AS TO THE ADMISSIBILITY OF
Application no. 34496/04
by Ingemar EKELÖF and Monica EKELÖF-VESTIN
The European Court of Human Rights (Second Section), sitting on 28 March 2006 as a Chamber composed of:
Mr J.-P. Costa, President,
Mr I. Cabral Barreto,
Mr V. Butkevych,
Mrs A. Mularoni,
Mrs E. Fura-Sandström,
Ms D. Jočienė,
Mr D. Popović, judges,
and Mrs S. Dollé, Section Registrar,
Having regard to the above application lodged on 17 September 2004,
Having regard to the decision to apply Article 29 § 3 of the Convention and examine the admissibility and merits of the case together.
Having deliberated, decides as follows:
The applicants, Mr Ingemar Ekelöf and Mrs Monica Ekelöf-Vestin, are Swedish nationals who were born in 1956 and 1970, respectively, and live in Stockholm. They are represented before the Court by Mr J. Thörnhammar, a lawyer practising in Stockholm.
A. The circumstances of the case
The facts of the case, as submitted by the applicants, may be summarised as follows.
The applicants are a married couple and the sole owners of the company L E Aktiepåsen AB, through which, in 1992, they bought a ship, Freja. The ship functioned as a restaurant/bar which the applicants continued to run in the form of a registered company, Restaurang Frejas Holme AB (hereinafter referred to as “the company”). The first applicant was a member of the board of directors and the chief executive of the company, while the second applicant was a deputy member of the board. They were both authorised to sign for the company and they both worked there.
During the autumn of 1994, the Tax Authority (skattemyndigheten) of the County of Stockholm commenced a tax audit of the company and, in November 1994, it sent a list of questions to the company concerning the running of the restaurant/bar and whether it also organised gambling. After the applicants had responded, the Tax Authority posed a number of supplementary questions to which the applicants also replied.
On 8 December 1995 the Tax Authority sent a preliminary consideration to the applicants, called the “basis for discussion” (diskussionsunderlag), in which it stated that it was minded to alter the tax returns for the tax assessment years 1993 and 1994 for the company, as well as for the applicants, and to impose tax surcharges on them. Based on information from the tax audit, the Tax Authority concluded that the company’s book-keeping had been seriously deficient and that it had not kept the necessary verifications of its proceeds from the restaurant/bar. Moreover, the applicants had deposited money on the company’s bank account although, according to calculations based on the applicants’ tax returns and their living expenses, there was a substantial cash deficit for which the applicants had not been able to give an acceptable explanation. Consequently, the Tax Authority had concluded that the applicants had omitted to account for all the proceeds from the restaurant/bar in their book-keeping and tax returns. It therefore found it necessary to make a discretionary assessment of the company’s unaccounted proceeds and to adjust the tax returns for the company and the applicants accordingly.
In this respect, it calculated that the company had had unaccounted proceeds from gambling and from the sale of alcohol amounting to SEK 360,000 for the tax assessment year 1993, of which two-thirds were considered as taxable income, as salary, for the first applicant and one-third for the second applicant. For the tax assessment year 1994, the amount was calculated at SEK 424,000, of which 334,000 were considered as salary for the first applicant and SEK 90,000 as salary for the second applicant. Further, for both tax assessment years, it added the cost of free lunches as salary benefits for the applicants. It also deducted from the company’s costs certain private expenses which the applicants had included in the company’s book-keeping and, instead, transferred them to the applicants’ incomes.
Moreover, as the Tax Authority had found that the applicants had omitted to provide correct and complete information concerning their income, they considered it justified to impose tax surcharges on them, amounting to 40 % of the additional taxes levied upon them. It also noted that there were no grounds on which to remit the surcharges.
On 11 December 1995 the applicants replied to the Tax Authority, disputing its findings, except as concerned the private expenses during the tax assessment year 1993, which they accepted had been registered by mistake in the company’s book-keeping. As concerned the gambling, the applicants claimed that they had let the gambling rights to a private company and that they had never derived any income from the gambling. Moreover, as concerned the proceeds from the sale of alcohol, they stated that that the Tax Authority had not calculated the costs correctly as they had sold large amounts during “happy hour” at lower prices than those used by the Tax Authority in its calculations. Moreover, some beer had been wasted due to a poor cooling system and, naturally, they had had to take account of a certain loss which was normal in the restaurant/bar business. They also denied that they had benefited from free lunches during the tax assessment year 1993. Furthermore, the second applicant had not had an influential or leading role in the company and should not therefore be attributed any extra income from it. In conclusion, they stated that the company’s book-keeping had not been deficient and should be used as the basis for the calculation, that their tax returns should not be altered and that the tax surcharges should be remitted.
The Tax Authority and the applicants exchanged further correspondence, maintaining their standpoints. On 25 September 1996 the Tax Board (skattenämnden) heard the parties separately. After the auditors had presented the cases to the Board, the first applicant and his representative were admitted and allowed to present the applicants’ arguments. On 4 October 1996, the Board decided to follow the preliminary consideration, except for the calculated proceeds from gambling for the tax assessment year 1993, which it removed. It lowered the tax surcharges accordingly.
On 27 November 1996 the applicants appealed against the decisions, disputing the Tax Authority’s findings. They maintained that there were no grounds for changing their tax returns or imposing tax surcharges on them. The Tax Authority replied to the applicants’ appeals through a consideration dated 11 June 1997, to which the applicants in turn replied on 9 September 1997.
On 7 October 1997 the Tax Authority made the obligatory re-assessment of its decisions of 4 October 1996 but decided not to change them. Following this, it forwarded the appeals to the County Administrative Court (länsrätten) of the County of Stockholm.
On 23 June 1999 the County Administrative Court upheld the Tax Authority’s decisions, except as concerned the lunch benefits, which were removed, as it considered that it had not been shown that the applicants had benefited from free meals. The court found that the company’s book-keeping had been defective and that the Tax Authority had been justified in carrying out a discretionary assessment of the company’s unaccounted proceeds, and to adjust the applicants’ taxable incomes accordingly. Moreover, since the applicants had failed to provide the Tax Authority with correct information concerning the company’s proceeds and their own incomes, there was reason to impose tax surcharges on them. The court found no grounds on which to remit the tax surcharges except with regard to the meal benefits. Thus, the total amount of the tax surcharges for both tax assessment years were, for the first applicant, approximately SEK 80,000 (EUR 8,600) and, for the second applicant, approximately SEK 30,000 (EUR 3,200).
The company did not appeal against the County Administrative Court’s judgments, which accordingly gained legal force.
However, on 16 August 1999, the applicants appealed against the judgments concerning them personally to the Administrative Court of Appeal (kammarrätten) in Stockholm, maintaining that they should be taxed in accordance with their tax returns and that the tax surcharges should be remitted. They further complained that the County Administrative Court’s judgments were not well reasoned and that it had been partial, in favour of the Tax Authority. They requested that an oral hearing be held in their cases so that they could present their argument properly to the court and also call some witnesses on their behalf, inter alia, to prove that they had received none of the proceeds from gambling during the tax assessment year 1994.
The parties made further submissions to the Administrative Court of Appeal and, on 10 October 2001, it held a joint oral hearing in the cases when the applicants and their witnesses were heard.
On 23 October 2001 the appellate court upheld the lower court’s judgments and reasoning in full. It noted that the judgments regarding the company’s tax returns had gained legal force and that there was no ground for it to question the correctness of those judgments.
On 8 January 2002 the applicants appealed to the Supreme Administrative Court (Regeringsrätten), invoking Articles 6 and 13 of the Convention as well as Article 1 of Protocol No. 1 to the Convention. They claimed that the proceedings had already been of excessive length and that the tax surcharges should be remitted as the lower courts had not made a proper evaluation on the merits of all the evidence presented in the cases, and that the applicants had not benefited from the presumption of innocence.
On 31 March 2004 the Supreme Administrative Court refused leave to appeal.
B. Relevant domestic law
Taxpayers submit yearly tax returns to the local tax authorities. To secure that timely, sufficient and correct information is provided, the tax authorities may, under certain circumstances, impose special charges on the taxpayer in the form of tax surcharges.
The rules on tax surcharges relevant to the present case were laid down in the Taxation Act (Taxeringslagen, 1990:324). According to Chapter 5, section 1 of the Act, a tax surcharge is imposed on the taxpayer if he or she, in a tax return or in any other written statement, has submitted information of relevance to the tax assessment which is found to be incorrect. It is not only express statements that may lead to the imposition of a surcharge; concealment, in whole or in part, of relevant facts may also be regarded as incorrect information. However, if the taxpayer has given a clear account of the factual circumstances but has made an incorrect evaluation of the legal consequences thereof, no surcharge is imposed. The burden of proving that the information is incorrect lies with the tax authority. The surcharge amounts to 40% of the income tax which the tax authority would have failed to levy if it had accepted the incorrect information.
In certain circumstances, a tax surcharge will be remitted. Thus, Chapter 5, section 6, of the Act states that taxpayers will not have to pay a surcharge if their failure to submit correct information or to file a tax return is considered excusable owing to their age, illness, lack of experience or comparable circumstances. The surcharge should also be remitted where the failure appears excusable by reason of the nature of the information in question or other special circumstances, or where it would be manifestly unreasonable to impose a surcharge.
Chapter 5, section 7, of the Act stipulates that, if the facts of the case so require, the tax authorities must have regard to the provisions on remission, even in the absence of a specific claim to that effect by the taxpayer. In principle, however, it is up to the taxpayer to show due cause for the remission of a surcharge.
1. The applicants complain under Article 6 § 2 of the Convention that they were presumed guilty from the beginning and were “sentenced” to pay the tax surcharges despite a lack of evidence that they had intentionally withheld information from the Tax Authority.
2. The applicants also complain under Article 6 § 1 of the Convention that the national proceedings were of excessive length, lasting more than eight years and three months.
3. Under the same provision, they further claim that neither the Tax Authority nor the national courts examined all circumstances of their cases sufficiently and objectively depriving them of effective access to court. Moreover, the Tax Authority failed to perform an impartial and thorough investigation into the company’s activities and accounts and the national authorities refused to visit the restaurant/bar to verify its prices and activities.
4. Lastly, the second applicant alleges that her rights under Article 1 of Protocol No. 1 to the Convention have been violated in that she was forced to sell some of her belongings to pay the tax surcharges and additional taxes even though the discretionary assessment carried out by the Tax Authority had no legal basis.
1. The applicants complain that the tax surcharges were imposed on them automatically as a result of the Tax Authority’s discretionary tax assessment, in violation of Article 6 § 2 of the Convention, which provides as follows:
“Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law.”
The Court recalls that, although tax surcharges cannot be said to belong to criminal law under the Swedish legal system, it has found in several judgments concerning Sweden (see, in particular, Janosevic v. Sweden, no. 34619/97, 23 July 2002, §§ 64-71, ECHR 2002-VII, and Västberga Taxi Aktiebolag and Vulic v. Sweden, no. 36985/97, 23 July 2002, §§ 75-82) that the imposition of such measures involves the determination of a “criminal charge” within the meaning of Article 6 § 1 of the Convention. However, in the two aforementioned judgments, the Court considered that the presumptions applied in Swedish law with regard to tax surcharges had been confined within reasonable limits and that the presumption of innocence contained in Article 6 § 2 of the Convention therefore had not been breached (ibid., §§ 96-104 and §§ 108-116, respectively). This conclusion was reached having particular regard to the fact that the relevant rules on tax surcharges provided certain means of defence based on subjective elements, and that an efficient system of taxation was important to the State’s financial interests.
In the present case, the Court observes that the applicants did not submit any specific argumentation concerning the tax surcharges and the reasons why they should be remitted before the County Administrative Court and the Administrative Court of Appeal. It was only before the Supreme Administrative Court that they developed their grounds on this matter. Nevertheless, both the Tax Authority and the County Administrative Court considered the grounds for remission of the tax surcharges but found none applicable, and the Administrative Court of Appeal agreed in full with the lower court’s reasoning and conclusions.
Furthermore, the Court notes that, unlike the applications of Janosevic and Västberga Taxi Aktiebolag and Vulic, the present case did not involve any enforcement measures to ensure the payment of the tax surcharges.
In these circumstances, and having regard to the Court’s case-law referred to above, as well as the fact that the national courts made an individual assessment in the applicants’ cases, the Court finds that the applicants’ right to be presumed innocent has not been violated in the present case.
It follows that this complaint must be rejected as being manifestly ill-founded, pursuant to Article 35 §§ 3 and 4 of the Convention.
2. The applicants further complain that the national proceedings were not finalised within a reasonable time, as they lasted some eight years and three months, in contravention of Article 6 § 1 of the Convention which, in its relevant part reads as follows:
“In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair ... hearing within a reasonable time by an independent and impartial tribunal...”
The Court considers that it cannot, on the basis of the case file, determine the admissibility of this complaint and that it is therefore necessary, in accordance with Rule 54 § 2 (b) of the Rules of Court, to give notice of this part of the application to the respondent Government.
3. The applicants also claim that they were deprived of effective access to court, that the Tax Authority and the national courts were partial against them and did not carry out an objective and sufficiently detailed examination of their cases, in violation of the above-cited Article 6 § 1 of the Convention.
The Court observes that that the applicants’ cases were examined by the County Administrative Court and the Administrative Court of Appeal on the merits, and by the Supreme Administrative Court on the leave to appeal application. Thus, it is clear that the applicants had full access to court in conformity with Article 6 § 1 of the Convention.
As regards the applicants’ complaints that the Tax Authority and the national courts did not carry out a proper and sufficiently detailed examination of the cases, the Court reiterates that it is not its function to deal with an application alleging that errors of law or fact have been committed by national courts unless and in so far as they may have infringed rights and freedoms protected by the Convention. Moreover, while Article 6 of the Convention guarantees the right to a fair hearing, it does not lay down any rules on the admissibility of evidence or the way it should be assessed, which are therefore primarily matters for regulation by national law and the national courts (see, among other authorities, García Ruiz v. Spain [GC], no. 30544/96, § 28, ECHR 1999-I).
Noting that these complaints concern the administrative courts’ evaluation of facts and evidence, the Court finds that the present case does not disclose any elements of arbitrariness and that the applicants had a full opportunity to put forward their arguments. Accordingly, no appearance of a violation of the Convention has been shown.
Further, the Court considers that the complaint concerning the national courts alleged partiality against the applicants is unsubstantiated, noting in particular that the Administrative Court of Appeal held an oral hearing in the cases on the applicants’ request where they were heard and allowed to call witnesses on their behalf. Moreover, the Tax Authority also heard the applicants before reaching their decisions which were based, inter alia, on the audit report and the information provided by the applicants during the investigation into their company’s book-keeping. In these circumstances, the Court finds no indication that there has been a breach of Article 6 § 1 of the Convention in the present case.
It follows that these complaints must be rejected as being manifestly ill-founded, pursuant to Article 35 §§ 3 and 4 of the Convention.
4. Lastly, the second applicant alleges that she was forced to sell some of her belongings in order to pay the tax surcharges and additional taxes, even though they had been imposed without any legal basis, in breach of Article 1 of Protocol No. 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.”
The Court finds that the additional taxes and the tax surcharges were imposed on the applicants by the Tax Authority and the administrative courts with clear reference to, and in accordance with, the applicable provisions of the Taxation Act in force at the relevant time. Thus, the Court is satisfied that the domestic judgments had an adequate legal basis for the purposes of Article 1 of Protocol No. 1 to the Convention.
The Court further observes that all instances found that the second applicant had submitted incorrect information to the Tax Authority which had made it impossible for the Tax Authority to calculate her taxes correctly without making an investigation of its own into the matter. Thus, having regard to the State’s need to secure an effective system of taxation to ensure its financial interests (see, among others, Västberga Taxi Aktiebolag and Vulic v. Sweden, cited above, § 115) and its wide margin of appreciation in striking a fair balance between community and individual interests, the Court considers that the taxes levied and the tax surcharges imposed on the second applicant cannot be considered disproportionate to the aims pursued.
It follows that this complaint is also manifestly ill-founded within the meaning of Article 35 § 3 of the Convention and must be rejected pursuant to Article 35 § 4.
For these reasons, the Court unanimously
Decides to adjourn the examination of the applicants’ complaint concerning the length of the proceedings;
Declares the remainder of the application inadmissible.
S. Dollé J.-P.
I. EKELÖF AND M. EKELÖF-VESTIN v. SWEDEN DECISION
I. EKELÖF AND M. EKELÖF-VESTIN v. SWEDEN DECISION