AS TO THE ADMISSIBILITY OF
Application No. 13013/87
by Wasa Liv Ömsesidigt,
Försäkringsbolaget Valands Pensionsstiftelse
and a group of approximately 15,000 individuals
against Sweden
The European Commission of Human Rights sitting in private on
14 December 1988, the following members being present:
MM. C.A. NØRGAARD, President
J.A. FROWEIN
S. TRECHSEL
G. SPERDUTI
E. BUSUTTIL
G. JÖRUNDSSON
A.S. GÖZÜBÜYÜK
A. WEITZEL
J.C. SOYER
H.G. SCHERMERS
H. VANDENBERGHE
Mrs. G.H. THUNE
Sir Basil HALL
MM. F. MARTINEZ
C.L. ROZAKIS
Mrs. J. LIDDY
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 15 June 1987
by Wasa Liv Ömsesidigt, Försäkringsbolaget Valands Pensionsstiftelse
and a group of approximately 15,000 individuals against Sweden and
registered on 15 June 1987 under file No. 13013/87;
Having regard to the report provided for in Rule 40 of the
Rules of Procedure of the Commission;
Having deliberated;
Decides as follows:
THE FACTS
The facts of the case, as submitted by the applicants, may be
summarised as follows:
The first applicant, Wasa Liv Ömsesidigt, is a Swedish mutual
life insurance company with its headquarters in Stockholm. The second
applicant, Försäkringsbolaget Valands Pensionsstiftelse, is a Swedish
pension foundation also with its headquarters in Stockholm. The third
applicant is a group of approximately 15.000 Swedish and non-Swedish
nationals holding pension and endowment insurance policies in the
first and second applicant companies. Before the Commission the
applicants are represented by Mr. Dag Wersén of the law firm Lagerlöf
in Stockholm.
The application concerns the introduction in Sweden of a new
legislation in December 1986 imposing a once and for all property tax
on life insurance companies, certain friendly societies and pension
foundations (Lag om tillfällig förmögenhetsskatt för
livsförsäkringsbolag, understödsföreningar och pensionsstiftelser).
The relationship between on the one hand the first and second
applicant and on the other hand the third applicant
One of the various pension systems available in Sweden is the
buying of a private pension policy from a private life insurance
company. Such policies do not follow any social insurance index but
the future value of the policies depends exclusively upon successful
administration of the premium income received. The greater part of
such insurance is contracted by private individuals wishing to improve
their pension status. This category includes private employees
requiring a better pension than they can expect from the national
social insurance scheme as well as businessmen and farmers who have to
arrange their service pensions themselves. In addition to the above
groups there are people who are not in need of any additional pension
themselves but want to make provision for their survivors in case of
their death. Furthermore, life insurance is generally also a
long-range kind of saving.
In Sweden, licensing and forms of life insurance business are
governed by the Insurance Companies Act of 1982 (försäkringsrörelselag
(1982:713)).
Licensing (in the form of a concession) by the Government is
mandatory for carrying on life insurance business. A concession
includes official confirmation of the company's charter and the
general rules for the life insurance business.
The general rules of a life insurance company can be regarded
as a legal supplement to the company's charter. They are also
essential for the contractual relationship between the company and its
policyholders. In most cases the general insurance conditions of
life insurance policies contain an explicit provision which makes the
general rules, applying at any time, an integral part of the insurance
agreement.
As a general principle of Swedish insurance law, all life
insurance business must be operated solely in the interest of the
policyholders. As a consequence all profits have to be allotted to
the policyholders in the form of a bonus. Dividends to shareholders
and similar payments are not allowed.
As a consequence of the said general principle most life
insurance companies in Sweden are operated in mutual form - i.e. the
companies are owned by the policyholders. There is, however, no rule
against carrying on life insurance business in the form of a joint
stock company. However, no dividends may in this case be paid to
shareholders. Consequently, there is in practice virtually no
difference between the company forms for life insurance business. The
business is always operated in accordance with mutual principles and
solely in the interests of the policyholders.
The fact that all insurance companies are effectively operated
on a mutual basis does not mean that the policyholders have any legal
claim to direct ownership of the companies' assets as such. All
property - shares, bonds, real estate etc. - in which the companies
invest their funds is the company's own property as in the case of any
other legal entity. The fact that there are no interested parties in
life insurance companies other than the policyholders does not alter
this fact.
An individual life insurance policy is a long-term agreement
often running for a period of 30 years or more.
The amount insured and the premium are fixed on the basis of
an assumed income on invested premiums received. The surplus that
arises when the actual income is higher, is returned as a bonus on the
policies in accordance with the general mutual principle.
Depending on the success or otherwise of the insurance
business the aggregate value of the bonus reserve may increase or
decrease.
Consequently, an insurance policy constitutes a vested right
to the insurance amount contracted in the policy and a right to a
bonus which amounts to a fair share of the surplus, if any.
As already mentioned, all surplus on life insurance business
is to be returned as a bonus on the policies. Each individual policy
is entitled to a certain share of the surplus in proportion to its
relative contribution to the creation of the surplus. This principle
is universal for all life insurance companies. The manner in which
the allotment of the surplus is effected may nevertheless vary
slightly from one company to another, depending on which way the
individual life insurance company allocates receipts and expenditure
on the policies. In all cases, the principle of equitable treatment
of policies must be adhered to. Details on the allotment principles
can be found in each company's general rules. The actual allocation
of the bonus is not formally effected until the amount insured for
becomes payable.
It is common for life insurance companies to describe the
importance of the bonus to the future value of insurance policies by
preparing what are referred to as "bonus illustrations". Such
illustrations often accompany the general information given to
potential buyers of life insurance policies. The bonus illustrations
do not represent any guarantee of a future bonus to be received on the
policy in question, the intention being simply to show how various
levels of bonus interest are influenced by the factual return on
invested premiums. It is, nevertheless, the experience that the bonus
illustrations are understood by policyholders as a prognosis of future
bonus, which makes it necessary to prepare all such illustrations on a
very conservative basis and to make a number of reservations.
The particulars of the one-off property tax
The essential stipulations of the legislation on the property
tax may be summarised as follows.
The legislation on the property tax was passed by the Swedish
Parliament on 16 December 1986 and published the same day as
No. 1986:1225 of the Swedish Law Gazette. The Act entered into force
on 23 December 1986.
The one-off property tax was calculated as 7% of the taxable
assets of the below mentioned companies. For pension insurance the
taxable assets equalled the aggregate assets of the contributor whereas
the taxable assets for the purpose of endowment insurance were 72% of
the aggregate assets referable to this type of insurances. No tax
should be paid on that part of a company's assets which were referable
to sickness or accident insurances. The basic principle was that the
assets were assessed, with certain exceptions, at their book value.
The one-off property tax was to be paid to the State by
Swedish life insurance companies, certain friendly societies and
pension funds. The tax liability was imposed on the subjects
concerned which had started business activities before the end of
1984. No others were subjected to the property tax. The tax was based
on the entities' aggregate assets in excess of 10 million Swedish
crowns by 31 December 1986. As a result the levy concerned
approximately 200 companies, societies and funds directly, including
the first and second applicant. The method of distributing the tax
burden chosen by the first and second applicants, as well as by other
insurance companies affected by the Act, was, in the absence of any
criteria provided for by law, to reduce the bonus payments which would
otherwise have been credited the policyholders for the years 1987 and
1988.
Those entities which were liable to the tax had to file a
special tax return relating to the levy no later than 1 June 1987. At
the same time one half of the amount to be paid had to be remitted.
One half of the remainder of the amount had to be paid no later than
31 August 1987 and the remaining part on 30 November 1987.
The property tax was not deductible for the entities concerned
when calculating their income tax to the State. The one-off tax
totalled approximatelly 16 billion Swedish crowns, and the first and
second applicants paid 916,091,000 and 356,000 Swedish crowns
respectively.
When the Government presented the new legislation to
Parliament the responsible minister stated inter alia the following:
"Since the autumn of 1982, economic policy has aimed at
eliminating the various balance problems in the Swedish
economy. Among other things, this has involved a strict
budgetary policy aimed at reducing the large budget deficit.
During this period, the margin for improvements, both in the
form of increases in real household income and through public
expenditures, has been extremely narrow. During these years
large groups of our society have contributed to a pronounced
decrease of the Swedish economy's problems by various types of
sacrifices. The deficits on the national budget and in the
balance of current payments have thus been reduced or
eliminated. This has proved possible parallel to a reduction
in unemployment.
The policy pursued - in combination with international
development - has thus made a radical reduction in the rate of
inflation possible. A necessary condition for continued low
inflation, which is essential for any favourable economic
development in real terms, is that the deficit on the national
budget be further limited in coming years.
It has also proved possible to reduce the level of interest
rates, in that the balance problems in the Swedish economy
have been softened. However, the fall in interest rates has
not been as rapid as the decrease in the rate of inflation.
While inflation has fallen from 10% in 1982 to around 3% this
year, nominal interest rates have decreased over the same
period from 13% to 9%. It is not surprising therefore that
the rates of real interest have risen sharply. Experience shows
that changes in the inflation rate - upwards or downwards -
are only reflected in the nominal rate after a considerable
period of time. On the other hand, the level of real interest
is almost unique. Real interest has not been anywhere near
today's level in modern times.
It is impossible to foresee how long the level of real
interest will remain high. It may be noted, however, that
institutions with a high proportion of their wealth invested
in assets at a tied rate will be in a position to enjoy a
continued high yield for several years after any decision in
the general level of interest rates. Given continued low
inflation, such investors can even now reckon, with a high
degree of certainty, on a very good real yield, at least for
the remainder of the 1980s, even if the interest on new
investments were to fall.
Through the rise in real interest rates, the yield on
insurance saving has gone up markedly. One may note, among
other things, a trend increase in the so-called 'refund
rates'. These show what a yield individual pension and
endowment insurances give for individual years. In real
terms, the refund rates have thus risen from around 1% in 1981
to approximately 11% this year. Refund rates can be expected
to remain at this level for a further few years. Another
factor contributing to the rise in refund rates has been the
rapidly rising rates noted for listed shares, an increase in
value which is the result of the high level of profit in
business and industry.
The increased attractiveness of insurance saving has led to a
strong increase in the demand for policies. During the period
1980-85, the number of newly subscribed P-insurances rose by
no less than 23% per year, while the number of E-insurances
rose by 16% per year.
At the same time as insurance saving has expanded strongly so
far during the 1980s, total savings by households have
continued to remain low, or actually to fall. There is thus
reason to believe that the increase in insurance saving has to
a large extent replaced other savings by households. It also
seems probable that part of this saving, particularly in the
case of E-insurance, has been achieved with borrowed money.
The rapid real growth in the insurance companies' refund rates
- i.e. the yield on insurance saving - is in contrast with the
restricted development of real wages in recent years. The
high yield entails, in the case of individual insurance
saving, increased benefits. There is a direct link between
the yield in an insurance company and the scale of, for
example, the pension paid on the grounds of a pension
insurance policy.
In the case of collective insurance saving, the scale of
pensions and other insured benefits is dependent only in part
on the yield on insurance capital. These benefits are set out
in collective agreements. If the yield on capital is very
high, as is the case at present, the effect is to render the
costs to the employer lower than otherwise. It is thus the
employers who, primarily, benefit from the high yield. That
this is the case is confirmed by the fact that the level of
premiums for service pension insurance has fallen during the
past two years.
General considerations
Life insurance saving enjoys a favoured position in the
context of taxation. Saving in a pension insurance
(P-insurance) takes place with untaxed money. The yield on
its capital is not subject to taxation within the insurance
sector. Only when pension sums are actually paid does a tax
obligation arise. In the case of endowment policies
(E-insurance), the arrangement if different. Saving is
effected with taxed money. The yield is subject to a low rate
of taxation within the insurance company. The sums that fall
due are exempt from income tax. The life insurance capital is
entirely exempt from wealth tax and is favourably treated, by
comparison with other assets, in inheritance taxation. Also,
it should be noted that the costs to an employer of service
pensions and other 'security' insurances for the employees are
not included in the basis for the employers' social charges.
It will be clear from what I have now said that the entire
life insurance sector is consistently afforded a favourable
treatment as regards taxation. This is the case both
regarding individual insurance savings, and the savings based
on collective agreements between labour and management. Even
if the rules are differently structured in respect of P- and
E-insurance, both types are favoured, compared with other
types of savings.
It is not without reason, however, that benefits have been
accorded to savings in the form of insurance. The long-term
character ascribable to most insurance savings is generally
desirable. Savings in the form of insurance mean that the
saver often ties up funds over long periods of time. Even if
the financial security ensured in sickness and old age has
been radically improved by the development of the national
insurance, there is reason also to provide conditions
favouring a complementary financial protection, whether this
is based on collective agreements, or created by individual
insurance solutions.
The benefits accorded, in taxation, to insurance savings are
for the reasons I have just quoted, among others, essentially
well considered during periods when the growth of insurance
capital is normal. As I have indicated, however, in the
preceding section, we are currently experiencing a growth of
wealth in the insurance sector that one is bound to
characterise as unique. The yield on insurance capital now
lies at a level in excess of 10%. No such situation has
prevailed at all in modern times. I would observe, in this
context, that fluctuations in the yield are per se a regular
feature in insurance company operations. Periods when the
real yield is low, or actually negative, alternate with
periods when the yield is at a higher level. What we are now
experiencing, however, is a growth in whealth far beyond what
can be contained by such normal fluctuations.
.....................
In the light of what I have just said, I have reached the
conclusion that the disadvantages connected with a tax on real
interest are so considerable as to prevent me from
recommending the introduction of such a tax. My position
entails that a solution to the problems of income distribution
consequent upon the growth of wealth in the insurance sector
must be sought along different lines. As already stated, it is
my opinion that the general order of things prevailing as
regards the taxation of insurance savings affords an
acceptable result both when profitability is good, and when it
is bad. In the situation currently prevailing, however, with
a growth of wealth that is unique in modern times, the
favoured position of insurance savings from the standpoint of
taxation entails that such savings are enjoying benefits on a
scale that must be called into question. In my opinion,
special measures are thus called for.
When considering the thrust of such measures, one should in my
opinion take into account precisely the circumstance that the
present level of yield will not persist. In a few years' time,
we can foresee a return to a more normal level of
profitability. What has just been said leads also to the
conclusion that no other new, permanent forms of taxation
should be introduced. On the contrary, it would be sufficient
to exact, now, a (one-off) wealth tax from the insurance
sector. Such a tax would not entail drawbacks of the kind
associated with a tax on real interest. An occasional tax can
be simply structured. It will not create uncertainty
regarding the future as to the scale of the tax to be exacted
on insurance savings. Also, its budgetary effects can be
entirely estimated.
By way of summary, I would make the following judgment. The
growth of wealth noted within the life insurance sector is at
present at such a level that the favourable tax rules applying
produce results that are unreasonable from the point of view
of distribution-of-income policy. The present situation is in
the historical perspective almost unique, and cannot be
expected to persist over any long period of time. To alter
the fundamental tax provisions or introduce an entirely new,
permanent system of taxation to meet the present situation can
produce undesirable long-term effects. By a (one-off) wealth
tax, one avoids such effects, at the same time as the sector
which is being favoured with particular force by successful
efforts to combat inflation is required to contribute to a
clean-up of the state's finances. My conclusion is therefore
that the rules of the taxation of life insurance should be
retained, in their essentials, but that an occasional tax
should be exacted. I would also add, at this point, that this
tax will create the possibility for improvements for those
pensioners who are worst off."
The Swedish Law Council (Lagrådet)
The proposal the Swedish Government presented to Parliament
was under the Constitution submitted for scrutiny from a legal point
of view by an institution called the Law Council. This Council is
composed of three members from the country's supreme legal
institutions, the Supreme Court (Högsta Domstolen) and the Supreme
Administrative Court (Regeringsrätten). In the present case, two
Supreme Court judges and a Supreme Administrative Court judge
scrutinised the bill and gave their opinion on 31 October 1986.
Concerning the compatibility of the Government bill with the
Swedish Constitution and the European Convention on Human Rights, the
Law Council made the following statement:
"The Council has in particular studied the bill from its
constitutional aspects. In this respect, the Council has
started from the statement in the remittted proposal that
the bill, if a decision is made by Parliament before its
Christmas recess, will not be in conflict with the
prohibition against retroactive tax legislation contained
in Chapter 2 Section 10 of the Instrument of Government,
nor with any Swedish commitments under international
treaties. By the latter are envisaged, presumably, the
European Convention of 4 November 1950 on the Protection
of Human Rights and Fundamental Freedoms together with the
supplementary protocol of 20 March 1952 relating to the
protection of, among other things, property rights. The
Council has also considered the compatibility of the bill
with these documents, which for the sake of simplicity are
referred to below as the European Convention.
...................
A circumstance considered inter alia in many statements by the
bodies to whom the bill was circulated is that it is intended
to tax insurance companies etc. for a wealth that they only
manage in accordance with agreements with the policyholders.
This view is developed, among others, by the Court of Appeal
for Western Sweden (hovrätten för västra Sverige), which found
the construction objectionable on legal grounds and recommended
that the liability to tax rest with the owner of the wealth
asset. Applying a strict judgment by the terms of the Instrument
of Government, the Law Council finds, to begin with, that there
is no obstacle to exacting tax on the actual wealth assets in
question. Whether a tax is exacted in one way or another, from
the insurance institutions or the policyholders, is a question
to which inter alia practical administrative considerations can
obviously be applied. The Council cannot find any legal obstacle
to the construction which has been chosen. It is of major
importance, however, that the tax should ultimately burden the
individuals involved in accordance with fair and objective
principles. Satisfactory guarantees of this should be available
within the framework of the control system that would be in
operation under the Act, and in view of the tax subjects in
question.
On the other hand, the wealth tax's character of a once-for-all
tax presents a major problem. It should be noted per se that
alterations to taxes, and above all, charges that limit their
period of application in various ways have been made on numerous
occasions. In this context, an example close to hand can be
recalled in the Act (1983:968) concerning an Occasional Increase
in the State Wealth Tax, which applied to the assessment of 1984
and was introduced as one among many aspects of a larger proposal
on economic policy. The background, according to the Government's
bill (1983/84:40 p. 32) was that the wealth values of certain
assets had risen dramatically. It was not considered acceptable
that this increase in value should benefit only a limited group
of citizens. The objections raised by those entering reservations
in the Standing Committee on the Constitution lack relevance
in the present context.
In the present case, however, it is a question not of any
temporary change in a previously payable tax, but of the
introduction of an entirely new wealth tax of a once-for-all
character. This has given rise to certain special constitutional
questions, which have not previously been brought forward.
The Law Council recalls that the idea of a once-for-all tax on
wealth was raised during the Second World War. A memorandum
regarding the conditions for and consequences of such a tax
was compiled by Professor Erik Lindahl (SOU 1942:52). The
question was raised several times in Parliament, most
recently by the Standing Committee of Ways and Means in 1945
(No. 55), shortly after the end of the war in Europe. The
majority of the Standing Committee then recommended an enquiry
into the forms in which private wealth should contribute to
the covering of the expenditures arising during the period of
the emergency. The minority did not quote any constitutional
grounds against the proposal. The general opinion appears to
have been that extraordinary measures were permitted in
conditions of crisis. The national defence tax, for example,
had been introduced with retroactive effects. The same came
to apply - but here with political differences of opinion - to
the excess profit tax exacted on income from business and
agricultural operations during 1951, against the background of
the Korean War. This latter tax became in fact an example of
a once-for-all tax.
A once-for-all tax on wealth is obviously of a more sensitive
nature than a once-for-all tax on income. It is one thing to
exact a tax that is in principle of the customary general
nature - as was the case during the war - another to abandon
this general nature, and instead limit, with a greater or
lesser degree of narrowness, the circle of tax-liable
entities. In the present case, the number of entities liable
to tax is said to be around 2,000, but the majority will
escape taxation owing to the deduction of 10 million Swedish
crowns which it is proposed to allow. The Council finds that
a basis is lacking on which to calculate the number of
entities liable in practice. Still less can the Council
arrive at any general picture as to how the deduction will
influence the effects of the tax on different policyholders
and persons entitled to pensions.
In the field of tax legislation it is accepted - obviously -
that a relatively far-reaching differentiation be made between
different taxable entities, and between different kinds of
receipts, property and other sources of tax. However, the
limit for what can be regarded as acceptable is by no means
unproblematic.
In the case of a wealth tax, special problems arise in view of
the provision contained in Chapter 2 Section 18 of the
Instrument of Government regarding expropriation and similar
procedures. The Instrument of Government recognises no other
procedures - we are here disregarding penalties for legal
offences, and the like - for the transfer of property from the
individual to the society than those envisaged in this
provision and those effected through taxes etc. The more
detailed import of the term 'tax' is not apparent from any
provision in the Instrument of Government, nor is it further
treated in the preliminaries to the Instrument. Nonetheless, it
is still worth recalling that the Instrument of Government
entailed a final break with the earlier constitutional fiction
that in principle all taxes were decided for one year at a
time. Even if it is clear that Parliament still has the
authority to decide upon a limitation in time, the
circumstance quoted contains a factor that urges a generally
cautious approach to once-for-all taxes. It must, at least,
be said to lie in the structure and spirit of the Instrument
of Government that the taxing power should not circumvent the
provision laid down in Chapter 2 Section 18 by specially
directed interventions of a once-for-all character against
property.
The discussion concerning disputed proposals for new or
increased taxes often raises the question of limits of the
taxing power, and more specifically the boundary between tax
and confiscation. The question has also been discussed in the
legal literature both prior to the advent of the Instrument of
Government and thereafter. As developed (in this literature),
the confiscation argument is frequently used in tax
discussions in a manner unacceptable from the legal point of
view. What is stated in the literature clearly indicates that
the bill now under consideration cannot be said to entail
an illegal confiscation.
Similar points of view to those presented above are also
relevant when one considers the compatibility of the
proposal with the European Convention (....). According to
(Article 1 of Protocol No. 1), the right to property shall be
respected. No one shall be deprived of his property other
than in the public interest and on the conditions indicated in
the law of the country and by the general principles of
international law. It is also, however, stated that this
shall not impair the right of a State to enforce laws to
secure the payment of taxes and charges. Only in isolated
cases have questions relating to taxes been criticised under
the provisions of the Convention. One case related to a
once-for-all tax of 25% on wealth above a certain limit,
decided upon in a Nordic country in critical economic
circumstances. By a decision of 20 December 1960, the case,
as being "manifestly ill-founded", was not taken up by the
Commission for consideration (No. 511/59, Dec. 20.12.60,
Collection 4 p. 1 at p. 33) A similar decision was made on 2
December 1985 by reason of a complaint against the Swedish
profit sharing tax (No. 11036/84, Dec. 2.12.85, to be
published in D.R.).
It should be observed that a development in the direction of
stronger protection for ownership rights has been reflected in
the findings of the European Court in recent years. Greater
importance has also been accorded to (Article 14 of the
Convention) which prescribes that enjoyment of the freedoms
and rights set forth in the Convention shall be secured
without discrimination on any ground, such as sex, race,
language, or other status. In the Council's view, however,
there is no basis for claiming that the bill here in question
is in breach of the European Convention.
The Law Council returns here to the statements in the remitted
proposal, quoted in the introduction to the effect that the
bill is not in breach of any provision in the Instrument of
Government etc. As will have become apparent from the reasoning
of the Council, these statements in no way exhaust the
constitutional problems. The provisions of the Instrument of
Government, like its preliminaries, are far from exhaustive,
and are in several areas, including that of the financial
power, couched in markedly brief and general terms. It is
illustrative, for example, that the import of the concept of
law is discussed in detail in the preliminaries, while the
concept of 'tax' is hardly touched upon. In this situation,
it becomes of great importance how the content of the
Instrument of Government is implemented through the actions of
the executive powers.
The Council recalls that our constitutional law, prior to the
constitutional reform, was based essentially on constitutional
practice, which on many points had acquired substance only
after prolonged dispute. It is obvious that the implementation
of the new Instrument of Government by a suitable and workable
practice is a matter of great urgency. Essentially, it is, of
course, for Parliament and Government to shoulder this
responsibility. Against this background, it is a serious
shortcoming of the remitted proposal that it fails to provide
either any material basis for judgment or any statements for
guidance.
In scrutinising any proposed legislation that raises the
question of how the Instrument of Government is to be given
substance in legal practice, it is an important task for the
Council to report its view from the perspective this Council
is set to represent. In the present case, it is thus required
to do this without any support in the remitted proposal.
The Law Council cannot ignore the possibility of this bill
providing the starting-point of a development that could give
rise to very serious doubts, in view of the grounds on which
the Instrument of Government rests. Reference can be made,
apart from Chapter 2 Section 18, to inter alia the fact
that Chapter 1 Section 2 establishes the economic welfare of
the individual as a fundamental objective of public
activities. This is the first occasion on which a bill is
submitted for a once-for-all tax on wealth that lacks a
general nature. Such a tax fits somewhat badly per se into our
constitutional system. It could also constitute grounds for
various once-for-all property taxes to be exacted from a
narrowly limited circle of taxable entities, and with higher
rates of taxation than that which we are now considering. It
is true that nothing of this kind is evident from the remitted
proposal. Nor, however, does it contain any statement expressing
rejection of such a development.
The bill as circulated, would, in the opinion of the Law
Council, create an unfortunate precedent in a sensitive area,
in which the regulation provided by the constitutional laws is
incomplete and unclear, and the formation of practice
therefore acquires special importance. One should also in
particular note that the country is not in any such critical
situation as is mentioned in, for example, Chapter 2 Section
10 of the Instrument of Government. Decisions taken in
extraordinary circumstances of that kind have limited, if any,
force as precedents in normal times. If this bill is enacted,
however, one is acquiring a precedent that cannot be dismissed
on such grounds.
The same argument also leads the Council to adopt a critical
attitute to the manner in which the bill has been prepared and
presented in the remitted proposal. The further constitutional
aspects have not been taken into account. It would have been
highly desirable to have a discussion of these, together with a
normal procedure of circulation for comment. Shortcomings in
the preparation of the bill are evident also in other respects
than the constitutional. It is admittedly true that it has
been possible, in the treatment of various details, to build
on the report of the Committee on Taxation of Real Interest
and the statements of the bodies circulated, but the
construction in principle of the bill is entirely different,
and the effects of it have not been illustrated in any
satisfactory manner. The Law Council has, for example, drawn
critical attention to the lack of clarity as to who will
actually be burdened by the tax.
The bill emerges almost as an improvisation, produced when a
bill for a new and permanent tax was rejected. It is
difficult to avoid the reflection that closer consideration
could have led to essentially the same purpose having been
gained by another construction, which would not have given
rise to the doubts expressed by the Law Council in the
foregoing.
In the light of these deliberations, the Council finds itself
obliged to recommend against implementation of the proposed
legislation remitted to it."
COMPLAINTS
Article 1 of Protocol No. 1 to the Convention
In the applicants' view the primary issue to be determined
under this Article and which is inherent in the Convention as a whole,
is whether a fair balance has been struck between the public or
general interest and the protection of the proprietary rights and
interests of the applicants. The purpose and effects of the Act in
question are clearly concerned with the deprivation of property, with
the result that the second sentence of the first paragraph of Article
1 of Protocol No. 1 is applicable. Moreover, since the present case
involves the payment of taxes, it falls to be considered not only
under the terms of the second sentence of the first paragraph, but
also under the second paragraph of Article 1.
The applicants recognise, as is made clear by the second
paragraph itself, that the margin of appreciation given to national
authorities under Article 1 of Protocol No. 1 in the field of economic
and fiscal regulation, is necessarily a wide one. However, it is
well-established in the Commission's case-law that the powers of
taxation are not immune from review under the Convention (cf. for
example No. 8531/79, Dec. 10.3.81, D.R. 23 p. 203).
It follows that although the Act involves the payment of a
tax, this fact does not exclude the circumstances of the present case
from the effective protection afforded by Article 1 of Protocol No. 1
and the other relevant provisions of the Convention. The relevant
principles are as follows:
(i) Although the margin of appreciation available to the national
legislature under Article 1 is a wide one, the measure imposed
must have a legitimate aim, in the sense of not being
"manifestly without reasonable foundation" (cf. for example,
Eur. Court H.R., James and others judgment of 21 February 1986,
Series A No. 98).
(ii) Where the measure has a legitimate aim, there must be a
reasonable relationship of proportionality between the means
employed and the aim sought to be realised.
(iii) A fair balance must be struck between the demands of the
general interest of the community and the requirements of the
protection of the individual's fundamental rights, and this
balance will not be struck if the measure results in a person
or a section of the public having an individual and excessive
burden (cf. Eur. Court H.R., Sporrong and Lönnroth judgment of
23 September 1982, Series A No. 52).
For the reasons given below the Act, which is both grossly
unfair in its operation and lacking in any objective and reasonable
justification, falls well short of satisfying these principles, and
exceeds the Swedish State's margin of appreciation.
Under the second sentence of the first paragraph of Article 1
of Protocol No. 1 a deprivation of possessions must not only be in the
public interest, but must also be "subject to the conditions provided
for by law". The applicants submit that this principle, which is
inherent in the Convention as a whole, applies to every case in which
the right to property guaranteed by Article 1 falls to be considered.
It is evident from the jurisprudence of the European Court of Human
Rights that State action does not necessarily comply with the
principle of legal certainty, guaranteed by these requirements, merely
by reason of the fact that it is in conformity with domestic law. The
requirement that a measure must be prescribed by law can thus be seen
to include the requirements that it must satisfy the principle of
legal certainty and not be arbitrary.
The Act fails to satisfy these requirements for the following
reasons.
The Act itself is arbitrary, in that its scope and application
are restricted, in a discriminatory manner and without any objective
and reasonable justification, to certain mutual life insurance
companies, friendly societies and pension foundations and hence their
beneficiaries, leaving other entities and individuals unaffected.
Further, the operation of the Act is arbitrary, in that it
provides no means for the relevant companies to determine the way in
which the burden of the tax should be distributed, and thus fails to
provide the individual policyholder or other beneficiary with any
guarantee that he or she will not be unjustly burdened as compared to
other policyholders or beneficiaries. It is not expedient for the
insurance companies and other institutions, nor is it their function,
to redress the arbitrary nature of the tax by the manner in which they
transfer the burden upon the policyholders and other beneficiaries.
The institutions are not, for example, required to apply a means test,
nor to have regard to the family and other individual circumstances of
the policyholders and other beneficiaries. From the point of view,
therefore, of those who are the real taxpayers under the Act, the
operation of the legislation is inherently arbitrary, as well as being
neither adequately accessible nor sufficiently precise. For these
reasons there has been a breach not only of Article 1 of Protocol No. 1,
but also, as will be shown below, of Article 6 and Article 13 of the
Convention.
The Act involves the legislative taking by the Swedish
Government of a large part of the savings and pension benefits of
several million men and women (both Swedish and non-Swedish nationals),
which have accumulated in the hands of life insurance companies,
friendly societies and pension foundations. The levying of the 7%
one-off wealth tax involves a deprivation of the applicants'
proprietary rights and interests. It is therefore necessary to
consider whether the taking of property provided for by, or as a
consequence of, the Act was in accordance with the principles of
fairness, proportionality, legal certainty and non-discrimination
which are inherent in Article 1 of Protocol No. 1, and in the
Convention as a whole.
The stated aim of the Swedish Government in introducing the
unprecedented measure was to reduce the national debt by redistributing
wealth from the private sector to the public sector. Whilst
the applicants accept that the redistribution of wealth from more
favoured to less favoured groups in society is a legitimate aim the
arbitrary and discriminatory taking of wealth from particular sections
of the public, in circumstances in which there is no "fair balance",
constitutes an aim which is "manifestly without reasonable foundation".
The effect of the occasional wealth tax will be to appropriate to the
Swedish State 16-18 billion Swedish crowns, in the context of total
revenues from State income tax amounting to approximately 60 billion
Swedish crowns. In other words, the Government seek by the levying of
this tax to increase the revenue of the State by about one third of
the revenue normally obtained through State income tax. Furthermore,
it does so at the expense of the individual policyholders and their
dependants, irrespective of their individual means and particular
circumstances. In a formal sense the tax is levied under the Act upon
the life insurance companies, friendly societies and pension
foundations. But in reality the effective burden of this tax is
necessarily borne by individual policyholders and other beneficiaries.
These policyholders and beneficiaries are ordinary men and
women, the majority of whom could not be said to be particularly
wealthy. The Act provides no guidance as to how the burden of the tax
should be distributed between those individuals. The mutual life
insurance companies to which the Act applies have decided to
distribute the burden by reducing, on a pro rata basis, the bonus
payments that would otherwise have been made to policyholders in 1987
and 1988. There can be no doubt that under this method of
distribution, the appropriation by the State of 7% of the assets of
the institutions in whose hands the savings and pension benefits of
policyholders have been placed, will have had the effect of
diminishing the proprietary rights and interests of many people of
comparatively modest means, who do not "deserve" to be taxed under a
special wealth tax by reason of their individual means or particular
circumstances. Whatever method is chosen to distribute the burden,
the insurance companies and other relevant institutions cannot avoid
the arbitrary and unfair consequences for the policyholders and their
dependants. On the other hand, there will necessarily be many people
who will not be affected by the Act, who are much wealthier, and whose
means and circumstances would much more readily justify the imposition
of a wealth tax than in the case of many of those who are affected by
the Act. A tax which is imposed irrespective of the individual means
and particular circumstances of those who will ultimately bear the
burden of the tax is inherently arbitrary, capricious and
discriminatory in its operation and effect. In the applicants'
submission, therefore, to increase State revenues by means of such a
tax cannot constitute a legitimate aim in the public or general
interest, within the meaning of Article 1 of Protocol No. 1 to the
Convention.
Further, there is no reasonable relationship of proportionality
between the operation of the Act and the Swedish State's proclaimed
aim of reducing the national debt by redistributing wealth from the
private sector to the public sector. As a means of attaining this
stated aim, the occasional wealth tax operates as a grossly unfair and
discriminatory measure, which places the burden of redistribution
entirely on the shoulders of one section of the Swedish public, that
is, those who have chosen to save and to provide for the future of
themselves and their dependants by means of pension or endowment
insurance, or by placing funds with friendly societies or pension
foundations, or whose employers have chosen to make such arrangements
on their behalf. By contrast, those whose future pension benefits are
provided for by a different arrangement, for example, those whose
pension is directly paid to them by their employer, are not affected
by this tax, because they are outside the scope of the Act. Nor is a
corresponding tax burden placed upon the large group of public
servants who are entitled to a state service pension or a local
government pension. Their pension benefits are safeguarded against
the effects of inflation, and they do not, therefore, have the same
need to provide for the future by means of private pension insurance.
Furthermore, those who are outside the scope of the Act have not had
to bear any risk that the value of their pension benefits may be
affected by a decline in the value of the shares in which their
pension funds have been invested.
The operation of the tax is a measure which fails entirely to
strike a fair balance between the demands of the general interest and
the requirements of the protection of the applicants' fundamental
righs. Even assuming that it is in certain circumstances a legitimate
aim for the Swedish Government to seek, in the general interest, to
reduce the national debt by a redistribution of wealth from the
private sector to the public sector, Article 1 of Protocol No. 1 to
the Convention does not permit this to be done arbitrarily and
unjustly at the expense of the proprietary rights and interests of one
particular section of the public, irrespective of their individual
means or particular circumstances, leaving the rights and interests of
other sections of the public unaffected. The fair balance requirement
entails that no one section of the public bears a wholly
disproportionate individual and excessive burden, at whose expense
there is unjust enrichment by the State.
Furthermore, the effect of the Act is also to leave intact, in
an arbitrary and discriminatory manner, the savings and pension
benefits of those who hold pension insurance policies with many
smaller insurance companies whose wealth does not exceed 10 million
Swedish crowns, or which were formed after 1984. Accordingly, those
wealthy individuals, who have large pension savings in institutions
outside the scope of the Act, remain wholly unaffected by the tax or
any equivalent tax. By contrast, individuals of modest means, who
have small pension savings in institutions subject to the Act, have
their pension benefits diminished by virtue of the operation of the
Act.
The Act thus amounts to a taking of property by the Swedish
State which is manifestly not in the public interest or within the
scope of the second paragraph of Article 1. It is the arbitrary,
capricious and discriminatory nature and effect of the Act, its
failure to draw any distinction based on the individual means and
circumstances of policyholders and other beneficiaries, the absence of
any reasonable proportionality, which take the occasional wealth tax
outside the scope of any proper use of the economic and fiscal
regulatory powers exercisable by the legislature and the executive
in a modern society governed by the rule of law.
It is further submitted that the imposition of the tax does
not constitute a deprivation "subject to the conditions provided for
by law" in that the effect of the Act is in practice, although not in
theory, retrospective. Through the imposition of the occasional
wealth tax upon the assets of life insurance companies, friendly
societies and pension foundations, the savings and pension benefits of
individual policyholders and other beneficiaries over many years are
in effect appropriated by the State. The Act was passed by Parliament
on 16 December 1986 and it entered into force on 23 December 1986.
In practice, individual policyholders and other beneficiaries were
deprived of any real and effective opportunity to regulate their
conduct so as to mitigate the adverse consequences of the Act for
them.
The applicants further submit that a deprivation of property
by the imposition of a wealth tax must not only be "subject to the
conditions provided for by law", but must also be subject to "the
general principles of international law".
However, if there is any practical difference in the
circumstances of the present case (which is not admitted) between the
standard of treatment required for nationals and for non-nationals
under Article 1, then it is submitted that the non-Swedish nationals
are plainly entitled to rely upon the general principles of
international law for the protection of their property rights.
By imposing the tax upon non-Swedish nationals, the Swedish
State has failed to comply with the general principles of international
law. The tax was arbitrary, discriminatory and grossly unfair, lacking
any reasonable foundation or relationship of reasonable proportionality
with its stated aim. It thus amounted in reality to a confiscation of
property without the payment of prompt, adequate and effective
compensation by the Swedish State.
Article 14 of the Convention in conjunction with Article 1 of
Protocol No. 1 to the Convention
By introducing the tax in question applicable only to certain
life insurance companies, friendly societies and pension foundations,
the Act clearly subjected the institutions so affected, as well as
their policyholders and other beneficiaries, to a different kind of
treatment in their enjoyment of the right to property guaranteed by
Article 1 of Protocol No. 1 to the Convention which had no objective
and reasonable justification, and in relation to which there was no
reasonable proportionality between the means employed and the Swedish
Government's stated aim of reducing the national debt. These points
have already been developed above.
Article 6 para. 1 of the Convention
The applicants further submit that their right to a fair
judicial process under Article 6 of the Convention has been violated.
The applicants' right of property is a "civil right" within
the meaning of Article 6 para. 1. It is submitted that the applicants
had no effective right to a fair hearing in respect of the protection
of the enjoyment of the substance of their right to property, insofar
as this right was affected by the arbitrary and discriminatory
operation and effects of the tax.
The tax, although formally applicable only to certain companies,
is in reality a tax imposed on individual policyholders and other
beneficiaries, whose proprietary rights and interests are adversely
affected by it. The Act, however, fails to recognise this fact or its
implications. It leaves it open to insurance companies, for example,
to reduce the savings of policyholders on a pro rata basis, regardless
of whether a person's policy has in fact benefited from the favourable
returns enjoyed by insurance companies on their investments in the
past few years. By leaving the method of distribution of the "real"
burden of the tax in the hands of private institutions, the Swedish
Government and legislature have failed entirely to recognise or to
apply the principles according to which the fiscal powers of a State
are ordinarily exercised, namely, that the burden of a tax should be
distributed by taking into account the individual means and particular
circumstances of those who must bear the burden.
By failing to provide any criteria for the distribution of the
tax as between those who in reality are the taxpayers, the Act has
created a legal vacuum in relation to the fair determination by
judicial process of the applicants' right to property. The
Convention has not been incorporated into Swedish law, and there are
no equivalent rules or principles of Swedish law upon which a Swedish
court or tribunal, faced with the task of determining the extent of an
individual's proprietary rights and interests in relation to the tax,
could make a fair and just decision.
In these circumstances, the applicants submit that there is a
systematic failure on the part of Sweden effectively to secure the
right to property to everyone within the jurisdiction of this State,
without unfair discrimination, and to ensure that everyone is
afforded, in the determination of his civil rights and obligations, a
fair and public hearing, as required by Article 6 para. 1 of the
Convention.
Article 13 of the Convention
The applicants do not seek to argue that Article 13 guarantees
a remedy which allows the Act as such to be challenged before a
national authority as being contrary to the Convention. However, they
complain that, as a result of Sweden's failure to incorporate the
rights and obligations of the Convention into domestic law, or
otherwise adequately to secure the enjoyment of the applicants' rights
under the Convention in domestic law, the applicants had no effective
and sufficient remedies before any national authority, in respect of
violations of their right to property guaranteed by the Convention,
insofar as such violations are the result of the application of the
Act to life insurance companies and other private institutions and by
such institutions to the policyholders.
Article 18 of the Convention
The applicants submit that the only restrictions permitted in
relation to the right to property guaranteed by Article 1 of Protocol
No. 1 are those which are in the public general interest. It follows
that any interference with the right to property which is not in the
public or general interest, constitutes a violation of Article 18, as
well as of Article 1 of Protocol No. 1. The Act in question thus
constitutes a violation of Article 18 of the Convention, as its
purpose and application are not in accordance with the public
interest, contrary to Article 1 of Protocol No. 1 read on its own, and
read in conjunction with Article 14 of the Convention. The reasons
for this have been set out above.
THE LAW
1. The applicants have complained that the introduction in 1986
of the legislation in Sweden concerning the once and for all property
tax involves a breach of Article 1 of Protocol No. 1 (P1-1) to the
Convention which reads:
"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."
It is clear from Article 25 para. 1 (Art. 25-1) of the
Convention that the Commission can receive an application from a
person, non-governmental organisation or group of individuals only if
such person, non-governmental organisation or group of individuals can
claim to be a victim of a violation by one of the High Contracting
Parties of the rights set forth in the Convention. Moreover, the
Commission is competent to examine the compatibility of domestic
legislation with the Convention only with respect to its application
in a concrete case, while it is not competent to examine in abstracto
its compatibility with the Convention (cf. for example No. 11045/84,
Dec. 8.3.85, D.R. 42 p. 247).
Accordingly, the Commission will only examine the applicants'
complaints insofar as the legislation in question affects the
applicants themselves.
The applicants have alleged that the one-off tax upon certain
companies is an interference with property rights which, therefore,
can only be accepted insofar as the interference is legally justified
under the exceptions in the second sentence of the first paragraph or
the second paragraph of Article 1 of Protocol No. 1 (P1-1) to the
Convention.
The Commission finds that the first and second applicants may
claim to be victims of an alleged violation of Article 1 of Protocol
No. 1 to the Convention (P1-1). Their assets as a whole enjoy the
protection of Article 1 of Protocol No. 1 (P1-1) and the obligation to
pay the levy is thus an interference with their right to peaceful
enjoyment of their possessions.
The third applicant is a group of approximately 15,000 persons
who are policyholders in the first and second applicant companies. The
question arises whether these persons can be considered victims within
the meaning of Article 25 (Art. 25) of the Convention.
The applicants have argued that in the end it is the third
applicant who will have to bear the burden of the one-off tax as the
insurance companies just administer the money and reduce the profits
to the disadvantage of the third applicant in order to cover the
losses suffered from the one-off tax. In such circumstances the third
applicant - the group of individual insurance policyholders - is
directly affected by the new legislation.
The European Court of Human Rights has held that the term
"victim" in Article 25 (Art. 25) of the Convention denotes the person
directly affected by the act or omission which is at issue (cf. Eur.
Court H.R., Eckle judgment of 15 July 1982, Series A No. 51, p. 30,
para. 66). Neither the Court nor the Commission has previously
considered the special relationship which exists between a company and
a group of individuals such as the present one, but the Commission has
held in two cases that a shareholder was entitled to claim to be a
victim of measures directed against a company (No. 1706/62, Dec.
4.10.66, Collection 21 p. 26 and No. 7598/76 Kaplan v. United
Kingdom, Comm. Report 17.7.80, D.R. 21 p. 5 (p. 23)).
However, the Commission recalls that in both cases the
individual concerned held a substantial majority shareholding in the
company. In effect both applicants were carrying out their own
business through the medium of the company and both applicants had a
direct personal interest in the subject-matter of the complaint. Thus
in Application No. 1706/62 the applicant alleged that the actions of
which he complained were part of a general scheme aimed against him
personally. The Kaplan case concerned restrictions imposed on the
company on the basis of the applicant's alleged personal unfitness to
act as a controller.
In the case of Yarrow and others (No. 9266/81, Dec. 28.1.83,
D.R. 30 p. 155 (p. 185)) the Commission held that the applicants, who
did not hold a majority or controlling interest in the company in
question, were not directly and personally affected by the measure
taken (the nationalisation of the company) even though this measure
undoubtedly reduced the value of their shareholdings and they could
not therefore claim to be victims within the meaning of Article 25
(Art. 25) of the Convention.
The circumstances of the present case are, in the Commission's
view, comparable to the latter decision. Through the insurance
policies the applicant group of individuals has a right to an amount
contracted in the individual policies and a right to a bonus which
amounts to a fair share of the surplus on the life insurance business,
if any. This bonus is accordingly not a fixed sum, but depends on the
success of the insurance company.
Furthermore, the Commission recalls that the policyholders do
not have any legal claim to direct ownership of the first and second
applicant companies' assets as such. All property in which the
companies invest their funds is the companies' own property as in the
case of any other legal entity. Also the individuals in question are
not required to pay any tax but their "burden" lies in the fact that
the applicant companies for the years 1987 and 1988 reduce the bonus
which would otherwise have been allotted to insurance policy claims,
once they become payable. Whether the insurance companies under their
contractual obligations are entitled to act in such a way vis-à-vis
their policyholders is not a matter which the Commission is called
upon to determine, but in the circumstances indicated above the
Commission finds that the legislation in question does not affect the
applicant group of individuals directly and personally to such an
extent that it may claim to be a victim under Article 25 (Art. 25) of
the Convention in regard to the first complaint to be considered by
the Commission. It follows that this part of the application, so far
as brought by the third applicant, is manifestly ill-founded and must
therefore be considered inadmissible under Article 27 para. 2 (Art.
27-2) of the Convention.
It thus remains to examine whether the interference with the
first and second applicants' rights was justified.
The first and second applicants (hereafter the applicants)
submit in regard to this particular complaint that the purpose and
effects of the Act in question are clearly concerned with the
deprivation of property, with the result that the second sentence of
the first paragraph of Article 1 of Protocol No. 1 (P1-1) is applicable.
Moreover they maintain that, since the present case involves the
payment of taxes, it also falls to be considered under the second
paragraph of Article 1 (P1-1).
The Commission is of the opinion that any legislation which
introduces some sort of fiscal obligation will as such deprive the
involved of a possession, namely the amount of money which must be
paid. However, the second sentence of Article 1 of Protocol No. 1
(P1-1) to the Convention expressly secures to the States, parties to
the Convention, the right to enforce such laws as they deem necessary
to secure the payment of taxes or other contributions. Accordingly,
the Commission will first consider whether the interference with the
applicants' right under Article 1 of Protocol No. 1 (P1-1) is
justified by the second paragraph before considering, if necessary,
whether the requirements set out in the second sentence of the first
paragraph are fulfilled.
The Commission recalls that the applicants were obliged to
pay, with certain exceptions, a sum equivalent to 7% of their assets
in excess of 10 million Swedish crowns by 31 December 1986. The
applicant companies thus paid 916,091,000 and 356,000 Swedish crowns
respectively. Accordingly, the tax took the form of a monetary
contribution on capital assets, which nevertheless would not differ
from a monetary contribution applied to any other asset, for example a
piece of land.
Having regard to this and the maximum percentage of the levy
as well as the general purpose of the law, which will be further
recalled below, the effects on the applicants were not such as could
deprive the legislation of the character of a tax within the meaning
of the second paragraph of Article 1 of Protocol No. 1 (P1-1) (cf.
mutatis mutandis No. 511/59, Gudmundsson v. Iceland, Dec. 20.12.60,
Collection 4 p. 1 at p. 33). Nevertheless this does not bring the
issue wholly outside the Commission's control since the correct
application of Article 1 of Protocol No. 1 (P1-1) is subject to
supervision by the Convention organs.
Under this supervision the Commission finds that, though it is
certain that no general prohibition of taxes payable exclusively out
of the tax-payer's capital can be derived from Article 1 (P1-1), a
financial liability arising out of the raising of taxes or
contributions may adversely affect the guarantee secured under this
provision if it places an excessive burden on the person or entity
concerned or fundamentally interferes with his or its financial
position. However, it is in the first place for the national
authorities to decide what kind of taxes or contributions are to be
collected. Furthermore the decisions in this area will commonly
involve the appreciation of political, economic and social questions
which the Convention leaves within the competence of the Contracting
States. The power of appreciation of the Contracting States is
therefore a wide one (cf. No. 11036/84, Dec. 2.12.85, to be published
in D.R.).
Considering the case in this light the Commission notes the
applicants' contention that, whilst the redistribution of wealth from
more favoured to less favoured groups in society is a legitimate aim,
the arbitrary and discriminatory taking of wealth from particular
sections of the public, in circumstances where there is no "fair
balance", constitutes an aim which is "manifestly without reasonable
foundation". They contend that the respondent State seeks by the
levying of the tax to increase its revenues by approximately one third
of the revenue normally obtained through income tax. Furthermore,
there is no reasonable proportionality between the operation of the
act and the State's stated aim of reducing the national debt and thus
it amounts to a taking of property which is manifestly not in the
public interest or within the scope of the second paragraph of Article 1
of Protocol No. 1 (P1-1).
The Commission also recalls that the main reason for
introducing the one-off tax were considerations concerning a
continuing low inflation, essential in the Government's view for any
favourable economic development, combined with the necessity of a
further limitation of the national budget deficit. It is undoubtedly
within the sovereign power of a State to enact legislation of this
nature and the Commission finds that this is clearly a measure
introduced with a public purpose and considered by the State to be in
the general interest. This aim was pursued by levying the one-off tax
on inter alia the applicants amounting to 7% of their assets exceeding
10 million Swedish crowns due, in particular, to the fact that the
situation in the entire life insurance sector was unique at the time
and because of the favourable treatment afforded to this sector as
regards taxation in general, a treatment which is still maintained. In
such circumstances the Commission cannot find that the one-off tax
affected the applicants' rights of ownership of its assets, be it
monetary or other assets, or interfered with their financial situation
to such an extent that this could be considered disproportionate or an
abuse of the State's right under Article 1 of Protocol No. 1 (P1-1) to
levy taxes.
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. All three applicants have also complained that by the
introduction of the one-off tax, applicable only to certain insurance
companies, friendly societies and pension foundations, the
institutions affected thereby, as well as their policyholders and
other beneficiaries, were subjected to a specific and unique kind of
treatment in their enjoyment of the right to property guaranteed by
Article 1 of Protocol No. 1 (P1-1) to the Convention which had no
objective and reasonable justification and is thus in violation of
this provision in conjunction with Article 14 (Art. 14) of the
Convention which reads:
"The enjoyment of the rights and freedoms set forth in
this Convention shall be secured without discrimination
on any ground such as sex, race, colour, language,
religion, political or other opinion, national or social
origin, association with a national minority, property,
birth or other status."
The Commission recalls that Article 14 (Art. 14) has no
independent existence but plays a role only in order to safeguard
persons placed in similar situations from any discrimination in the
enjoyment of the rights and freedoms set forth in the Convention and
its Protocols. Furthermore, as indicated above, the Commission will
only examine the applicants' complaints insofar as the issues raised
affect them directly and personally.
Regarding the latter point the Commission has found above that
the applicant group of individuals cannot be considered to be affected
directly and personally to the extent that it could claim to be a
victim under Article 25 (Art. 25) of the Convention. For this reason the
Commission cannot find any issue under Article 14 (Art. 14) and it
follows that this part of the application, insofar as it concerns the
applicant group of individuals, is manifestly ill-founded within the
meaning of Article 27 para. 2 (Art. 27-2) of the Convention.
Regarding the two applicant companies the Commission has found
above that the taxation interfered with their rights secured to them
under Article 1 of Protocol No. 1 (P1-1) to the Convention but that this
interference was justified in view of the States' right to impose
taxes under the second paragraph of this provision. However, as
taxation falls within the general scope of Article 1 (P1-1) , it
follows that the prohibition against discrimination in Article 14
(Art. 14) of the Convention is applicable to taxation as such (cf.
No. 8531/79, Dec. 10.3.81, D.R. 23 p. 203 and No. 11089/84, Dec.
11.11.86, to be published in D.R.).
The Commission, however, also recalls that, in the Belgian
linguistic case (Eur. Court H.R., judgment of 9 February 1967,
Series A No. 5), the Court stated that it is not every distinction
which amounts to discrimination but that it would arise if the
distinction in question had no objective and reasonable justification.
In particular the Commission considers that it is not sufficient for
the applicants to complain merely that they, rather than others, have
been taxed, but that they must show that the tax in question operates
to distinguish between similar taxpayers on discriminatory grounds.
Furthermore, as indicated above, the Commission is of the
opinion that in the field of taxation it is for the national
authorities to make the initial assessment of the aims and the means
by which they are pursued. Accordingly, a margin of appreciation is
left to them and it must be wider in this area than it is in many
others. The Commission recalls in this respect that systems of
taxation inevitably differentiate between different groups of tax
payers and that the implementation of any taxation system creates
marginal situations. Also, attitudes as to the social and economic
goals to be pursued by the State in its revenue policy may vary
considerably from place to place and time to time. A government may
often have to strike a balance between the need to raise revenue and
other objectives in its taxation policies. The national authorities
are obviously in a better position than the Commission to assess those
needs and requirements.
In the present case the Commission recalls that the one-off
tax was imposed only on insurance companies, friendly societies and
pension foundations and among them only on those entities which by
31 December 1986 had assets in excess of 10 million Swedish crowns due
to a right for all entities involved to deduct such an amount. The
Commission also recalls that the reasons for imposing the levy on the
applicants were their unique financial situation at the time combined
with the enjoyment of a favoured position in the context of taxation
in general.
In the light of this and the above general considerations the
Commission finds that the taxation in question can be said to fall
within the margin of appreciation accorded to the national
authorities; that the difference in treatment, as claimed by the
applicants in the present case, had an objective and reasonable
justification in the aim pursued by the Government; and that the test
of proportionality is satisfied. 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.
3. The applicants, invoking Article 6 and 13 (Art. 6, 13) of the
Convention, have furthermore complained that Swedish law provides no
effective remedy before Swedish courts or other authorities with
regard to the questions arising in the present case; under Article 13
(Art. 13) in particular since the Swedish Government have not
incorporated the Convention into domestic law.
With regard to Article 6 (Art. 6) of the Convention the
Commission has stated above that the levy introduced in Sweden was to
be considered a tax. The Commission also considered this system to be
covered by the Contracting States' power of taxation expressly
recognised by the Convention.
The Commission has constantly held that Article 6 (Art. 6) is
not applicable to proceedings regarding taxation (cf. No. 2552/65,
Dec. 15.12.67, Collection 26 p. 1, No. 2717/66, Dec. 6.2.69, Yearbook
13 p. 176, No. 8903/80, Dec. 8.7.80, D.R. 21 p. 246 and No. 9908/82,
Dec. 4.5.83, D.R. 32 p. 266). It follows that this part of the
application is incompatible ratione materiae with Article 6 (Art. 6)
of the Convention within the meaning of Article 27 para. 2 (Art.
27-2).
With regard to Article 13 (Art. 13) of the Convention the
Commission recalls that neither this provision nor the Convention in
general prescribes any particular manner by which the Contracting
States should ensure within their internal law the effective
implementation of the provisions of the Convention (cf. Eur. Court
H.R., Swedish Engine Drivers' Union judgment of 6 February 1976,
Series A No. 20, p. 18 para. 50). Furthermore the Court has stated
that
"by substituting the words 'shall secure' for the words
'undertake to secure' in the text of Article 1 (P1-1), the
drafters of the Convention also intended to make it clear that
the rights and freedoms set out in Section I would be directly
secured to anyone within the jurisdiction of the Contracting
States. That intention finds a particularly faithful
reflection in those instances where the Convention has been
incorporated into domestic law" (Eur. Comm. H.R., Ireland
v. the United Kingdom judgment of 18 January 1978, Series A
No. 25, p. 91 para. 239).
It follows that Sweden is not obliged to transform the text
of the Convention into Swedish law.
As to the complaint under Article 13 (Art. 13) the Commission
also recalls that in its judgment in the case of Klass and others the
Court stated that "Article 13 (Art. 13) must be interpreted as guaranteeing an
'effective remedy before a national authority' to everyone who claims
that his rights and freedoms under the Convention have been violated"
(Eur. Court H.R., Klass and others judgment of 6 September 1978,
Series A No. 28, p. 29, para. 64).
The Commission has stated in its Report in the case of Sporrong
and Lönnroth against Sweden that it is "obvious that it (Article 13)
(Art. 13) cannot be considered to give an unqualified right to a remedy to
anyone in respect of any complaint as soon as he chooses to invoke the
Convention". According to the Commission it is necessary "to take
account of the nature of the acts complained of" (Comm. Report
8.10.80, para. 155).
In the case of Young, James and Webster against the United
Kingdom the Commission stated that "it cannot be deduced from
Article 13 (Art. 13) that there must be a remedy against legislation
as such which is considered not to be in conformity with the
Convention. Such a remedy would in effect amount to some sort of
judicial review of legislation because any other review - generally
sufficient for Article 13 (Art. 13) which requires only a remedy
before a national authority - could hardly be effective concerning
legislation" (Comm. Report 14.12.79, para. 177).
Without considering it necessary to examine whether all three
applicants in the light of its above conclusions may rely on
Article 13 (Art. 13) of the Convention in the present case, the
Commission is of the opinion that their complaints in substance
concern legislation. Thus, in applying the case-law mentioned above
the Commission finds no appearance of a breach of Article 13 (Art. 13)
as this Article does not relate to legislation and does not guarantee
a remedy by which legislation could be controlled as to its conformity
with 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.
4. The applicants have finally complained that their rights under
Article 18 (Art. 18) of the Convention have been violated. This
provision reads as follows:
"The restrictions permitted under this Convention to
the said rights and freedoms shall not be applied for any
purpose other than those for which they have been
prescribed."
The applicants maintain that the above Article has been
violated as the purpose of the tax legislation in question were not in
the public interest as required by Article 1 of Protocol No. 1 (P1-1)
to the Convention.
The Commission has already found that the adoption and
application of the new legislation were compatible with Article 1 of
Protocol No. 1 (P1-1) and that the interference on such a basis could be
considered justified as being "to secure the payment of taxes or other
contributions" within the meaning of that provision. For similar
reasons the Commission does not consider that the enactment and
application of the 1986 Act aimed at the destruction or the excessive
limitation of the applicants' rights under the Convention.
The Commission accordingly finds no breach of Article 18 (Art.
18) in conjunction with Article 1 of Protocol No. 1 (P1-1) and it
follows that this part of the application is also manifestly
ill-founded within the meaning of Article 27 para. 2 of the
Convention.
For these reasons, the Commission
DECLARES THE APPLICATION INADMISSIBLE.
Secretary to the Commission President of the Commission
(H. C. KRUGER) (C. A. NØRGAARD)