Information Note on the Court’s case-law No. 93
January 2007
Intersplav v. Ukraine - 803/02
Judgment 9.1.2007 [Section II]
Article 1 of Protocol No. 1
Article 1 para. 1 of Protocol No. 1
Peaceful enjoyment of possessions
State withholding tax refund from applicant company: violation
Facts: The applicant company was an enterprise which manufactured purchased goods, bearing a 20% VAT rate. Part of the applicant's production was exported from Ukraine at a zero VAT rate. The applicant was entitled to a refund of the VAT due on the price of the goods. This should have been made within a one-month period following the applicant's submission of the calculations to the local tax administration. If the refund is delayed, compensation is payable. Both payments (the refund and compensation) are made by the State Treasury upon the submissions of the relevant tax authority. The applicant had complained twice about the failure to issue certificates for the VAT refunds on time. While recognising the existence of the State's debts to the applicant, the authorities found no fault with the tax administration. The applicant complained to General Prosecutor's Office, without any result and instituted more than 140 sets of proceedings in the commercial court against the Town Tax Administration and the State Treasury Department in order to receive compensation. He requested the court to oblige the Tax Administration to confirm the amounts of compensation due. The court found for the applicant and ordered the tax administration to issue the requested confirmation for the amounts claimed. The applicant later changed the subject of its claim and requested the courts to award it the amounts of the VAT refund and compensation directly. The Tax Administration and Treasury opposed the claims; the former on the basis of an alleged lack of competence in VAT refunding, the latter on the basis of the impossibility of refunding any VAT without prior confirmation of such an amount by the Tax Administration. The court found for the applicant and awarded the claimed amounts in its decisions. It confirmed the applicant's right to compensation for the various delayed VAT refunds. The applicant maintained that the tax authorities claimed that the court decisions given in its favour should not be directly enforceable, but would require the prior confirmation of the awarded amounts by the Tax Administration. The applicant lodged a claim with the commercial court against the Regional Department of the State Treasury and the Town Tax Administration for their refusal to enforce the judgments and for a proposal to convert the amounts awarded by the above judgments into loan bonds with a five-year term. The court found for the applicant and ordered the defendants to enforce the impugned judgments. The applicant maintained that the amount of the State debt to the company as confirmed by court decisions exceeded 1 million euros.
Law: Having met the criteria and requirements established by the domestic legislation, the applicant could reasonably have expected the refund of the VAT it had paid in the course of its business activities, as well as compensation for any delay. The tax authorities did not dispute the amounts of the VAT refunds to be paid to the applicant, but simply refused to confirm them without any apparent reason, relying erroneously on a lack of competence in refunding matters. VAT refunds to the applicant had been systematically delayed. Such delays were caused by the situation in which the tax authorities, not disputing the amounts of VAT refunds due to the applicant, constantly failed to confirm these amounts. Such failure prevented the applicant from recovering the claimed amounts in due time and created a situation of chronic uncertainty. It forced the applicant to appeal to the courts on a regular basis with identical claims. It may be considered reasonable to require that such refusals be challenged in a single or a few cases. The applicant's recourse to this remedy had not however prevented the tax authorities from continuingthe practice ofdelaying payment of the VAT refunds, even after court decisions had been given in the applicant's favour. Thesystematic natureof the failings of the State authoritieshas resulted in an excessive burden being imposed on the applicant. The constant delays with VAT refund and compensation in conjunction with the lack of effective remedies to prevent or terminate such an administrative practice, as well as the state of uncertainty as to the time of return of the applicants funds, upset the “fair balance” between the demands of the public interest and the protection of the right to peaceful enjoyment of possessions.
Conclusion: violation (unanimously).
Article 41 – EUR 25,000 for pecuniary damage.
© Council of Europe/European Court of Human Rights
This summary by the Registry does not bind the Court.
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