AS TO THE ADMISSIBILITY OF
Application No. 32667/96
by Harri Ilari RUOHOLA
against Finland
The European Commission of Human Rights (First Chamber) sitting
in private on 23 October 1997, the following members being present:
Mrs J. LIDDY, President
MM M.P. PELLONPÄÄ
E. BUSUTTIL
A. WEITZEL
C.L. ROZAKIS
L. LOUCAIDES
B. CONFORTI
N. BRATZA
I. BÉKÉS
G. RESS
A. PERENIC
C. BÎRSAN
K. HERNDL
M. VILA AMIGÓ
Mrs M. HION
Mr R. NICOLINI
Mrs M.F. BUQUICCHIO, Secretary to the Chamber
Having regard to Article 25 of the Convention for the Protection
of Human Rights and Fundamental Freedoms;
Having regard to the application introduced on 14 June 1996 by
Harri Ilari Ruohola against Finland and registered on 20 August 1996
under file No. 32667/96;
Having regard to the report provided for in Rule 47 of the Rules
of Procedure of the Commission;
Having deliberated;
Decides as follows:
THE FACTS
The applicant is a Finnish citizen, born in 1960 and resident in
Turku.
The facts of the case, as submitted by the applicant, may be
summarised as follows.
On 18 April 1983 the applicant founded a company with his
brother. By 1988 the company had expanded and a change of company form
was carried out with a view to limiting the partners' personal
liability.
On 17 December 1988 the applicant sold his partnership share in
the company for 1,944,444 Finnish marks (FIM) to a limited company in
which the applicant and his brother were minority shareholders. The
majority shareholder of the limited company was the above-mentioned
company founded by the applicant and his brother. A bank financed the
transaction by giving a loan to the limited company. To secure the
payment of the loan a sum of money equal to the purchase price was
deposited in the bank.
In January 1989 the applicant submitted to the tax authorities
his annual tax return from which it appeared that he had given up his
partnership share in the company founded by himself and his brother and
was accordingly no longer a partner therein. He supplemented the tax
return with a letter of 27 April 1989 enclosing a copy of the sales
contract. Subsequently, on 16 May 1989 he was released from paying
advance taxes which were based on this partnership as regards the year
1989. Apart from some corrections concerning the year 1987 no other tax
liabilities were imposed at that time.
Later the limited company which had bought the applicant's
partnership share experienced financial difficulties and the applicant
ceased to be a shareholder of the limited company.
In 1992 a tax inspection of the limited company was conducted.
In their subsequent inspection report of 19 January 1993 the inspectors
considered that, in fact, the above-mentioned sale of the applicant's
partnership share had no other effect than that the applicant was able
to obtain the purchase price from the company. Therefore it involved
a hidden dividend to the applicant. Referring to Sections 56 and 57 of
the Taxation Act (verotuslaki, beskattningslag) No. 482/1958, later
amended, the inspectors concluded that the tax authorities had not been
aware of the sale at the time the applicant's annual tax assessment was
conducted and that therefore a reassessment of taxes was required. They
proposed that a residual tax be imposed on the hidden dividend, i.e.
the entire sum of FIM 1,944,444, which the applicant had obtained for
his partnership share.
According to Section 21 of the Act on Income and Property Tax
(tulo- ja varallisuusverolaki, lag om inkomst- och förmögenhetsskatt)
No. 1043/1974, as in force at the relevant time, sales profits were on
certain conditions exempt from taxes provided that the vendor had owned
the property for five years prior to the sale. Section 56 of the
Taxation Act provided that simulated transactions were to be taxed in
accordance with their real nature. Section 57 of the Act included
provisions concerning the taxation of hidden dividend. According
to Section 83 of the Taxation Act residual taxes could be imposed if
1) a taxpayer had failed to submit a tax return or had submitted an
insufficient, deceiving or faulty return, information or document,
2) a taxpayer had evaded taxes in the annual taxation, and 3) there was
a causal link between the shortcomings of the tax return and the evaded
taxes. Residual taxation consisted of the evaded tax, interest for
delay on the amount of tax due and a tax supplement (i.e. a punitive
tax increase).
On the basis of the above-mentioned inspection report the Tax
Board (verolautakunta, skattenämnden) of Turku decided on 15 April 1993
that a tax of FIM 1,567,447.74, which included a tax supplement of
FIM 145,038.45, as well as an interest for delay of FIM 573,510,
totalling FIM 2,140,957.70, were to be imposed on the amount which the
applicant had received for his partnership share. Thus, the entire
purchase price was considered to be hidden dividend.
On 18 November 1993 the applicant appealed to the County
Administrative Court (lääninoikeus, länsrätten) of Turku and Pori. He
requested that the above-mentioned decision concerning the residual
taxation be quashed arguing, inter alia, that since he had submitted
the relevant information in his tax return and in his letter of
27 April 1989 with the sales contract enclosed, the Tax Board had been
aware of the sale before his annual taxes were fixed and therefore
there was no causal link between his not being taxed for the sale and
his tax report within the meaning of Section 83 of the Taxation Act.
Furthermore, he maintained that Sections 56 and 57 of the Taxation Act
did not apply to the sale at issue. Moreover, he contended that he had
had to assume personal responsibility for the above-mentioned loan
given to the limited company as a result of which he had lost the sales
profits. Finally, he considered the residual taxation unfair. The
applicant did not request an oral hearing.
The tax authorities submitted observations in reply to the
appeal. The applicant then submitted observations on account of these
observations.
On 14 February 1995, the County Administrative Court ruled, inter
alia, that the sale had been real but the purchase price had been
unusually high. Accordingly, it found that part of the price,
FIM 777,777, was hidden dividend. It considered that the fact that the
applicant had lost the sales profits did not prevent imposing a tax on
it. Moreover, it held that the applicant had evaded taxes on account
of his insufficient tax report. It also found that it had not been
established that the percentage of the tax supplement was excessive.
The County Administrative Court ordered that a tax was to be levied on
the said FIM 777,777 and that the Tax Office (verotoimisto,
skattebyrån) was to calculate the changes this decision caused and to
correct the debiting. The decision was based on Sections 56, 57, 77 and
83 of the Taxation Act.
On 23 March 1995 the applicant requested leave to appeal to the
Supreme Administrative Court (korkein hallinto-oikeus, högsta
förvaltningsdomstolen). Renewing what he had stated in his submissions
to the County Administrative Court he demanded that the decision
concerning his taxation be quashed. He contended, in particular, that
the sale had come to the knowledge of the Tax Board by his letter of
27 April 1989 and that he had submitted all the relevant documents and
information. Moreover, he claimed that Sections 56 and 57 of the
Taxation Act did not apply to the sale because the sale was real and
the price was not excessive. He also referred to the fact that he had
lost the sales profits. He did not request an oral hearing.
The Supreme Administrative Court granted the applicant leave to
appeal. On 15 February 1996, however, it upheld the decision of the
County Administrative Court.
On 14 August 1996 the applicant lodged an extraordinary appeal
with the Supreme Administrative Court demanding the reopening of the
case decided on 15 February 1996. He argued that there had been a
procedural error, since the appellate courts had not had his letter of
27 April 1989 and the relevant documents concerning the year 1989 at
their disposal. On 2 June 1997 the Supreme Administrative Court
rejected the appeal stating that it had been aware of the documents in
question.
In the meantime, on 28 February 1995, the Tax Office of Turku had
calculated, as far as relevant, that the tax to be imposed was
FIM 259,538.68 and the interest for delay FIM 573,510. It did not
specify the amount of the tax supplement. The applicant was informed
thereof by the enforcement authority in December 1995.
On 3 June 1996 the applicant lodged a petition for the
reconsideration of the decision of the Tax Office of 28 February 1995
with the County Administrative Court of Turku and Pori. He also
requested an interim measure to the effect that the enforcement of the
decision be suspended. He argued that the interest for delay was
disproportionate and excessive compared with the amount of tax he had
to pay. He requested that the decision be quashed and the Tax Office
be ordered to calculate the interest for delay in accordance with
Section 83 of the Taxation Act. The County Administrative Court
transferred the matter to the County Tax Office (lääninverovirasto,
länskattebyrån) of Turku for action to be taken by the Tax
Rectification Committee (verotuksen oikaisulautakunta, prövningsnämnden
i beskattingsärenden).
On 26 June 1996 the County Tax Office rejected the petition in
so far as it concerned the interim measure. It appeared from the
decision that no appeal lay open against it.
The Tax Rectification Committee of Turku examined the remainder
of the petition. In its decision of 25 March 1997 the Committee noted
that by the Tax Office's decision of 28 February 1995 the amount to be
paid had been reduced by FIM 1,307,908.32. It found that the reduction
had been incorrectly directed only at the tax, the amount of which had
been reduced to FIM 259,538.68, while the interest had remained at
FIM 573,510, totalling FIM 833,049. Furthermore, it found that the tax
collection division (veronkanto, skatteuppbörden) within the Tax Office
had later corrected the reduction so that it was directed at both the
tax and the interest. Thus, the tax was FIM 609,903 and the interest
FIM 223,146, the total being FIM 833,049. Therefore the Tax
Rectification Committee did not amend the amount due. Appeal against
this decision lay open.
On 15 April 1997 the applicant lodged an appeal with the County
Administrative Court of Turku and Pori against the decision of the Tax
Rectification Committee demanding, inter alia, that the residual
taxation be quashed as to the amount of tax exceeding FIM 259,538.68.
He argued that the correction could not be made to his detriment and
without hearing him and that the tax collection department was not
competent to make the correction. The case is at present pending before
the County Administrative Court. Finally, as to the sum of money
equal to the purchase price which was deposited as a security for the
loan the limited company received, the bank claimed it on the basis of
the applicant's responsibility for the payment of the loan on 4 January
1995. Thus, as indicated above, the applicant lost the entire sum.
COMPLAINTS
1. The applicant complains that he was denied a fair trial before
the appellate courts, i.e. the County Administrative Court and the
Supreme Administrative Court, when appealing against the decision of
the Tax Board of 15 April 1993. He maintains that the Tax Office failed
to disclose certain documents to these appellate courts. Moreover, he
contends that the County Administrative Court failed to comply with
procedural principles in that it went beyond the parties' claims, that
it exceeded its authority by taking on the role normally reserved for
the tax authorities and that it based its decision on new grounds, i.e.
an exorbitant price, and failed to elaborate its reasons for the
decision. He invokes Article 6 of the Convention.
2. Furthermore, the applicant complains that the proceedings in the
Tax Office were not fair when it examined and decided a petition for
the reconsideration of its own decision of 28 February 1995 and
rejected it without giving reasons. The applicant complains also that
imposing a residual tax on the sales profits, allegedly against
national law, violated his right to the peaceful enjoyment of his
possessions. In his opinion the taxation involved a confiscation of his
possessions having regard to the fact that he had lost all his sales
profits. In addition, he complains that the interest for delay was more
than twice the size of the tax. He invokes Article 6 of the Convention
and Article 1 of Protocol No. 1 to the Convention.
3. Finally, the applicant complains of the lack of an effective
remedy because there was no right to appeal against the decision of the
Tax Office in which it rejected the applicant's petition concerning the
reconsideration of the Tax Office's decision of 28 February 1995. In
this connection he invokes Article 13 of the Convention.
THE LAW
1. The applicant complains that he was not afforded a fair trial
before the County Administrative Court and the Supreme Administrative
Court when he appealed against the decision of the Tax Board of
15 April 1993. He maintains that certain documents were not disclosed
to these appellate courts and that the County Administrative Court
failed to comply with procedural principles, exceeded its authority and
based its decision on new grounds for which it failed to elaborate its
reasons. He invokes Article 6 (Art. 6) of the Convention which reads
as far as relevant:
"1. In the determination of his civil rights and
obligations or of any criminal charge against him, everyone
is entitled to a fair and public hearing within a
reasonable time by an independent and impartial tribunal
established by law. ..."
According to the Commission case-law Article 6 (Art. 6) of the
Convention does not apply to proceedings concerning the assessment of
taxes (see e.g. No. 11189/84, Dec. 11.12.86, D.R. 50, pp. 121, 140-141
and the reference therein). The complaint, however, raises the
question, in so far as it concerned the imposition of a tax supplement,
whether the case involved a determination of a criminal charge within
the meaning of Article 6 (Art. 6) of the Convention and, if so, whether
the applicant was afforded the guarantees of this provision in the
relevant proceedings (cf. No. 11464/85, Dec. 12.5.87, D.R. 53, pp. 85
and 101 and Eur. Court HR, Bendenoun v. France judgment of 24 February
1994, Series A no. 284, p. 20, para. 47).
The Commission considers that in the present case the question
whether the proceedings involve a determination of a criminal charge
can be left open.
Even assuming that Article 6 (Art. 6) applies to the present
case, the question whether the proceedings satisfy the requirements of
Article 6 para. 1 (Art. 6-1) can only be determined by examining the
proceedings as a whole, i.e. once they have been concluded. The
Commission finds that the proceedings at issue concerning the
imposition of the tax and the tax supplement as such were concluded by
the Supreme Administrative Court's decision of 15 February 1996. Thus
the above-mentioned complaints can be examined as far as Article 6
(Art. 6) is concerned.
In this regard, the Commission first recalls that, in accordance
with Article 19 (Art. 19) of the Convention, its only task is to ensure
the observance of the obligations undertaken by the Parties to the
Convention. In particular, it is not competent to deal with an
application alleging that errors of law or fact have been committed by
domestic courts, except where it considers that such errors might have
involved a possible violation of any of the rights and freedoms set out
in the Convention. The Commission refers, on this point, to the
established case-law of the Convention organs (see e.g. Eur. Court HR,
Schenk v. Switzerland judgment of 12 July 1988, Series A no. 140,
p. 29, para. 45).
It is true that the applicant also alleges that the tax
authorities failed to disclose certain documents to the appellate
courts. Assuming that he refers to his letter of 27 April 1989 and its
enclosure, the Commission observes that he referred to them in his own
submissions to the appellate courts and, furthermore, it appears from
the Supreme Administrative Court's decision of 2 June 1997 that the
Court was aware of these documents. In addition, the Commission has not
found any other substantiated facts which could lead to the conclusion
that the courts examined the case on the basis of documents unknown to
the applicant or otherwise examined the case contrary to the
requirements of Article 6 (Art. 6) of the Convention. In this respect
the Commission also notes that the County Administrative Court gave a
reasoned decision in which it found to a limited extent in favour of
the applicant.
It follows that this part of the application is manifestly
ill-founded within the meaning of Article 27 para. 2 (Art. 27-2) of the
Convention.
2. The applicant complains that the proceedings in the Tax Office
concerning tax calculations were not fair as it examined and decided
a petition for the reconsideration of its own decision of
28 February 1995 and rejected it without giving reasons. He also
complains that imposing a tax as well as a tax supplement on the sales
profits interfered with the peaceful enjoyment of his possessions. He
invokes Article 6 (Art. 6) of the Convention and Article 1 of Protocol
No. 1 (P1-1) to the Convention.
In so far as the applicant relies on Article 6 (Art. 6) of the
Convention, and assuming that this provision applies to the proceedings
in question, the Commission recalls that according to its established
case-law, in order to determine whether Article 6 para. 1 (Art. 6-1)
of the Convention has been complied with, the Commission must examine
the proceedings as a whole once they have been concluded, although it
is not excluded that a particular procedural element could be so
decisive to the proceedings that the conduct thereof should be assessed
at an earlier stage (cf. No. 9938/82, Dec. 15.7.86, D.R. 48, p. 21).
In the present case the Commission does not find it necessary to
consider any particular procedural element separately and thus finds,
in the light of the fact that the proceedings are still pending, that
it is premature to consider whether these are, as to their fairness,
conducted in conformity with Article 6 para. 1 (Art. 6-1) of the
Convention.
It follows that this part of the application is manifestly
ill-founded within the meaning of Article 27 para 2 (Art. 27-2) of the
Convention.
In so far as the applicant relies on Article 1 of Protocol No. 1
(P1-1) to the Convention, the Commission finds that it is not required
to decide whether or not the facts alleged by the applicant disclose
any appearance of a violation of this provision as, under Article 26
(Art. 26) of the Convention, it may only deal with a matter after all
domestic remedies have been exhausted according to the generally
recognised rules of international law. The applicant has lodged an
appeal with a domestic instance, the County Administrative Court,
concerning the taxes in question as regards the amount in excess of
FIM 259,538.68. Since the case concerning the outcome of the tax
calculations is pending the applicant has not, in accordance with
Article 26 (Art. 26) of the Convention, exhausted the remedies
available to him under Finnish law. Moreover, an examination of this
part of the application does not disclose the existence of any special
circumstances which might have absolved the applicant, according to the
generally recognised rules of international law, from exhausting the
domestic remedies at his disposal.
It follows that the applicant has not complied with the condition
as to the exhaustion of domestic remedies as regards this part of the
application and it must accordingly be rejected under Article 27
para. 3 (Art. 27-3) of the Convention.
3. The applicant complains that his right to an effective remedy was
violated, since there was no right to appeal against the decision of
the Tax Office. In this connection he invokes Article 13 (Art. 13) of
the Convention.
In so far as the applicant complains of the lack of an effective
remedy as to the decision of the County Tax Office of 26 June 1996, the
Commission notes that this decision concerned only an interim measure
requested by the applicant. The remainder of the applicant's petition
was decided by the Tax Rectification Committee on 25 March 1997. An
appeal lay open against the decision of the Committee. The Commission
further recalls from above that upon the applicant's appeal the case
concerning the tax calculations is now pending before the County
Administrative Court. In these circumstances, even assuming that the
applicant has an arguable claim under any of the other provisions of
the Convention, the Commission considers that he has an effective
remedy at his disposal within the meaning of Article 13 (Art. 13).
It follows that this part of the application is manifestly
ill-founded within the meaning of Article 27 para. 2 (Art. 27-2) of the
Convention.
For these reasons, the Commission, unanimously,
DECLARES THE APPLICATION INADMISSIBLE.
M.F. BUQUICCHIO J. LIDDY
Secretary President
to the First Chamber of the First Chamber
Full & Egal Universal Law Academy