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SECOND
SECTION
CASE OF RIKOMA LTD. v. LITHUANIA
(Application
no. 9668/06)
JUDGMENT
STRASBOURG
18 January 2011
This
judgment is final but it may be subject to editorial revision.
In the case of Rikoma LtD. v. Lithuania,
The
European Court of Human Rights (Second Section), sitting as a
Committee composed of:
Nona Tsotsoria, President,
Danutė
Jočienė,
Guido Raimondi, judges,
and
Françoise Elens-Passos, Deputy
Section Registrar,
Having
deliberated in private on 14 December 2010,
Delivers
the following judgment, which was adopted on that date:
PROCEDURE
- The
case originated in an application
(no. 9668/06) against the
Republic of Lithuania lodged with the Court under
Article 34 of the Convention for the Protection of Human Rights and
Fundamental Freedoms (“the Convention”) by Rikoma
Ltd., a company registered in Lithuania
(“the applicant
company”), on 3 March 2006.
- The
applicant was represented by Ms L. Kovaitė-Simaitienė, a
lawyer practising in Vilnius. The Lithuanian Government
(“the Government”) were represented by their Agent, Ms
Elvyra
Baltutytė.
- On
19 January 2009 the
President of the Second Section decided to
communicate the application to the Government. In accordance
with Protocol No. 14, the application was allocated to a Committee of
three Judges. The Government objected to the examination of the
application by a Committee. After having considered the Government's
objection, the Court rejected it.
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
- In 1997 the officers of the Vilnius City tax
inspectorate investigated the applicant's declaration and payment of
taxes. On 31 October 1997 they drew up a report in which the
applicant was ordered to pay a sum of 906,566 Lithuanian litai (LTL;
262,444 euros (EUR)). The sum was comprised of LTL 457,139 (EUR
130,155) in tax arrears and interests, and LTL 449,427 (EUR 132,289)
in fines.
- The applicant company contested the tax authorities'
decisions before the Commission on Tax Disputes, a pre-trial
tax-dispute settlement institution, which on 27 July 1999 partly
granted its appeal and lowered the amount of fine to be paid to LTL
129,986 (EUR 37,644).
- On 19 August 1999 the tax authorities decided to
seize some of the applicant company's property to secure the payment
of tax arrears and penalties. The seizure remained in force until
28 September 2004.
- On 15 June 2001 the Vilnius Regional
Administrative Court partly granted the applicant company's appeal.
- On 13 September 2001 the Supreme Administrative
Court annulled the lower court's decision. It ordered the State tax
inspectorate to freshly examine the tax dispute. It was established
that the company, in breach of accounting rules, had failed to keep
proper book-keeping records and therefore the tax authorities could
not properly establish the tax base directly relying on the company's
documents. The court concluded that in assessing the tax arrears the
authorities could have recourse to the indirect method for
establishing the tax base (Mokesčio bazės
netiesioginio nustatymo metodas), when as a source of
information the tax authorities rely on the financial documents of
other companies, that the applicant company had business transactions
with. The indirect method for establishing the tax base came into
force by the Government's regulation of 3 September 1998.
- Between October 2001 and March 2004 the tax authorities
conducted several new investigations of the company's tax payment
records. Having had recourse to the indirect method for establishing
the tax base, on 24 March 2004 the inspectors adopted a new
decision as to the tax arrears and penalties which the applicant
company was liable to pay, including those for the accounting years
1994-97.
- On 10 February 2005 the Commission on Tax
Disputes upheld the tax authorities' decision.
- On 19 May 2005 the Vilnius Regional
Administrative Court dismissed the applicant company's appeal as not
founded.
- On 4 October 2005 the Supreme Administrative
Court upheld the lower court's decision.
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE
CONVENTION
- The
applicant company complained that the length of the tax litigation
proceedings had been incompatible with the “reasonable time”
requirement, laid down in Article 6 § 1 of the Convention, which
reads as follows:
“In the determination of his civil rights and
obligations or any criminal charge against him, everyone is entitled
to a ... hearing within a reasonable time by [a] ... tribunal...”
- The
Government argued that Article 6 § 1 was not applicable to the
present case, because the proceedings at issue concerned tax
litigation. Alternatively, they submitted that the applicant
company had, at least in theory, domestic remedies as regards the
complaint about the length of the tax dispute, but had failed to
exhaust them. Lastly, the Government contended that the length of the
proceedings was reasonable.
- The
applicant company contested these submissions.
A. Admissibility
- The
present case concerns tax litigation in which the applicant company
was found liable to pay tax arrears and fines. The Court has
consistently held that, generally, tax disputes fall outside the
scope of “civil rights and obligations” under Article 6
of the Convention, despite the pecuniary effects which they
necessarily produce for the taxpayer
(see Ferrazzini v. Italy
[GC], no. 44759/98, § 29, ECHR 2001 VII). The facts of the
instant case do not give reason to review that conclusion.
- However,
having considered the circumstances of the present case, the Court
finds that the general character of the legal provisions imposing
fines for persistent tax law violations, the purpose of the
penalties, which was both deterrent and punitive, as well as their
severity, suffice to show that, for the purposes of Article 6 of the
Convention, the applicant company was charged with a criminal offence
(see, most recently, Impar Ltd v. Lithuania, no.
13102/04, § 22, 5 January 2010). It follows, that the
Government's plea that the complaint is incompatible ratione
materiae must be dismissed.
- As
to the Government's submission that the applicant company did not
exhaust the available domestic remedies to obtain redress for the
length of proceedings, the Court recalls its case law to the effect
that at the time when the present application was lodged with the
Court, no such effective domestic remedies were available in
Lithuania (see, most recently, Novikas v. Lithuania, no.
45756/05, § 16, 20 April 2010). Having examined all
the materials submitted to it, the Court considers that the
Government have not put forward any fact or convincing argument
capable of persuading it to reach a different conclusion in the
present case. Consequently, the Government's objection must be
dismissed.
- Lastly,
the Court finds that this complaint is not manifestly
ill-founded
within the meaning of Article 35 § 3 of the Convention. It
further notes that it is not inadmissible on any other grounds. It
must therefore be declared admissible.
B. Merits
- The
Court finds that the applicant company was substantially affected by
the proceedings in the present case when on 31 October 1997 the
tax authorities informed it of the obligation to pay tax arrears and
penalties (see Västberga Taxi Aktiebolag and Vulic v. Sweden,
no. 36985/97, § 104, 23 July 2002). The proceedings ended on
4 October 2005, when the Supreme Administrative Court adopted
its decision. Thus, for the purposes of Article 6 § 1, the
period to be taken into consideration lasted nearly eight years for
three levels of jurisdiction.
- The
Court has frequently found violations of Article 6 § 1 of the
Convention in cases raising issues similar to the one in the present
case
(see, most recently, Impar, cited above, §§
25-28).
- Having
examined all the material submitted to it, the Court considers that
the Government have not put forward any fact or argument capable of
persuading it to reach a different conclusion in the present case. In
the light of its case-law on the subject, the Court considers that in
the instant case the length of the proceedings was excessive and
failed to meet the “reasonable time” requirement.
There
has accordingly been a breach of Article 6 § 1.
II. OTHER ALLEGED VIOLATIONS OF THE CONVENTION
- Invoking
Article 6 § 1 of the Convention, the applicant company
complained that the domestic courts were partial in that they did not
take into account all the relevant circumstances of the case and
erroneously applied domestic law. The applicant company also alleged
a breach of Article 7 § 1 of the Convention, in view of the fact
that the indirect method for establishing the tax base, which came
into force only in 1998, was used to assess the sum of unpaid tax for
the period of 1994-1997. The applicant company further submitted that
seizure of its assets was in violation of Article 1 of Protocol No. 1
to the Convention.
24. The Court has examined the above complaints as submitted by
the applicant company. However, having regard to all the material in
its possession and in so far as the matters complained of are within
its competence, it finds that these complaints do not disclose any
appearance of a violation of the rights and freedoms set out in the
Convention or its Protocols. It follows that this part of the
application must be rejected as being manifestly ill-founded,
pursuant to Article 35 §§ 3 and 4 of the Convention.
- Lastly, and invoking Article 1 of Protocol No. 1 to
the Convention, the applicant company complained about alleged
breaches of its shareholders' rights. However, the Court notes that
the present application was lodged by the applicant company. It
follows, that this complaint is incompatible ratione personae
with the provisions of the Convention within the meaning of Article
35 § 3 and must be rejected in accordance with Article 35 §
4.
III. APPLICATION OF ARTICLE 41 OF THE CONVENTION
- Article
41 of the Convention provides:
“If the Court finds that there has been a
violation of the Convention or the Protocols thereto, and if the
internal law of the High Contracting Party concerned allows only
partial reparation to be made, the Court shall, if necessary, afford
just satisfaction to the injured party.”
A. Damage
- The
applicant company claimed LTL 620,140 (approximately
EUR 179,594)
in respect of pecuniary damage.
- The
Government contested the claim.
- The
Court does not discern any causal link between the violation found
and the pecuniary damage alleged; it therefore rejects this claim.
Moreover, given that no claims for non-pecuniary damage have been
submitted to the Court, it makes no award under this head.
B. Costs and expenses
- The
applicant company also claimed EUR 67,053 (approximately EUR 19,419)
for the costs and expenses incurred before the domestic courts and
LTL 14,384 (approximately EUR 4,169) for
those incurred before the Court.
- The
Government contested the claim.
- In
connection with the lawyer's fees claimed, the Court notes that a
considerable part of these fees concerned the applicant company's
representation with regard to tax litigation proceedings before the
domestic authorities. These fees do not constitute necessary expenses
incurred in seeking redress for the violation of Article 6 § 1
of the Convention which the Court has found on account of length of
proceedings alone (see, mutatis mutandis, Grauslys v.
Lithuania, no. 36743/97, § 74, 10 October 2000).
Accordingly, the Court finds it reasonable to award the applicant
company the sum of EUR 2,000 for the proceedings before the Court.
C. Default interest
- The
Court considers it appropriate that the default interest should be
based on the marginal lending rate of the European Central Bank, to
which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
- Declares the applicant company's complaint
concerning the excessive length of the proceedings admissible
and the remainder of the application inadmissible;
- Holds that there has been a violation of Article
6 § 1 of the Convention;
- Holds
(a) that
the respondent State is to pay the applicant company, within three
months, EUR 2,000 (two thousand euros), plus any tax that may be
chargeable to the applicant company, in respect of costs and
expenses, to be converted into Lithuanian litai at the rate
applicable at the date of settlement;
(b) that
from the expiry of the above-mentioned three months until settlement
simple interest shall be payable on the above amount at a rate equal
to the marginal lending rate of the European Central Bank during the
default period plus three percentage points;
- Dismisses the remainder of the applicant
company's claim for just satisfaction.
Done in English, and notified in writing on 18 January 2011, pursuant
to Rule 77 §§ 2 and 3 of the Rules of Court.
Françoise Elens-Passos Nona Tsotsoria Deputy
Registrar President
