International taxation and human rights

3.1 Introduction

A recent analysis of tax case law indicates that the ECJ is becoming an exponentially more important source of case law regarding taxpayers’ rights protection than the ECtHR.5 An important fact is that the ECJ determines a preliminary ruling by a request – reinforced by a “community interest” – of a domestic court of an EU MS, which in the end held the final decision.6 On one hand, this makes taxpayers’ protection better since there is no need to exhaust all domestic remedies. On the other hand, at the EU level, taxpayers still depend on the willingness of the domestic court to refer a case to the ECJ. In Sweden, for example, the prohibition for double jeopardy was invoked in different cases and there have been judgments where the EU Charter has been invoked but the courts have decided that it is not applicable. Thus, before the Åkerberg Fransson (2013),7 the Supreme Court of Sweden decided that the EU Charter was not applicable according to Article 51.1 of the EU Charter.8

Notwithstanding the two European courts have adopted a “limited taxpayer-favourable” position, it is always important to have a common case-law practice of the two European courts. Thus, the ECJ has accepted some of the ECHR principles with regard to tax law, namely:9

Hauer (ECJ, 1979); Vaolsabbia (ECJ, 1980); Schrader (ECJ, 1989).

Kent Kirk (ECJ, 1984); (ECJ, 1987); Taricco (ECJ, 2015), as of May 2017 the Italian Constitutional Court returned the case to the ECJ. Daniele L. Il caso Taricco e il dialogo tra le Corti. L’ordinanza 24/2017 della Corte costituzionale. Naples, 2017.

Landeweyck (ECJ, 1980); Johnston (ECJ, 1986).

Höchst (ECJ, 1989); Dow Benelux (ECJ, 1989).

Orkem v. Commission (ECJ, 1989); Otto BV (ECJ, 1993).

National Panasonic v. Commission (ECJ, 1980); Adams v Commission (ECJ, 1985).

Kofler G., et al., Human Rights and Taxation in Europe and the World, IBFD, 2011, p. 90.

“

1. The right to enjoy property and the right to pursue an occupation or business;10

2. The non-retroactivity of criminal law;11

3. The right to an effective juridical protection;12

4. The right of defense;13

5. The right not to give evidence against oneself;14

6. The right to respect for private life;15

7. The right to the inviolability of the home.”16

A good step was made by reviewing the European Commissions’ Communication on DT (2011). After the European Parliament gives its opinion the Council of the European Union will adopt a new Directive on DT dispute resolution mechanisms in the European Union.17 The Directive was agreed by the EU Council in May 2017 and once adopted all the EU MSs will have to implement it into domestic law, making the proposed rules a subject of the jurisdiction of the ECJ. The Directive is important as there are already an unacceptable number of outstanding cases worth an estimated € 10.5 million.18 This is a valuable impetus for further development and changes, since the EU law for tax purposes usually takes the form of directives and decisions of the ECJ.

3.2 Double taxation

A case of DT in itself represents a great risk for infringement of the protection of property as well as the prohibition of discrimination. It is worth mentioning that a fundamental difference is made between economic and juridical DT, which are contrasting to each other. Juridical DT is often international in the sense that taxation is imposed in more than one country and economic DT generally is of domestic nature. However, at present there does not seem to excist any case law on international DT and the protection of property. A plausible situation would be if the international DT would lead to an effective tax rate of e.g. 98 %.

The famous case NKM v. Hungary19 shows that a very high level of taxation can result in the violation of the protection of property, which could also be the case if a person’s income is taxed by two countries. The NKM case is a rather extreme example of a national situation, but it is interesting since the taxation of 98 % of the income was regarded as an infringement. It is very interesting what outcome a similar case would have if the international DT would lead to an effective tax rate of e.g. 97 %. At the same time, the NKM case had a social dimension as it concerned the taxation of a severance payment due to Ms. NKM having been dismissed after more than 20 years as a civil servant.20 Importantly, in the case the amount of compensation for having brought the case to the ECtHR was less than applicant’s actual costs for referring the case to the Court.

Problems regarding the valuation of property or other differences in assessments between different countries can also arise in the international context that could prove to be a violation of Article 1/1. An example of this is the Jokela case,21 which relates to a national situation but which could have implications on DT. In this case there was a significant discrepancy between the valuation of a property for the purpose of expropriation and the valuation being undertaken for the purposes of inheritance tax, which was considered an infringement of Article 1/1 by the ECtHR.

The ECtHR has also deemed a national anti-avoidance rule contrary to Article 1/1 since it was considered too arbitrary. This took place in Hentrich v. France, which might also be applicable on an international rule concerning anti-avoidance.22

There is certainly a need for further research regarding the impact of human rights on international taxation.

3.3 Exchange of information

The issue of exchange of information and infringement of the right of privacy was considered in FS v. Germany.23 The ECnHR concluded that the exchange of information, under the European Community Directive on mutual administrative assistance,24 was a violation of the rights to respect for private and family life.

It could be considered to be highly possible that the Court would have reached exactly the same conclusion – should the issue instead have been treated under the Article 26 of the OECD MTC: since the taxpayer does not receive information concerning the fact that information will be exchanged there is no possibility to challenge the exchange of information under Article 26 OECD MTC. Thus, it is considered to be a subject under human rights norms and it could be also argued that Article 13 ECHR has been breached.25

Afterwards, there were a number of unsuccessful challenges where taxpayers have not, under Article 8 ECHR (Right to respect for private and family life), succeeded in challenging revenue authorities which have used a mixture of other means in order to gather information or impose taxes.26

Finally, in the Berlioz Investment Fund (2017)27 the ECJ stated that taxpayers have the right to challenge a tax information exchange order, improving thus the taxpayers’ protection within the EU. This case is of precedential value in the possible debate of tax authorities’ information exchange requests. It should be noted that this practice of application the EU Charter to the tax cases was perhaps promoted by the adoption of a European Taxpayers’ Code by European Commission (2014).28 Thus, notwithstanding it is not legally binding and there is no attempt to hold the tax administration accountable to taxpayers, the purpose of the Code is to facilitate the partnership between taxpayers and tax authorities, encouraging trust, understanding and confidence of both sides regarding the aim of their relations.29

In order to provide taxpayers with a wider scope of procedural rights – e.g the right to be notified of the information exchange at the stage when the requested state receives the request and also to have the right to challenge such exchange – was introduced a “minimum standard”. Oberson and Elgar (2014) suggest that on occasions the notifications could be postponed in the case of extraordinary circumstances (e.g. if such a notification could jeopardise the outcome of the process), – but this rule should be an exception. Thus, since there does not exist an international court on tax matters (ITC), the reviews of a Global forum on transparency and exchange of information for tax purposes (Global Forum) could affect:

1. The efficiency of the case process between Contracting States (CS);

2. Implementation of treaties by each participant;

3. Implementation of the substantive and procedural rights of the taxpayers.

Thus, the Global Forum could analyse the degree to which various states adhere to the protection of taxpayers’ rights (e.g. secrecy and data protection rules).30

The chance that states’ conventions, modelled on the UN or OECD MTC, would be considered to fall outside of the states’ margin of appreciation could be adviced to be quite minimal, seeing the wide acceptance of the MTCs. Nevertheless, this should not lead to the conclusion that the Models’ provisions per se should consequently be interpreted as compliant with human rights norms. Thus, due to a state’s wide margin of appreciation may occur discrimination in tax matters.31

Article 14 of the ECHR is a non-discrimination provision stating that persons have the right not to be discriminated with respect to enjoyment to ECHR’s rights and freedoms. The article is a non-free-standing provision and it provides a general protection against discriminatory taxation only in conjunction with Article 1/1 of the ECHR. As is known to the author, only one single tax case has been trialled in the ECtHR where it has been proved that a difference in treatment between CSs persons and non-CS-persons was not justifiable.32

Particular attention to the right to silence in the tax matters was highlighted by Baker (2012).33 The issue of whether a taxpayer may refuse to supply information that might prove the taxpayer’s guilt in a subsequent penalty or criminal prosecution has risen from time to time before the ECtHR. Thus, in Van Weerelt (2015),34 the Netherlands tax authorities obtained information from the German authorities under the mutual assistance directive (77/799 – before it was repealed by a new directive 2011/16);35 the information indicated that the taxpayer had an interest in a Liechtenstein foundation that had been liquidated in 2000. Therefore, the Court held that the tax administration was entitled to ask the applicant to supply information that could not be obtained from any other source, for the purpose of levying taxes and interest. Thus, no violation of the nemo tenetur principle (the right not to incriminate oneself) enshrined in Article 6 ECHR has been found.36

3.4 The right to a fair trial in tax matters

As is known, the ECtHR concluded that Article 6 of the ECHR is not applicable to litigation relating to the determination of a tax liability, since it refers to the “determination of civil rights and obligations”.37 In Ferrazzini v. Italy (2001)38 a majority of ECHR judges decided that Article 6 did not apply to tax litigation. The ECtHR and ECnHR have declared that the ECHR originally was drafted with the intention not to include administrative law disputes due to the public law nature of administrative law disputes. Consequently, a number of researchers criticised the ECtHR judgments, stating that some cases were not decided properly (Wienholtz v. Germany, Metalco Bt v Hungary and Jussila v. Finland).39

Even though, a recent analysis of the ECHR case law shows improvement of the taxpayers’ protection, however, there are a lot of steps to be made to provide a better fulfilment of taxpayers’ rights. There are many problems with which the ECHR, providing justice for a wide range of taxpayers, does not encroach on all challenges of taxpayers’ discrimination within one state or between different states. For instance, in Jafarov v. Azerbaijan (2016),40 there was a need to justify the accuracy of the government’s tax policy. Thus, since there were no available levers to protect the citizen – the state used taxes to extinguish the activity of civil society. Or, for example, in Larsson (2015),41 where the Court failed to bring justice to a co-owner after a tax surcharge had been imposed on the company.42 Moreover, there are a lot of cases where domestic remedies had not been exhausted or applications were inadmissible and therefore probably the ECtHR does not always receive a chance to improve taxpayers’ protection of the CoE state parties which are not members of the EU and/or the OECD.

According to Baker (2000), the right to a fair trial requires special attention. It is a topical issue in tax matters and includes: the right to a reasonable length of proceedings, the right to obtain a decision having a judicial nature, the right to an independent and impartial judge, the right to a public hearing together with equality between the parties in the inquiry, the right of silence, and the right to legal assistance and fullness of juridical protection.43 However, the lack of protection in the ECHR regarding tax procedures may be complemented by the protection provided for by Article 47 in the EU Charter (for EU MSs). The latter makes no reference to certain kinds of procedures as long as it is related to the application of EU law.44 It is worth noting, for example, that the corresponding conditions in the ACHR adhere to fiscal disputes.45

A somewhat diverse approach to public law procedures can be seen under the ICCPR when taking into account the jurisprudence in recent years before the Human Rights Committee.46 Thus, for a long time it was stated that should a taxpayer be in a dispute regarding penalties and/or liabilities, it is highly probable that the taxpayer might have a better case under international human rights instruments, e.g. the ICCPR.45

The new Article 25(5) of the OECD Model may be somewhat of a remedy to some of the shortcomings in the mutual agreement procedure, though it is not specified in the article the participation of the taxpayer in the proceeding. However, there exist several questions associated with Article 6 and competent authority proceedings.

In cases where a tax or a tax penalty have been considered a crime according to Article 6, this can in turn make Article 4/7 ECHR applicable, which provides the principle of double jeopardy.48

Finally there are some new developments taking place at the EU level. For example, in 2016–2017 a package was designed with proposals on the elimination of DT and improvement of the existing framework. However, in this way, DT and failure to adhere to taxpayers’ rights remain a systematic problem at the CoE level and, thus, this article argues for the possibility of amending a new Protocol to the ECHR on the elimination of DT and likewise strengthening of the taxpayers’ rights. The proposed new protocol would include the main articles on tax principles relating to human rights.