might be seen as a problem was the period of one year and eight months which elapsed after the audit report had been sent to the applicant and before the preliminary consideration was transmitted to him, concerning the tax assessment year 1993. However, during this time, the Tax Authority, besides drawing up the preliminary consideration, apparently was dealing with many other similar cases, including the applicant's, concerning the tax assessment year 1994. In this respect, the Court reiterates that the Tax Authority had to examine each individual case, for each tax assessment year, having regard to each person's involvement in the financial set-up and the amount of money he or she had invested in it. Furthermore, once the Tax Authority had sent the preliminary consideration to the applicant, it took its decision, received the applicant's appeal and made its obligatory re-assessment of its decision within a period of less than nine months.
The proceedings before the County Administrative Court lasted three years for the tax assessment year 1994 and two years and three months for the tax assessment year 1993. During this period the parties made a number of submissions to the court and the proceedings for the two tax assessment years were joined. On 8 October 1999 the court gave a partial judgment concerning one of the contentious tax questions. It then, on 17 February 2000, held a joint oral hearing for a few of the cases, but which related to all the cases, and delivered its final judgment two weeks later. Having regard to the very large number of parties involved in the proceedings and the complex nature of the subject matter, the first instance court cannot be criticised for joining the proceedings for the two tax assessment years or for the fact that the proceedings thus took three years for the tax assessment year 1994, even if this led to a few short periods of inactivity.
Thereafter, the proceedings lasted only two years in total before the two appellate courts (the Administrative Court of Appeal and the Supreme Administrative Court), during which time the Administrative Court of Appeal, like the lower court, held a joint oral hearing.
The Court is aware that the proceedings concerned reasonable amounts of money for the applicant. However, he has not claimed that this has had serious financial or other consequences for him.
In sum, although both impugned proceedings took over six years and ten months, they involved no less than one administrative and three judicial levels and a substantial number of persons. Moreover, the subject matter was of a complex nature and the delay has not entailed serious consequences for the applicant. In these circumstances, the Court finds that the proceedings, seen as a whole, did not exceed a reasonable time.
It follows that this part of the application is manifestly ill-founded within the meaning of Article 35 § 3 of the Convention and must be rejected in accordance with Article 35 § 4.
For these reasons, the Court unanimously
Declares the application inadmissible.
S. DolléJ.-P. Costa
RegistrarPresident
Full & Egal Universal Law Academy