The Court considers an appeal on the basis of Human Rights Legislation in Ferrazzini v Italy.
The Court considers an appeal on the basis of Human Rights Legislation in Ferrazzini v Italy.
THE ITALIAN TAX authorities served a supplementary tax assessment on an applicant which was later cancelled. However, that procedure had taken ten years, two months. Two supplementary tax assessments were served on the company and the tax authorities sought to impose an administrative penalty of 20 per cent if payment was not made within sixty days. Further applications were lodged appealing for the supplementary tax assessments to be set aside but after a period of almost twelve years, the District Tax Commission dismissed the company's application. Appeals were made to the European Court of Justice on the basis that the applicant's civil rights had been breached contrary to Article 6(1) of the Convention for the Protection of Human Rights and Fundamental Freedoms (1950). However, by a no means unanimous decision, the Court found that Article 6(1) was not applicable and the appeal failed.
The background and facts
The applicant was an Italian citizen from Oristano, Italy. He and another person transferred land, property and a sum of money to a limited company which the applicant had just formed and of which he owned directly and indirectly almost the entire share capital.
The purpose of the company was to organise farm holidays and the company applied to the tax authorities for a reduction in the applicable rate of certain taxes payable on the transfer of property in accordance with a statute which it deemed applicable. Accordingly, it paid tax on the basis of what it considered fair.
The case concerned three sets of proceedings, the first concerned the payment of capital gains tax and the others the applicable rate of stamp duty, mortgage registry tax and capital transfer tax together with the application of a reduction in the rate.
In the first set of proceedings the tax authorities served a supplementary tax assessment which required payment of an aggregate sum of 43,624,700 lire comprising the tax due and penalties. This assessment was served in August 1987, but was not cancelled, following the appellant's appeal until March 1998.
In the other two sets of proceedings the tax authorities served two supplementary tax assessments on the company in November 1987 on the ground that the company was ineligible for the reduced rate of tax to which it had referred. In addition the company was informed that it would be liable to an administrative penalty of 20 per cent if payment was not made within sixty days.
Appeals were made and ten years later the District Tax Commission informed the applicant that a hearing had been listed, which originally took place on 24 April 1999. Finally, the company's application was dismissed on the ground that the transferred property, which included among other things a swimming pool and tennis court, could not be regarded as the normal assets of an agricultural company.
An appeal was then lodged with the Regional Tax Commission and the case came before the European Court of Human Rights.
The contentions of the applicant were:
(1) that the length of three sets of tax proceedings to which he was a party constituted a violation by the Italian Government of his right, in the determination of his civil rights and obligations to a hearing within a reasonable time, under Article 6(1) of the Convention for the Protection of Human Rights and Fundamental Freedoms 1950; and
(2) that there had been a violation of Article 14 of the Convention which prohibited discrimination, on the grounds that he had been persecuted by the Italian courts.
Initially, the Grand Chamber of the European Court of Human Rights decided that no hearing was required. Subsequently, the Court considered that the complaint based on Article 6 of the Convention was admissible and decided to take a decision on the admissibility and merits of the application at the same time.
The Italian Government was represented by its agent and co-agent. The composition of the Grand Chamber consisted of eight judges, the Italian judge having been replaced by one from San Marino.
The judgment of the Court
The Court rehearsed the facts of the case and initially considered whether Article 6(1) of the Human Rights Convention had been violated. In respect of the first set of proceedings, the period lasted more than ten years and two months for a single level of jurisdiction. In respect of the other sets of proceedings, the period lasted more than twelve years and nine months for two levels of jurisdiction.
The Italian Government submitted that the complaint should be declared inadmissible because Article 6(1) did not apply to disputes relating to tax proceedings. The proceedings in question did not relate to 'a criminal charge'. The Court noted that both parties acknowledged that Article 6 did not apply under its criminal head.
As regards the applicability of Article 6(1), the applicant had stressed the pecuniary aspect of his claims and contended that the proceedings concerned 'civil rights and obligations'. The Court considered numerous human rights decisions but held that in the tax field developments which might have occurred in democratic societies do not affect the fundamental nature of the obligations on individuals of companies to pay tax. The Court considered that tax matters still formed part of the hard core of public authority prerogatives, with the public nature of the relationship between the taxpayer and the tax authority remaining predominant. It considered that tax disputes fell outside the scope of civil rights and obligations, despite the pecuniary effects which they necessarily produce for the taxpayer.
As regards the complaint under Article 14 regarding discrimination, it held that the applicant did not explain how there had been an infringement of that provision. Accordingly, since the complaint had not been substantiated, the Court considered that there was no appearance of a violation of that provision and that the complaint must accordingly be dismissed as manifestly ill founded.
The report of the case contains a concurring opinion of Judge Ress, but then a dissenting opinion by Judge Lorenzen joined by five other judges. In part of that dissenting opinion, Judge Lorenzen stated 'it is therefore difficult to see why it is still necessary to grant the states a special prerogative under the convention in this field and thus deny litigants in tax proceedings the elementary procedural guarantees of Article 6(1)'.
The judge went on to say 'furthermore it is difficult to justify an extended application of Article 6(1) under its civil head on grounds of the need to preserve a prerogative for states in fiscal matters when the Court has gone sufficiently far in its case law to include tax disputes under its criminal head. Since Bendenoun [1994] 18 EHRR 54 the Court has consistently considered proceedings relating to tax disputes to be "criminal" if tax fines, surcharges with a deterrent and punitive purpose are imposed or even if there is a risk that they may be imposed. The result is no different if the proceedings also concern the tax assessment as such (see the admissibility decision of Georgiou and another (trading as Marios Chippery) v United Kingdom [2001] STC 80. This implies that the level of protection under Article 6(1) of the Convention varies on how the legal framework for tax proceedings is organised in the different legal systems; and even within one legal system it may be purely a matter of coincidence as to whether penalty proceedings and tax assessment proceedings are joined or not. An interpretation of the Convention that leads to such random results is far from satisfactory'.
On this basis the six dissenting judges found that the Convention was applicable in the instant case.
The decision
The appellant's application was dismissed.
(Reported at [2001] STC 1314).
Commentary by John T Newth
Although the applicant lost his case, Ferrazzini may well turn out to be a landmark case. He lost the battle, but this case may well turn out to be a turning point in the war.
The complete comments of the dissenting judges are well worth reading and those quoted in this summary are extremely pertinent. Why should Article 6(1) only apply in 'criminal' matters and not in a basic case involving tax assessments?
The facts of the case were damning enough as regards the Italian tax authorities. They had taken ten years and two months to cancel one lot of supplementary tax assessments and then took twelve years and nine months to confirm another set of assessments. In the latter case one wonders whether that decision would have stood up to the appeal procedures before the Special Commissioners and the courts in a United Kingdom appeal.
Therefore, on balance, the writer sees this as an encouraging case for those seeking to apply Human Rights Legislation to taxation matters. Mr Ferrazzini may have lost, but the tide in favour of the taxpayer may be turning slowly.
