FOURTH SECTION
DECISION
Application no. 54841/08
by POHJARAKENNUS OY KORPELA
against Finland
The European Court of Human Rights (Fourth Section), sitting on 18 May 2010 as a Chamber composed of:
Nicolas Bratza, President,
Giovanni Bonello,
David Thór Björgvinsson,
Ján Šikuta,
Päivi Hirvelä,
Ledi Bianku,
Nebojša Vučinić, judges,
and Lawrence Early, Section Registrar,
Having regard to the above application lodged on 14 November 2008,
Having regard to the observations and declaration submitted by the respondent Government and the comments in reply submitted by the applicant,
Having deliberated, decides as follows:
THE FACTS
The applicant, Pohjarakennus Oy Korpela, is a Finnish limited liability company. It was represented before the Court by Mr Johan Bützow, a lawyer practising in Helsinki. The Finnish Government (“the Government”) are represented by their Agent, Mr Arto Kosonen of the Ministry for Foreign Affairs.
A. The circumstances of the case
The facts of the case, as submitted by the applicant, may be summarised as follows.
The applicant company is in the business of contracting. The company is owned by K.K., who is also its managing director and sole board member.
1. Criminal proceedings
In 1998 the police started a criminal investigation concerning two companies, H.R.E. and F., owned by R.R. The latter was suspected of having produced false bills in the name of those companies to several other companies for sub-contracting jobs, although such services had never been provided. Allegedly, that arrangement was set up to allow the other companies to pay their own workers unreported salaries by neglecting their liability to tax and social-security contributions. It further enabled non-payment of value-added tax and taking of undeclared benefits for the owners. R.R. in his part received a fee for his involvement. While R.R. actually worked at the construction sites, his companies were only used as dummies for the transactions. A number of other persons who had worked on different construction sites were questioned during the investigation.
In the above connection the police also carried out a tax inspection of the applicant company's books. Several payments made out to H.R.E. and F. were discovered concerning the years 1992 to 1996.
The public prosecutor subsequently brought charges in the Helsinki District Court (käräjäoikeus, tingsrätten) against K.K., R.R. and certain other persons involved. The court received testimony from more than 40 persons, including a number of persons who had worked on the applicant company's construction sites.
On 11 April 2002 the court convicted K.K. of aggravated tax fraud and accounting offences. He was found guilty of having paid unreported salaries to the applicant company's employers through H.R.E.'s and F.'s accounts, thus neglecting his liability to pay employer's contributions. He had also given the tax authorities false information, thus avoiding the payment of value-added tax. On 2 July 2004, having held an oral hearing, the Helsinki Court of Appeal (hovioikeus, hovrätten) upheld K.K.'s conviction. It appears that K.K. unsuccessfully sought leave to appeal to the Supreme Court.
2. Taxation proceedings
Based on the above-mentioned tax inspection of the applicant company, the Regional Tax Office (verovirasto, skatteverk) of Uusimaa drew up a preliminary inspection report, dated 31 March 1999. The report suggested that the invoicing between the applicant and R.R.'s companies had been false and that the arrangement had merely served as a cover for the payment of unreported salaries and withdrawal of undeclared benefits to K.K. For that reason, supplementary tax and possible tax surcharge were proposed. The applicant was invited to submit comments.
On that same date, having received the report, the applicant asked the tax authority for copies of all the documents received from the police and used in drawing up the report. That request was refused.
On 6 April 1999 the applicant renewed its request, as the police had also refused to provide it with those documents. The applicant claimed that it was not possible to comment on the report without having access to all relevant material.
In its written reply of 8 April 1999 the tax authority regretted that it was not in a position to forward to the applicant any material received from the police. It acknowledged, however, that the company was entitled to that material and advised it to turn to the head of the investigation in that connection.
On 22 December 1999 the applicant received pre-trial investigation material from the police.
On 5 January 2000 the Regional Tax Office supplemented its preliminary tax inspection report and sent that part to the applicant for comments.
In its reply of 12 February 2000 the applicant firstly contended that it had only been provided with a part of the extensive pre-trial investigation material concerning R.R.'s business activities and it could not be certain that the police had disclosed to it all relevant information. The applicant maintained that it would not be able to comment fully on the preliminary report until it received the same material which had been at the tax authority's disposal. The police had offered the company an opportunity to acquaint itself with certain written statements obtained in the pre-trial investigation, but it had turned down the offer, contending that it had a right to receive hard copies of that material. The company further noted that it was not able to identify the missing material, nor did it know which material would prove to be relevant. As to the subject matter, the company contested the findings in the preliminary inspection report. It claimed that the sub-contracting agreements with R.R.'s companies had been genuine and contended that R.R.'s employees had been working at its construction sites. It further maintained that the applicant company could not be held responsible for any neglect in respect of employer's contributions by R.R.'s companies.
On 7 April 2000 the applicant submitted short comments on the supplementary tax inspection report.
On 10 April 2000 the Regional Tax Office issued its final tax inspection report. Relying on the applicant company's book-keeping material and a number of written statements given to the police during the pre-trial investigation, attached to the tax inspection report, the tax authority concluded that there had been no workers employed by R.R.'s companies at the applicant company's construction sites. The report suggested that the applicant had made certain deductions which could not be accepted in taxation, and had taken out funds as disguised dividends. It was thus proposed to add those amounts to the company's taxable income. It was also proposed to collect from the applicant unpaid employer's contributions, with supplementary tax and possible tax surcharges. The applicant was requested to submit comments.
On 2 June 2000 the applicant submitted provisional comments. It contested the tax authority's conclusions maintaining, inter alia, that it had had a genuine sub-contracting agreement with R.R.'s companies and that there had been several workers on the applicant company's sites employed by those companies.
In a separate submission of that same date, the applicant maintained that it had not been provided with all the material which had been in the possession of the tax authority when drawing up the inspection report. It assumed that the police had sent to the tax authority all statements given to the police during their investigation. It suspected that the tax authority had selected only those statements which it considered relevant. It invoked Chapter 3, section 11(1) of the Act on Openness of Government Activities (laki viranomaisten toiminnan julkisuudesta, lag om offentlighet i myndigheternas verksamhet, Act no. 621/1999) which guarantees a party the right of access to any document which may influence or may have influenced the consideration of his or her case. It asked the tax authority to submit an itemised and complete list of all the material in its possession pertaining to the investigation against R.R. It further requested copies of that material or access to it by some other means.
On 5 July 2000, based on the tax inspection report, the local Tax Office (verotoimisto, skattebyrå) issued decisions whereby the applicant was ordered to pay the unpaid employer's contributions in respect of the fiscal years 1994 to 1996 with supplementary tax and tax surcharges.
On 13 July 2000 the local Tax Office issued decisions whereby the applicant company's income tax for the fiscal years 1994 to 1996 was revised upwards.
On 27 December 2000 the applicant requested the Regional Tax Authority's Rectification Board (verotuksen oikaisulautakunta, prövningsnämnden i beskattningsärenden) to revoke the above decisions of 5 July 2000 and 13 July 2000 due to a procedural error, that is, the non-communication of the totality of documents in the possession of the tax authority. It further contested the decisions on substantive grounds, disagreeing with the tax authority's conclusions.
On 5 February 2001 the Business Tax Unit of the Regional Tax Office gave a decision concerning the rectification claim in respect of the employer's contributions. It rejected the allegation of a procedural error, noting that the applicant had been provided with the same material as had been in the possession of the tax authority. As to the substance, it found no reason to amend the impugned decisions.
On 16 April 2001 the applicant lodged an appeal against the above decision with the Helsinki Administrative Court (hallinto-oikeus, förvaltningsdomstolen) maintaining its previous arguments.
On 10 October 2001 the Regional Tax Authority's Rectification Board issued its decisions concerning the reassessed income tax, finding no reason for a rectification. As to the alleged non-communication, it noted that the decisions were based on the tax inspection report and the documents attached to it, all of which had been sent to the applicant company for information.
On 4 December 2001 the applicant company sent an inquiry to T., one of the tax inspectors who had drawn up the tax inspection report. It noted that in the criminal proceedings T. had testified that, in the preparation of the inspection report, the tax authority had been in possession of certain bank statements concerning K.K.'s personal accounts and a list of employees. It then asked for a confirmation of that information and, again, a complete list of all the documents in the possession of the tax authority relating to the case.
By a letter dated 12 December 2001 T. submitted the information received from the banks. He could not recall whether the pre-trial investigation report containing the list of employees had been available when the inspection report was drawn up, or whether it had been submitted to the tax authority later. In any case, that information did not have any bearing on the findings in the tax inspection report. T. further noted that all the statements relevant to the tax authority's assessment had been attached to the inspection report. Lastly, T. noted that the tax authority had been in possession of certain sales contracts and the tax declarations for relevant years given by the applicant company and its owner K.K.
On 27 December 2001 the applicant lodged another appeal with the Helsinki Administrative Court requesting that the Rectification Board's decision concerning the revised income tax be revoked.
On 9 December 2003, having obtained written statements from the parties and additional information from the applicant, the Administrative Court gave its judgment concerning the employer's contributions. It noted that, in the course of the appeal proceedings, the applicant had submitted to the court fresh information which had come to light in the parallel criminal proceedings. Witness testimonies implied that there had been a number of persons employed by R.R.'s companies on different construction sites. As this information had not been available to the Regional Tax Office at the time of their decision, the court revoked the taxation decisions and remitted the case to the tax authority for a fresh examination. The court further stated that in the course of those proceedings, the tax authority was to provide the applicant with an opportunity to acquaint itself with the documents on which its assessment was based.
On 24 March 2004 the Business Tax Unit of the Regional Tax Office gave its revised proposal concerning the employer's contributions. A list of documents used in drawing up the proposal was attached to the proposal. The applicant was invited to submit comments.
On 29 March 2004 the applicant sent a letter to the tax authority contending that the list of documents was not complete. It again insisted on having access to every document that had been in the possession of the tax authority. It submitted that apparently a number of persons had subsequently been subjected to tax reassessment for their work in R.R.'s companies. As this information was relevant to the applicant, it specifically asked for copies of all the documents pertaining to the taxation of those companies and all their employees.
On 19 May 2004 the tax authority submitted a revised version of its proposal containing additional reasoning. As to the applicant's request for documents, it stated that the information concerning tax reassessment of third parties was confidential and access to it could thus not be granted. The applicant was invited to submit comments.
In its reply of 11 June 2004 the applicant pointed out that the tax authority had sent some documents by C.O.D. In the company's view, it had been entitled to that material free of any charge. Therefore it had not accepted the consignment. The company further maintained its allegation that the list of documents was incomplete.
On 8 July 2004 the local Tax Office issued fresh decisions concerning the applicant's revised income tax. It referred to the general courts' findings in the criminal proceedings in noting that there was no evidence to support the assumption that K.K. had taken disguised dividends from the applicant company. As there remained no grounds for the taxation in that part, the previous decisions were quashed.
On 30 September 2004, relying on the Administrative Court's decision of 9 December 2003, the Business Tax Unit of the Regional Tax Office quashed its earlier decisions concerning the employer's contributions in relevant parts.
On 7 October 2004, having re-examined the matter concerning the employer's contributions, the Business Tax Unit of the Regional Tax Office gave a fresh decision. It ordered the applicant to pay 12,511.33 euros (EUR) in unpaid employer's contributions, EUR 8,372.56 in supplementary tax and EUR 2,502.13 in tax surcharges for the year 2004. The respective amounts for the year 1995 were EUR 12,449.44, EUR 6,909.16 and EUR 2,590.77 and for the year 1996 EUR 7,861.11, EUR 3,089.78 and EUR 1,572.05. As to sending documents by C.O.D., the authority explained its conduct by noting that the same documents had already been sent to the applicant at the different stages of the proceedings free of charge.
On 30 November 2004 the applicant filed a rectification claim with the Regional Tax Authority. It maintained its allegations about non-communication of documents. It also contended that the tax authority had relied on the Court of Appeal's judgment given in the criminal proceedings without providing it with an opportunity to submit comments concerning that material. If not for that procedural error, the decision should be revoked due to the statute of limitations or on substantive grounds.
On 3 May 2005 the Business Tax Unit of the Regional Tax Authority rejected the rectification claim.
On 30 June 2005 the applicant lodged an appeal against that decision with the Administrative Court maintaining its previous arguments. It requested the court to hold an oral hearing in order to receive testimony from K.K. and ten witnesses, including R.R, concerning the sub-contracting jobs and persons who had worked for H.R.E. and F. at the applicant company's construction sites.
On 22 May 2006 the Administrative Court asked the tax authority to inform the court whether any documents concerning the applicant's taxation remained in its possession. If that was the case, the authority was to submit all those documents to the court.
On 31 May 2006 the tax authority replied that it had already submitted to the court all the material in its possession relating to the applicant's appeal.
By a letter dated 5 June 2006 the court informed the applicant about the tax authority's reply and stated that the documents were available at the court's premises.
On 10 November 2006, after having obtained written statements from the tax authority and the applicant, the Administrative Court issued its decision. It rejected the applicant's allegation about a procedural error. It found no reason to suspect that, contrary to its statement, the tax authority had not submitted to the court all the documents in its possession relating to the appeal. There was thus no indication that the tax authority had withheld information from the applicant. Moreover, the applicant had been provided with an opportunity to consult the case file at the court's premises.
The court also rejected the applicant's request for an oral hearing as manifestly unnecessary. It firstly noted that the court had been provided with the trial courts' judgments issued in the criminal proceedings, in so far as K.K. and R.R. were concerned. It transpired from those judgments that the witnesses whom the applicant wished to examine before the Administrative Court had already given testimony in the criminal proceedings. Moreover, their testimonies had concerned those very issues indicated in the applicant's request for an oral hearing. The court observed that the oral evidence presented to the criminal court had been particularly extensive. It further noted that no question as to the credibility of the witness testimonies had arisen. The court thus concluded that no further reliable information concerning R.R.'s companies and the work conducted at the applicant company's construction sites could be obtained by hearing the witnesses anew in the administrative proceedings.
As to the subject matter, the Administrative Court upheld the impugned decisions. In its reasons it took into account various factors which could be considered as constituting employer status and concluded that the persons who had worked at the applicant company's construction sites had been employed by that company and not by H.R.E. or F. The court further found that the sub-contracting agreements had only served as a cover for avoiding the liability to pay employer's contributions.
On 21 May 2008 the Supreme Administrative Court (korkein hallinto-oikeus, högsta förvaltningsdomstolen) refused the applicant leave to appeal.
B. Relevant domestic law
Section 38(1) of the Administrative Judicial Procedure Act (hallintolainkäyttölaki, förvaltningsprocesslagen; as amended by Act no. 433/1999) provides that an oral hearing must be held if requested by a private party. An oral hearing may, however, be dispensed with if a party's request is ruled inadmissible or immediately dismissed, or if an oral hearing is clearly unnecessary due to the nature of the case or other circumstances.
In this regard, the explanatory report to the Government Bill (no. 217/1995) for the enactment of the Administrative Judicial Procedure Act states that an oral hearing contributes to a focused and immediate procedure, but since it does not always bring any added value it is important that the flexibility and cost effectiveness of the administrative procedure is not undermined. An oral hearing is to be held when it is necessary for the clarification of the issues and the hearing can be considered beneficial for the case as whole.
COMPLAINTS
The applicant firstly complained under Article 6 § 1 of the Convention about the length of the taxation proceedings. It also complained under that Article about the alleged non-communication by the tax authority of the totality of documents in its possession. It further complained under Article 6 §§ 1 and 3 that the refusal of its request for an oral hearing in the taxation proceedings had deprived it of the right to examine witnesses on its behalf. As the applicant had not been a party to the criminal proceedings, it had not been able to put questions to those witnesses, in particular, from the point of view of taxation.
THE LAW
A. The complaint concerning the length of proceedings
The applicant complained under Article 6 § 1 of the Convention that the taxation proceedings had been excessively lengthy.
Article 6 reads, insofar as relevant:
“In the determination of ... any criminal charge against him, everyone is entitled to a ... hearing within a reasonable time by [a] ... tribunal ...”
1. The parties' submissions
By a letter dated 19 March 2010 the Government informed the Court of their unilateral declaration, signed on the same date, with a view to resolving the issue raised by this part of the application.
The declaration provided as follows:
“Whereas the efforts with a view to securing a friendly settlement of the case have been unsuccessful, the Government wishes to express – by way of a unilateral declaration – its acknowledgement that the length of the taxation proceedings have failed to fulfil the requirement of 'reasonable' referred to in Article 6 § 1 of the Convention.
Consequently, the Government is prepared to pay the applicant a total amount of EUR 7,125 (seven thousand one hundred and twenty-five euros). The sum includes EUR 5,700 (five thousand seven hundred euros) in compensation for non-pecuniary damage as well as EUR 1,425 (one thousand four hundred and twenty-five euros) for costs and expenses (inclusive of VAT). In the Government's view, having regard to all the circumstances of the case and to your Court's awards in comparable length of proceedings cases, the above total amount would constitute adequate redress for the excessive length of the taxation proceedings.
The total sum will be payable within three months from the date of notification of the decision pursuant to Article 37 § 1 (c) of the Convention. In the event of failure to pay this sum within the said three-month period, the Government undertake to pay simple interest on it, from the expiry of that period until settlement, at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points.
In the light of the above, the Government would suggest that the circumstances of the present case allow your Court to reach the conclusion that there exists 'any other reason', as referred to in Article 37 § 1 (c) of the Convention, justifying your Court to discontinue the examination of the application, and that, moreover, there are no reasons of a general character, as defined in Article 37 § 1 in fine, which would require the further examination of the case by virtue of that provision. Accordingly, the Government invites your Court to strike the application out of its list of cases.”
In a letter of 12 April 2010 the applicant opposed the Government's suggestion to strike the application out of the Court's list of cases and requested that the examination of the case be continued. As to the compensation offered by the Government, the applicant considered it inadequate.
2. The Court's assessment
The Court reiterates that both parties filed submissions with the Registry in the context of friendly settlement negotiations (Article 38 § 1 (b) of the Convention and Rule 62 of the Rules of Court). No settlement was reached.
Article 37 of the Convention provides that the Court may, at any stage of the proceedings, decide to strike an application out of its list of cases where the circumstances lead to one of the conclusions specified under (a), (b) or (c) of paragraph 1 of that Article. Article 37 § 1 (c) enables the Court in particular to strike a case out of its list if:
“for any other reason established by the Court, it is no longer justified to continue the examination of the application”.
Article 37 § 1 in fine includes the following proviso:
“However, the Court shall continue the examination of the application if respect for human rights as defined in the Convention and the Protocols thereto so requires.”
The Court points out that, under certain circumstances, it may be appropriate to strike out an application, or part thereof, under Article 37 § 1 (c) of the Convention on the basis of a unilateral declaration filed by the respondent Government even if the applicant wishes the examination of the case to be continued. In deciding whether or not it should strike the length of proceedings complaint out of its list, the Court will examine carefully the terms of the declaration made by the Government in the light of the principles emerging from its case-law, in particular its judgments and decisions in cases such as Tahsin Acar v. Turkey [GC] (no. 26307/95, §§ 75-77, ECHR 2003-VI); Meriakri v. Moldova ((striking out), no. 53487/99, 1 March 2005); Swedish Transport Workers Union v. Sweden ((striking out), no. 53507/99, 18 July 2006); Van Houten v. the Netherlands ((striking out), no. 25149/03, ECHR 2005‑IX); Kalanyos and Others v. Romania (no. 57884/00, § 25, 26 April 2007); Nevala v. Finland, ((partial striking out), no. 10391/06, 20 January 2009); and Landgren v. Finland ((partial striking out), no. 11459/07, 17 November 2009).
The Court notes that the Government's declaration contains a clear acknowledgement that the “reasonable time” requirement has not been respected within the meaning of Article 6 § 1 of the Convention. The Court is satisfied that the total amount offered to the applicant by the Government in compensation for non-pecuniary damage and costs and expenses, that is 7,125 euros, constitutes adequate redress for the excessive length of the proceedings, having regard to all the circumstances of the case.
The Court has established in a number of cases its practice concerning complaints about the violation of one's right to a hearing within a reasonable time (see, for example, Frydlender v. France [GC], no. 30979/96, § 43, ECHR 2000-VII and Cocchiarella v. Italy [GC], no. 64886/01, §§ 69-98, ECHR 2006-). Furthermore, it has already had occasion to address complaints related to alleged breach of one's right to a hearing within a reasonable time in cases against Finland (see, for example, Riihikallio and Others v. Finland, no. 25072/02, §§ 22-27, 31 May 2007; F. and M. v. Finland, no. 22508/02, §§ 48-53, 17 July 2007 and Ekholm v. Finland, no. 68050/01, §§ 62-66, 24 July 2007).
Against this background, the Court considers that it is no longer justified, within the meaning of Article 37 § 1 (c) of the Convention, to continue the examination of this part of the application, and finds no reasons which would require the further examination of this part of the case (Article 37 § 1 in fine).
Accordingly, it should be struck out of the list.
B. The remainder of the application
The applicant also complained under Article 6 §§ 1 and 3 of the Convention that dispensing with an oral hearing in the taxation proceedings violated its right to examine witnesses. It further complained under Article 6 § 1 of the Convention that the tax-authority had failed to communicate to it the totality of documents in its possession.
The Court notes, at the outset, that as tax surcharges were imposed on the applicant company, the invoked Articles apply to the taxation proceedings under its criminal head.
The Court finds the Administrative Court's reasons for its decision to refuse the applicant's request for an oral hearing convincing. The authorities relied, inter alia, on witness testimonies received in parallel criminal proceedings, where the applicant company's owner was a defendant. In those proceedings, the owner had been fully able to put questions to the same witnesses whom the company wished to hear in the taxation proceedings. At no point did the applicant contest the credibility of the witness testimonies, but rather disagreed with the authorities' interpretation and conclusions of that evidence. In that respect, the current case is different from the cases of Kallio v. Finland (no. 40199/02, 22 July 2008) and Hannu Lehtinen v. Finland (no. 32993/02, 22 July 2008), where the Court found a violation of Article 6 on account of the courts' refusal to hold an oral hearing in taxation proceedings. For the Court, it was crucial in both cases that the question of the credibility of witness statements could not, as a matter of fair trial, have been properly determined without a direct assessment of the evidence given by the applicant in person and by the witnesses they proposed. The Court further observes that Finnish law does not oblige the administrative courts to hold an oral hearing where it finds it manifestly unnecessary. Moreover, the law does not prohibit the use of written statements in the taxation proceedings. The Court thus finds this part of the application manifestly ill-founded, and it should therefore be declared inadmissible pursuant to Article 35 §§ 3 and 4 of the Convention.
As to the complaint concerning the alleged non-communication of documents, the Court again finds strength in the Administrative Court's reasoning. The Court observes that the applicant received fresh documents relating to the case at different stages of the proceedings, some of them only after having made several requests to that end. However, the Court notes that it has not claimed to have availed itself of the opportunity to consult the case file at the Administrative Court before that court took its decision. Had the applicant done so, and found that some relevant material was missing, it could have made a specified and reasoned request to that court to gain access to that material. As that does not seem to be the case, the Court finds this complaint unsubstantiated and it should therefore also be declared inadmissible under Article 35 §§ 3 and 4 of the Convention.
For these reasons, the Court unanimously
Takes note of the terms of the respondent Government's declaration in respect of the length of proceedings complaint under Article 6 § 1 of the Convention as well as of the modalities for ensuring compliance with the undertakings referred to therein;
Decides to strike the application out of its list of cases in so far as it relates to the above complaint in accordance with Article 37 § 1 (c) of the Convention;
Declares inadmissible the remainder of the application.
Lawrence EarlyNicolas Bratza
RegistrarPresident
Full & Egal Universal Law Academy