AS TO THE ADMISSIBILITY OF
Application No. 26449/95
by SPACEK Ltd.
against the Czech Republic
The European Commission of Human Rights sitting in private on
14 October 1996, the following members being present:
Mr. S. TRECHSEL, President
Mrs. G.H. THUNE
Mrs. J. LIDDY
MM. E. BUSUTTIL
G. JÖRUNDSSON
A.S. GÖZÜBÜYÜK
A. WEITZEL
H. DANELIUS
F. MARTINEZ
L. LOUCAIDES
J.-C. GEUS
M.P. PELLONPÄÄ
G.B. REFFI
M.A. NOWICKI
I. CABRAL BARRETO
B. CONFORTI
N. BRATZA
I. BÉKÉS
J. MUCHA
D. SVÁBY
G. RESS
A. PERENIC
C. BÎRSAN
P. LORENZEN
K. HERNDL
E. BIELIUNAS
E.A. ALKEMA
M. VILA AMIGÓ
Mr. H.C. KRÜGER, Secretary to the Commission
Having regard to Article 25 of the Convention for the Protection
of Human Rights and Fundamental Freedoms;
Having regard to the application introduced on 22 November 1994
by SPACEK Ltd. against the Czech republic and registered on 6 February
1995 under file No. 26449/95;
Having regard to :
- the reports provided for in Rule 47 of the Rules of Procedure of
the Commission;
- the observations submitted by the respondent Government on
5 October 1995 and the observations in reply submitted by the
applicant on 3 January 1996;
Having deliberated;
Decides as follows:
THE FACTS
The applicant is a limited liability company incorporated under
Czech law with its head office in Prague. It is represented before the
Commission by Mr. B. Mazourek, a lawyer practising in Prague.
A. Particular circumstances of the case
The facts of the case, as submitted by the parties, may be
summarised as follows.
On 22 April 1993, the Prague 5 Finance Office (Financní úrad)
decided that the applicant company was required to pay additional
income tax of 385,600 Czech crowns for 1991 and penalty of 37,200 Czech
crowns because on incorporation the company had not increased the
income tax base for the tax year 1991 although it was obliged to do so
as it had changed its status. The tax base was to be increased by the
equivalent of 713,971 crowns. According to the opinion of the Finance
Office, Section 25 of the Private Business Activities Act No. 105/1990
(Act) (Zákon o soukromém podnikání obcanu) and the Regulation on the
procedure for passing from single to double entry book-keeping
(Regulation) (Postup prechodu z jednoduchého úcetnictví na podvojné
úcetnictví) of the Ministry of Finance had been breached.
On 17 August 1993, the Prague Finance Department (Financní
reditelství pro hl. m. Prahu) dismissed the applicant's appeal. It
stated that the Prague 5 Finance Office had correctly decided the case
in accordance with the Private Business Accounting Rules (Rules)
(Zásady vedení úcetnictví pri soukromém podnikání obcanu) and the
Regulation. The Rules and the Regulation were issued by the Ministry
of Finance in Financial Bulletins Nos. 5 and 6-7 respectively and were
issued in order to clarify obligations arising from Section 25 of the
Private Business Activities Act. The Finance Department also found
that the Regulation was to be considered as a generally binding
regulation since the Ministry of Finance was required to issue more
detailed regulations on this matter.
On 22 December 1993, the Prague Municipal Court (Mestsky soud v
Praze) rejected the applicant's appeal against the Prague Finance
Department's decision. The Court considered that the Ministry of
Finance was entitled to regulate the way in which accounting books were
to be kept in 1991 and there was no law or other legal act obliging the
Ministry to publish the Rules in the Official Gazette. Under Section
8 para. 1 b) of the Official Gazette Act No. 131/1989 (Zákon o sbírce
zákonu), regulations of central administrative authorities and other
central authorities were to be published only where the law so
required. So long as the applicant did not increase the income tax
base for 1991, and the Regulation was not being complied with, Section
25 para. 2 of the Private Business Activities Act was being violated.
On 1 March 1994 the applicant company lodged a constitutional
appeal and alleged a violation of its right under Section 2 para. 4 of
the Constitution, according to which "everyone shall be allowed to do
anything which is not forbidden by law, and no one shall be forced to
do anything which is not required by law", and under Section 4 para. 1
of the Charter of Fundamental Rights and Freedoms according to which
"obligations shall be imposed only by law and within its limits and by
observing fundamental rights and freedoms". The applicant submitted
that the Prague Municipal Court had not settled the question of the
conformity of the Regulation with the requirements of the Official
Gazette Act and had not taken into consideration the principle that any
secondary legal act must be published in the Official Gazette, have an
appropriate title and form, made to become valid and enforceable in
order to be binding on individuals and legal entities not subordinate
to the issuing body.
The applicant company also criticised the opinion of the Prague
Municipal Court that it was "obliged to observe internal regulations"
which, in the applicant's view, were not applicable to individuals and
legal entities. It submitted that it was not possible for the company
to learn the contents of such internal regulations from the Official
Gazette. Obligations imposed by the Rules were incompatible with the
Official Gazette Act No. 131/1989. Moreover, the later Act
No. 545/1992 did not adopt measures similar to the Regulation, either.
On 2 June 1994, the Constitutional Court (Ústavní soud) rejected
the applicant's appeal as ill-founded. The Court found that:
"Section 25 of the Private Business Activities Act ...
established the obligation to perform single or double
entry book-keeping in compliance with accounting principles
as prescribed by law. In 1991 the ... Ministry of Finance
was entitled to prescribe conditions and requirements for
accounting ... To specify obligations set out in
Section 25 ..., the ... Ministry of Finance issued the
Private Business Accounting Rules, ... published in
Financial Bulletin No. 5. This measure ... further defined
obligations on businesses in respect of book-keeping.
Moreover, Section 29 paras. 1 and 3 define the
responsibility of businesses for the state of accounting
records and sets out the sanctions arising from violation
of the obligations under [the above-mentioned] Section 25
... or failure to observe the principles. This measure,
which sets up standards of book-keeping for private
businesses, was followed by the Ministry of Finance
Regulation ... of 17 April 1991, ... published in Financial
Bulletin No. 6-7 ... The date of the entry into force of
this Regulation is not specifically given; nevertheless, it
states that the transfer from single to double entry book-
keeping shall always take place on 1 January of an
accounting year ...
... as regards any insufficiency in the publication of that
Regulation ..., the Court can, in general, agree with the
applicant that ordinary legal acts become valid only when
published in the Official Gazette. In cases where there is
no reason to publish generally binding legal acts of
central administrative authorities, such legal acts must be
announced in the Official Gazette. In this case it was a
regulation of a ... central administrative authority which,
in view of Section 8 para. 1 b) of the Official Gazette
Act, had to be published in the Official Gazette only if so
provided by law. This was not the case for Section 25 of
the Private Business Activities Act."
B. Relevant domestic law
The obligation for businesses to keep single or double entry
book-keeping in compliance with accounting principles was governed by
Section 25 para. 2 of the Private Business Activities Act No. 105/1990.
This Act specified neither the legal form under which accounting
principles should be adopted nor the authority entitled to issue them.
The Ministry of Finance has jurisdiction over accounting matters by
virtue of Section 60 of the Competence of the Federal Central
Authorities Act No. 194/1988 (Pusobnost federálních ústredních orgánu).
However, ministries were able to issue legal acts only on the basis and
within the scope of the Federal Parliament Acts and after they had been
authorised to do so by law. According to Sections 8 and 9 of the
Official Gazette Act, acts of the central organs of state
administration must be published in full in the Official Gazette or
announced by a notification therein in order to acquire the status of
legal regulations.
The Private Business Accounting Rules, issued by the Ministry of
Finance and published on 15 June 1990 in Financial Bulletin No. 5,
entered into force on 1 June 1990. On 17 April 1991, the Ministry of
Finance issued the Regulation on the procedure for passing from single
to double entry book-keeping and on 30 May 1991 it was published in
Financial Bulletin Nos. 6-7. The Regulation, in contrast to the Rules,
lacked any reference to the Private Business Activities Act, and did
not specify the date of its entry into force, its subject-matter or the
sanctions arising from non-respect of its provisions. Neither the
Rules nor the Regulation were published and/or notified in the Official
Gazette.
COMPLAINTS
The applicant company alleges that the decisions of the Czech
authorities to impose additional tax on it have violated its right
under Article 1 of Protocol No 1. Under these decisions, the applicant
was allegedly obliged to comply with the Private Business Accounting
Rules and the Regulation on the procedure for passing from single to
double entry book-keeping which were never published or announced in
the Official Gazette, and which, it claims, never acquired the quality
of a generally binding "law" within the meaning of Article 1 of
Protocol No 1.
PROCEEDINGS BEFORE THE COMMISSION
The application was introduced on 22 November 1994 and registered
on 6 February 1995.
On 17 May 1995 the Commission decided to give notice of the
application to the Czech Government and to invite them to present their
observations on the admissibility and merits of the application.
The Government's written observations were submitted on 5 October
1995. The applicant's observations in reply were submitted on
3 January 1996.
THE LAW
The applicant company alleges that the decisions of the Czech
authorities to impose additional tax on it have violated its right
under Article 1 of Protocol No 1 (P1-1). Under these decisions, the
applicant was allegedly obliged to comply with the Private Business
Accounting Rules and the Regulation on the procedure for passing from
single to double entry book-keeping which were never published or
announced in the Official Gazette, and which, it claims, never acquired
the quality of a generally binding "law" within the meaning of Article
1 of Protocol No. 1 (P1-1).
Article 1 of Protocol No. 1 (P1-1) provides:
"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."
The Government first submit that the application is incompatible
ratione materiae with the provisions of the Convention. They point out
that the issue in the present case concerns the determination by the
State of duties of its citizens, the promulgation of laws and
regulations and their binding effect, which are matters not covered by
the Convention.
The Government further submit that the applicant has not
exhausted the domestic remedies which were at its disposal, and that
the application should be declared inadmissible on this ground.
Despite the fact that the right to the peaceful enjoyment of
possessions is safeguarded in domestic legislation by Section 11 of the
Charter of Fundamental Rights and Freedoms, the applicant's
constitutional appeal alleged exclusively the violation of the right
determined by Section 2 para. 4 of the Constitution and Section 4
para. 1 of the Charter. The Government submit that in order to exhaust
all domestic remedies, the applicant should also have alleged the
violation of the right to the peaceful enjoyment of possessions.
As regards the substance of the applicant's complaint, the
Government claim that the application is manifestly ill-founded.
The Government underline that according to Section 25 of the
Private Business Activities Act, the applicant was obliged to keep
single or double entry book-keeping, in compliance with established
accounting principles. However, the Private Business Accounting Rules
published in the Financial Bulletin merely determined accounting
methods to be used by businesses on the basis of Section 25. They
cannot, therefore, be regarded as a legal act.
The Government point out that the Financial Bulletin, which is
intended for the public, contains provisions, communications,
instructions, positions and regulations regarding the application of
binding laws, and also regulations already published in the Official
Gazette which are required to be published therein or which the
Ministry of Finance has been authorised to issue. The Financial
Bulletin, as well as the Official Gazette, are distributed to
subscribers or sold by SEVT a.s. (Printed Forms State Editorial
Publisher, p.l.c., Státní Editorní Vydavatelství Tiskopisu, A.S.).
The Government also submit that the Ministry of Finance was
authorised to regulate accounting. The publication of the Rules based
on Section 25 of the Private Business Activities Act was fully within
the Ministry's competence. There was no legal provision which required
the administrative authority to promulgate the conditions and
provisions relating to accounting in the Official Gazette. According
to the Official Gazette Act, measures adopted by administrative
authorities are promulgated by the publication of their entire text or
by announcement of their introduction, if so required by law. If the
publication of the Rules in the Official Gazette or by the announcement
of their introduction had been required under Section 25 of the Private
Business Activities Act, there is no doubt that the Rules would have
been published in this manner. However, the Rules were published in
the Financial Bulletin of which the applicant was - or should have
been - aware.
The applicant disagrees with the Government's reasoning
concerning the Commission's competence ratione materiae to examine its
case. It also considers that all domestic remedies have been
exhausted. In its view, reaching a decision on the breach of rights
under Section 2 para. 4 of the Constitution and Section 4 para. 1 of
the Charter of Fundamental Rights and Freedoms amounts to reaching a
decision on the violation of the right to the peaceful use of property
under Section 11 of the Charter and Article 1 of Protocol No. 1 (P1-1)
to the Convention.
The applicant submits that the company kept, in accordance with
Section 25 of the Private Business Activities Act, single entry book-
keeping in 1991 and double entry book-keeping in 1992. Therefore,
there was no obligation to increase the income tax base, as the
Constitution and the Charter do not allow obligations of this kind to
be imposed except by law. In the present case, the obligation was
imposed by the above-mentioned Rules which did not have the status of
a legal act.
The applicant disputes the Government's characterisation of the
Rules and Regulation as measures of the administrative authorities
passed under a generally binding legal regulation. However, even if
the Rules and Regulation had been published in the Official Gazette
according to Section 8 para. 1b) of the Official Gazette Act - which
was not the case - they would not have become generally binding legal
regulations. According to Article 8 para. 2 (Art. 8-2), the measures
referred to in Article 8 para. 1 (Art. 8-1) as well as any internal by-
laws, may not be called "public notices" or "rulings", or "decrees".
It follows that the obligation to increase the tax base was not imposed
by law or any other generally binding regulation.
The applicant company states that Section 25 of the Private
Business Activities Act did not contain any authorisation for the
Ministry of Finance to pass any generally binding secondary legal
regulation, although such authorisation is required by the
Constitution.
The applicant considers that tax laws, by which the State
provides for payment of taxes must comply with formal, as well as
substantive, requirements for laws. In the present case, the State
authorities provided for payment of taxes in a manner which was not
allowed by the Act determining the formal status of all legal acts.
The publication in the Financial Bulletin - even if it was delivered
to each company - is irrelevant so long as publication in the Bulletin
is no substitute for notification in the Official Gazette stipulated
by law.
Finally, the applicant submits that increase of the income tax
base cannot be considered as an accounting transaction. It should not
have been governed by the Ministry of Finance's regulations. The
obligation to increase the income tax base concerns taxes, and may,
therefore, be governed only by law. It is true that the obligation to
pay income tax was imposed by law. However, the key issue of the
definition of the tax base appeared merely in the form of a regulation
which was never published or announced in the Official Gazette.
The Commission recalls that Article 26 (Art. 26) of the
Convention requires the exercise of only those domestic remedies which
relate to the breaches alleged and can at the same time provide
effective and sufficient redress. An applicant does not need to
exhaust remedies which would be a pure repetition of remedies already
exercised by him (cf. No. 9248/81, Dec. 10.10.83, D.R. 34 p. 78).
The Commission refers to its established case-law to the effect
that a person has exhausted domestic remedies when he has raised in
substance before the highest competent national authority the complaint
he makes before the Commission. Even where the Convention is directly
applicable in the State's domestic law (as is the case in the Czech
Republic), the person concerned may also rely before the domestic
courts on "other arguments to the same effect" (cf. No. 10.3.77, D.R. 8
p. 185; No. 11425/85, Dec. 5.3.85, D.R. 53 p. 76).
The Commission observes that in the present case the final
decision regarding the applicant's claim is the decision of the
Constitutional Court of 2 June 1994.
The Commission notes that the applicant alleged before the
Constitutional Court that the requirement to pay additional income tax
of 385,600 Czech crowns for 1991 was based on the Federal Ministry of
Finance's regulations which were not published in the Official Gazette.
The Commission therefore considers that the applicant raised in
substance in the domestic proceedings the complaint he now makes before
the Commission.
Consequently, the Commission finds that the requirement as to the
exhaustion of domestic remedies has been satisfied and that the
application cannot be rejected on the basis of Articles 26 and 27
para. 3 (Art. 26, 27-3) of the Convention.
Finally, as to the substance of the case, the Commission has
conducted a preliminary examination of the parties' arguments. It
considers that the application raises complex factual and legal issues
which cannot be resolved at this stage of its examination, but require
an examination of the merits. The Commission concludes, therefore,
that the application is not manifestly ill-founded within the meaning
of Article 27 para. 2 (Art. 27-2) of the Convention. No other grounds
for declaring it inadmissible have been established.
For these reasons, the Commission, by a majority,
DECLARES THE APPLICATION ADMISSIBLE, without prejudging the
merits of the case.
H.C. KRÜGER S. TRECHSEL
Secretary President
to the Commission of the Commission
Full & Egal Universal Law Academy