In the context of a recent referral to the Constitutional Court, obtained by the Costaș, Negru & Asociații team at the Cluj Court of Appeal, we deem it necessary to discuss art. 19 of Law no. 554/2004 and the problems that its interpretation raises.
In recent tax practice, many taxpayers subject to tax audits register significant expenses as a result of the need to formulate defenses and prove their innocence before the tax authorities, in the context of the subjectivity of tax inspectors, who tend to administer or collect evidence against the inspected person. When the tax audit has a happy outcome for the taxpayer and equally unfortunate for the tax inspection team, the expenses generated during the administrative and judicial procedure must be recovered, based on the civil procedural rule that provides that the party that loses the process will be obliged, at the request of the party who won, to pay her court costs.
Law no. 554/2004 of administrative litigation is the legal norm that provides for the specific route followed by a fiscal administrative act harmful to the taxpayer when it is contested. Before being subject to judicial control, the contested act must be referred to the higher administrative body to rule on the legality of its issuance, representing the mandatory preliminary administrative procedure.
Two finalities are possible in this situation: the first is the one in which the administrative body that solves the appeal formulated in the previous stage admits that the disputed act is affected by legal defects, ordering its annulment. The second finality – and the most common – is the denial of the dispute resolution body on the existence of any flaw in the fiscal administrative act subject to the control of the higher hierarchical body, thus opening the way to challenge harmful acts before the administrative and fiscal litigation court. In the last situation, when the court panel finds that the respective documents were issued in violation of the legal norms, it will order a solution to cancel them and oblige the fiscal entities summoned to court to cover the expenses promoted as a result of the taxpayer’s need to follow the procedure of contesting them to prove their illegality.
However, the first purpose presented has a peculiarity that is harmful to the taxpayer. To the extent that the harmful tax administrative act subject to control before the higher hierarchical body through the tax appeal is annulled as a result of the defects identified, implicitly recognizing the tax’s fault in carrying out a legal tax inspection, this entity will not rule on the expenses generated in the responsibility of the inspected person throughout the fiscal control in question.
The provisions of art. 18 and 19, in conjunction with art. 8 para. (1), from the above-mentioned Administrative Litigation Law, open the possibility for the taxpayer to also request compensation for the material and moral damages caused to him once the fiscal administrative act, in the given premise, is annulled. The compensations can be requested both together with the main request, through which the annulment of the contested act is sought, and separately, after a definitive solution by which the same fiscal administrative act was annulled as a result of the defects by which it was affected.
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In practice, a discriminatory inconsistency was noticed regarding the application of the previously stated rules. On the one hand, the person subject to a fiscal control completed by issuing a harmful fiscal administrative act, who then requested its cancellation and obtained a favorable solution before the court, is open to request the granting of compensation for material damages and/or morals caused by the fiscal body by issuing this illegal act. On the other hand, the court will deny the same person ab initio the right to request compensation for the same damages created when his appeal is completed before the higher hierarchical body, also by canceling the harmful act, and not before the court.
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In a recent case, taxpayers were subjected to tax controls that lasted more than four years in total, after numerous suspensions of the inspection, respectively their renewals, as a result of notifications and active efforts made by the team of lawyers specialized in tax law within the Costaș, Negru & Associates Law Firm. In the end, taxation decisions were issued, genuine fiscal administrative acts, which established additional fiscal obligations for the controlled persons. They were challenged on the illegality of their issuance by way of appeal before the higher hierarchical body, the prior administrative procedure. The outcome, after more than four years, was a happy one, the tax dispute resolution body ordered the cancellation of these documents in their entirety, validating the theses presented by the lawyers of the inspected taxpayers.
This long period generated expenses for the tax audited individuals, materializing in significant material damages, especially legal fees and related expenses.
From this perspective, a judicial procedure was started based on the provisions of the Administrative Litigation Law, which shows that the person injured in a right recognized by law or in a legitimate interest, through a unilateral administrative act, dissatisfied with the response received to the prior complaint addressed issuing public authority or if he did not receive any response within the term provided for in art. 7 para. (4), may notify the competent administrative court, to request the annulment, in whole or in part, of the act, reparation of the damage caused and, possibly, reparations for moral damages [art. 8 para. (1)]. Also, art. 18 para. (3) of the same rule specifies that, in the case of settling the claim, the court will also decide on the compensations for the material and moral damages caused, if the claimant has requested this. Last but not least, the provisions of art. 19 para. (1) are applicable, which provide: when the injured person requested the annulment of the administrative act, without asking for compensation at the same time, the limitation period for the compensation request runs from the date on which he knew or should have known the extent of the damage.
Summing up, the Administrative Litigation Law opens the possibility for the person injured by an administrative act to request, in addition to the annulment of that act, also the granting of compensation for the damages caused.
In the presented case, the first referred court ordered the rejection in its entirety as unfounded of our approach for granting these compensations, appreciating that the action based on the provisions of art. 19 of the Administrative Litigation Law is essentially related to the concurrent or previous progress of a process referred to justice (before a court), through which the injured person obtains confirmation of the illegality of the administration’s conduct. This conclusion was also formulated in consideration of Decision no. 22/2019 pronounced on appeal in the interest of the law by the High Court of Cassation and Justice, according to which the Request for compensation formulated separately, based on the provisions of art. 19 of Law no. 554/2004, is conditioned by the existence of a court decision by which the action directed against the illegal administrative act, typical or similar, has been admitted, because the reparation of the damage to the injured person is an intrinsic aspect of the administrative litigation.
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Related to these elements-premise, an obviously discriminatory situation arose in terms of the way of application and interpretation of the provisions of art. 19 para. (1) from the Administrative Litigation Law, which generated the formulation of an exception of unconstitutionality raised before the Cluj Court of Appeal, the court charged with judging the appeal.
In essence, we appreciate that the legal provisions presented are unconstitutional insofar as it is interpreted that the person prejudiced in his right cannot file an action for compensation when the administrative (fiscal) act was annulled in the administrative stage (of the fiscal appeal) , giving rise to an obviously discriminatory treatment compared to the situation where the taxpayer formulates an action for compensation based on an administrative (fiscal) act annulled by the court.
The exception of unconstitutionality was founded both from the perspective of the purpose and finality of the Administrative Litigation Law, from the grammatical interpretation and in the spirit of the law of the Decision pronounced on appeal in the interest of law no. 22/2019, but also from the perspective of the right of access to justice.
Thus, from the reading of art. 19 para. (1) from the Administrative Litigation Law, it follows that it imposes the condition of the existence of the request for annulment of an administrative act, and not of a court decision, the latter conclusion resulting from the extensive and abusive interpretation of some administrative authorities and some courts , giving rise to a blockage in the exercise of procedural rights by persons in good faith. This interpretation, to the detriment of taxpayers, of the legal text by numerous courts disregards not only the right to equality and non-discrimination, but also the principle of the legality of weapons, of a fair trial and especially the right of access to justice, all of which are guaranteed by Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention on Human Rights).
In this sense, the taxpayers are in the unfortunate situation where it is impossible to file an action to cancel the prejudicial acts, since they have already been abolished as a result of the steps taken through the tax appeal. By referring to the provisions of art. 33 of the Code of Civil Procedure, the filing of an action with the object of canceling some administrative acts that are no longer in the legal order would be rejected as lacking interest or even as inadmissible. Or, even if they are recognized as having the right to benefit from compensation following the annulment of some administrative documents issued illegally, tax-examined taxpayers in this situation can no longer resort to requesting compensation under the Administrative Litigation Law against the authorities at fault in order to cover the damage caused to the individual.
Thus, such an interpretation in favor of the state bodies gives them an unfair advantage, contrary to the European principle of equality of arms and generates a violation of the very right of access to justice, since the rationale of the prior administrative procedure is to avoid the demands of a litigation, and not to the private individual loses his rights to appeal to the administrative litigation court to obtain compensation, in the current situation. In this hypothesis, the tax authorities effectively have the abusive prerogative to issue illegal documents, being aware that in the event of a dispute, which they could resolve in favor of the injured person, they would be exempt from any patrimonial liability.
In the light of the aspects presented, the absurdity of the situation must be highlighted, because in the view of the state bodies, private individuals, in order to obtain compensation, must want an unfavorable response from the appeal resolution bodies, so that they can then file an action for annulment, respectively in compensation. This situation cannot be questioned, because it would lack the obligation of the prior administrative procedure to be effective, being also contrary to all the principles of national and European law.
Last but not least, in relation to Decision no. 22/2019 pronounced in an appeal in the interest of the law by the High Court of Cassation and Justice, point 77 of its content generated the revealed discriminatory situation. From our perspective, the mentioned paragraph cannot be interpreted according to which the High Court of Cassation and Justice rules exhaustively on all the possibilities of bringing this type of action, but concerns the moment from which the limitation period for the compensation action begins to run ( with which, by the way, she was also notified). The High Court, through the aforementioned Decision, establishes a general rule in the situation expressly regulated by it, namely when the judicial annulment action is possible, art. 19 of Law no. 554/2004 is not applicable in the absence of a decision by which the action directed against the illegal administrative (fiscal) act was admitted. Situation about which we rally without reservation.
However, the action in administrative litigation formulated for the granting of compensation by taxpayers whose approach to challenge harmful fiscal administrative acts was admitted in the administrative procedure exceeds the scope of applicability of Decision no. 22/2019, since the situation of the favorable resolution of the administrative appeal and, implicitly, the actual impossibility of introducing an action in administrative litigation (as a result of the immediate rejection as lacking interest or even as inadmissible), is not considered by the Court.
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Despite the countless advantages offered by the legislator to the tax office to the detriment of taxpayers, any state governed by law has the obligation to watch for the emergence of any discriminatory situation, with the aim of urgently suppressing it. When the very right of access to justice is under question, the court of constitutional review is the one whose intervention appears to be not only expected, but deeply necessary.
Costaș, Negru & Asociații is a lawyers’ civil partnership with offices in Cluj-Napoca, Bucharest and Arad, providing legal assistance, representation and consultancy in a number of practice areas with a team composed of 17 lawyers and consultants. Details regarding legal services and the members of the team can be found on the website https://www.costas-negru.ro. All rights for the materials published on the company’s website and on social media belong to Costaș, Negru & Asociații, their reproduction being allowed only for information purposes and with the correct and complete disclosure of the source.
