 |
Photo from http://morleypatriot.blogspot.com
|
This is not a rare occasion nowadays that the practice
of the European Court of Human Rights is used by local courts to resolve certain
disputes. For the present, this practice is recognized as an independent source of law
and is mandatory for the application by the courts (para 1 of s. 17 of the Law of Ukraine "On the Enforcement of the Judgments and the Application of the Practice of the
European Court of Human Rights").
There are no exceptions in respect of tax disputes, where the courts more and more often begin to employ the practice of the European
Court of Human Rights.
The analysis of the practice of the European
Court of Human Rights in tax disputes shows that the most
frequently it concerns Art. 1 of the Protocol 1 to the Convention for the Protection of Human
Rights and Fundamental Freedoms.
This article enshrines the
right to peaceful enjoyment of possessions. Especially,
it reads that every natural or legal person is entitled to the peaceful
enjoyment of his possessions. No one ought to 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.
In the context of tax disputes imposing the duty to pay tax/depriving the
right to receive a tax benefit (input VAT or VAT refund) is
viewed as a deprivation of property.
Accordingly, it should be exercised “subject to the conditions provided for by law and by the general
principles of international law”.
The best known for Ukraine seems to be the practice of
the European Court of Human Rights
as regards the application of art. 1 of Protocol
1 on such matters as (1) the entitlement of a taxpayer to VAT input/VAT
refund arising from the transactions with non-bona fide (from a tax
perspective) suppliers and (2) the "quality"
(predictability, precision) of tax
laws.
Problem
suppliers
To date, one can make note of three main judgments of the
European Court of Human Rights on this issue. These comprise the judgments in Intersplav v Ukraine (2007, application No 803/02), "Bulves" AD v Bulgaria (2009, application No 3991/03), and Business Support Centre v Bulgaria (2010, application No 6689/03).
In these cases the
local tax authorities denied the
VAT payers’ right to input VAT /VAT refund in view of the
abuses aimed at obtaining illegal VAT refund committed by their suppliers.
Checking the denial of the taxpayer’s right to
input VAT/VAT refund against the requirements of Art.
1 of the Protocol 1, the European
Court of Human Rights resorted to the
principle of proportionality. This principle appears to be part of the rule of law principle and demands a
"fair balance" to be struck between the public interest on one side and the protection of the rights of individuals
subjected to the state intervention on the other side.
On the facts of the case, the European Court of Human
Rights found that the "fair balance" requirement is not met when the
taxpayer is deprived of his entitlement to input VAT/VAT refund in the absence
of (1) evidence indicating
his direct involvement in VAT abusive practices (2) evidence
that he had knowledge or the
means to obtain the knowledge of the fraud in relation to the VAT system
committed by his suppliers.
Consequently, the court revealed a violation of
Art. 1 of Protocol 1 guarantying the right to peaceful enjoyment of
possessions.
"Quality" of tax law
As noted above, in accordance with Art. 1 of Protocol 1 no one ought to be deprived of his possessions except subject
to the conditions provided for by law.
In the understanding of the European
Court of Human Rights a law is not recognized as such, if it does not
gratify the requirement of "quality of law". Quality of the law alludes
to its precision and clarity.
In other words, if an obligation to discharge
a tax is imposed by the law
that does not satisfy the condition of "quality of law",
the payment of such a tax is contrary to Art. 1
of Protocol 1.
In the cases of Shchokin v Ukraine (2010, applications No 23759/03 and No 37943/06)
and Serkov v Ukraine (2011, application No 39766/05) the
European Court of Human Rights observed the violation of Art. 1 of
Protocol No 1 because of the noncompliance
with the requirement of "quality" of tax laws.
In the case of Shchokin
v Ukraine the European Court of Human Rights treated as being of
“low-quality” the law laying down the rate of personal income tax applied to
the income earned outside the principle place of employment. At the time when the
respective transactions were taxed the Decree of the Cabinet of Ministers of Ukraine
“On Citizens' Income Tax” set
forth a flat 20% rate, while the Presidential Decree “On Increasing the Amount
of Tax-Free Monthly Income and Rates of Progressive Taxation of Citizens' Income”
stipulated a progressive rate.
Citing the principle of conflict of interest*
incorporated into the tax laws of
Ukraine, the court held that the more
favorable for the taxpayer approach
should have been employed, that is the flat rather than progressive rate of individual income tax should have been applied.
The similar findings were made by the European Court of Human Rights in the case of Serkov v Ukraine. In this
case the court detected the lack of "quality
of law" in the conflicting provisions
of the Law of Ukraine "On Value
Added Tax" and the Presidential Decree “On the Simplified System of Taxation, Accounting and Reporting for Small
Businesses" in relation to levying VAT on importing goods to the customs territory of
Ukraine carried out by unified taxpayers-individuals.
In lieu of
conclusion
To finish on a good note, it is necessary to point out
that it is not very difficult to find the examples of the application of the
aforesaid practice of the European Court of Human Rights in the Unified State
Register of Court Decisions of Ukraine with regard to the most topical tax
cases. The most important thing seems to be that in many instances such an
application is made in the interests of taxpayers.
The judgments in Intersplav v Ukraine and "Bulves" AD v Bulgaria are being applied in disputes concerning the input VAT/VAT
refund arising from the transactions with non-bona fide VAT payers.
The judgment in Shchokin v
Ukraine is
being employed in disputes relating to carrying forward the tax losses (losses sustained
in 2010 and the preceding tax periods).
* - Para
4.4.1 of the then effective Law of Ukraine “On the Procedure for Payment of
Taxpayers' Liabilities to Budgets and State Purpose Funds”.
tax implications will vary based on an individual's specific circumstances, professional tax advice should be sought before acting on any information provided in this article.
ReplyDeleteIR35 solution For UK Contractors | hire uk tax advisers