By a judgment of principle, the High Court of Cassation and Justice has recently clarified an extremely important aspect of the right to defence guaranteed by article 9 of the Tax Procedure Code. Thus, the judicial review court considered that the taxpayer’s hearing cannot be equated with the fact that he was invited to make written comments during the tax inspection, that he formulated a point of view and that he was given the draft of the tax inspection report project, respectively the tax inspection report and the tax imposing decision. The High Court considers that such conduct, mechanically validated by the Cluj Court of Appeal, does not comply with the European requirements of the right to defence. Moreover, it was noted that the entire judgment was insufficiently reasoned and that the rejection of the entire reasoning of the applicant company’s was inadmissible, as article 6 paragraph 1 of the Convention calls for the existence of a specific response from the judge to the relevant arguments of the party.
This legal affair deserves a wider presentation, precisely in order to be able to observe a judgment that unfortunately falls within a wider range of automatically delivered sentences, with the validation of the tax authority’s arguments and without a serious analysis of the taxpayer’s arguments.
In fact, in April 2016, the applicant company showed up before the Cluj Court of Appeal with a claim against the County Public Finance Administration of Cluj and the General Directorate for the Administration of Large Contributors – the Dispute Resolution Service, through which it requested the court:
– The suspension of the tax imposing decision issued by the County Public Finance Administration of Cluj, until the final settlement of the dispute having as object the annulment of the tax decision imposing additional tax liabilities in the total amount of 2,838,219 lei, representing VAT differences and accessory tax liabilities
– The partial annulment of the decision to settle the dispute issued by the General Directorate for the Administration of Large Contributors – the Dispute Resolution Service, in regard to the rejection of the procedural arguments raised in the dispute
– The annulment of the tax imposing decision issued by the County Public Finance Administration of Cluj, by acknowledging the arguments of procedural nature rejected by the decision to settle the dispute
– Ordering the General Directorate for Administration of Large Taxpayers – the Dispute Resolution Service, to settle the contestation suspended by the decision to settle the dispute, within 10 days from the date of the final judgment.
In July 2016, the Cluj Court of Appeal resolved the claim and dismissed the applicant’s action as a whole. In order to rule on this judgment, the court of first instance proceeded as follows:
The application for suspension of the tax imposing decision issued by the County Public Finance Administration of Cluj, formulated on the basis of article 15 of Law no. 554/2004 has been judged first. By verifying the fulfillment of the conditions regarding the existence of the well-justified case and the necessity of preventing the imminent damage, as stipulated in article 14 of the above mentioned Law, the court held the following: “In the present situation, the requirements stated by the norms are not cumulatively met. Thus, even if it is accepted that the claim for damages is met, since the amount to be refunded is significant for the company’s potential and as such there is a disruption or foreseeable loss, the requirement of the well-founded case is not met. From this perspective, in a brief review in this procedure, it is noted that during the control, notes were given by the company’s manager. It is also noticed that a point of view was expressed before the decision to establish the liabilities; that the inspection report, the draft report were made known. Based on these acts, a lack of information or a lack of listening cannot be held in such circumstances.
The applicant further claims that the requirement is that the report did not exist at the time of the decision, given the different numbers; that access to documents was not ensured; the tax authority was not competent to perform the inspection, the findings did not take into account the documents. The issues raised by the legal action can not constitute evidence that the condition is well grounded, a well-grounded case as long as their analysis implies an assessment not in appearance but a thorough analysis where evidence and reasoning are required for the legality control of the administrative act’s substance. Such verifications can only be carried out by the court invested with the censorship of the legality of the decision to settle the dispute, thereby the summary procedure cannot start analysing the substance of the case. Therefore, the applicant’s claims are unfounded and will be rejected.”
Then, the court proceeded to analyse the arguments put forward by the applicant company regarding the request for annulment of the decision to settle the dispute, respectively to order the General Directorate for Administration of the Large Taxpayers – the Dispute Resolution Service to resolve the suspended contestation, withholding the following : “It can be seen from the documents that the authority for criminal investigations was notified in the context of checking the operations carried out in the companies’ activities and the economic transactions recorded in the documents submitted by the applicant. In the case of investigations, the reality of the transactions is determined and, depending on this, the dispute resolution authorities may establish as documentary evidence the invoices based on which they can modify the tax liabilities or establish them as not due. In other words, the findings and the solution that will be given after the referral may be relevant given the address referring to the damage to the state budget in the amount of 2,838,219 lei. In these circumstances, as the criminal authorities were notified, it is righteous to believe that the decision stating the applicability of article 277 paragraph (1) letter a) and article 279 paragraph (5) of Law no. 207/2015 is correct.”
The applicant company appealed against the judgment of the Cluj Court of Appeal. By its decision from July 2018, recently reasoned, the High Court of Cassation and Justice upheld the appeal brought by the claimant, overthrown the case and sent it back to court for a rejudgment, severely criticizing the judgment of the first instance court.
In essence, the supreme court held the following:
The settlement of the case in the circumstances exposed required the court to provide a complete, real and explicit statement of reasons for each request, in accordance with the requirements imposed by article 425 paragraph (1) letter b) of the Civil Procedure Code and article 6 paragraph (1) of the European Convention on Human Rights.
Referring to the arguments put forward by the appellant, the role of the judicial review court is to determine whether and to what extent the essential issues that are subject to judgment, relative to each end of the application, have been answered in the judgment given by the court of first instance. For this, it is absolutely necessary to refer to the considerations of the judgment, bearing in mind that the purpose of the reasoning is precisely to substantiate and explain the measures contained in the provision.
With regard to the application for suspension of the enforcement of the tax imposing decision until the final decision on the action for annulment of that decision, the claim was made on the basis of article 15 of Law no. 554/2004, in the circumstances in which the applicant had already obtained the suspension of enforcement of the tax imposing decision until the judgment in substance of the ongoing action, according to article 14 of Law no. 554/2004. Although this circumstance was mentioned in the claim, it was totally ignored by the first instance. Furthermore, the same factual and legal circumstances put forward by the applicant in support of the fulfillment of the well-founded condition of the case have received diametrically opposed valences, the decisive considerations of the judgment initially ordering the suspension under article 15 of Law no. 554/2004 being contradicted in the subsequent litigation.
Thus, the first instance court considered that one of the requirements that must be cumulatively met as stated by the provisions of article 14 of Law no. 554/2004, respectively the well-founded case, is not fulfilled, since the right to defence in the administrative procedure has been respected and the other aspects invoked by the applicant can be verified only by the court invested with the censorship of the legality of the decision to settle the dispute.
With regard to the right to defence, in a brief review in this procedure, the court considered that a lack of information or a lack of listening could not be taken into account, since during the inspection, notes were given by the company’s manager, a point of view has been expressed before the issuing of the decision establishing liabilities, and the tax inspection report and draft report have been communicated.
Such an approach will not be validated by the judicial control court, as it does not relate to the elements imposed by the observance of the fundamental principle of the right of defence enshrined at European level by article 41 of the Charter of Fundamental Rights of the European Union, and ignores the jurisprudence in the matter of the High Court of Cassation and Justice and the Court of Justice of the European Union, although it has been put forward in a broad analysis carried out by the applicant, with reference to the particular aspects of the present case.
Given that the court was notified with the settlement of an application for suspension of enforcement of the tax imposing decision under article 15 of Law no. 554/2004, as well as with resolving the claim for annulment, by assessing the arguments of procedural nature rejected by the decision to settle the claim, the court have and should have carried out a full, real and effective assessment of the applicant’s argument and, referring to it, to decide on all the claims which it has been invested with.
As regards the request for partial annulment of the decision to settle the claim and annulment of the tax imposing decision, the High Court finds, in line with the procedural position expressed by the appellant, that the pleas of illegality relied on were entirely omitted from the grounds of the judgment of the court of first instance, no point being identified with regard to these pleas. That is so, given that the applicant’s claim was entirely dismissed.
However, the right to a fair trial guaranteed by article 6 paragraph (1) of the European Convention on Human Rights cannot be considered effective unless the parties’ claims are “indeed heard”, that is they are actually examined by the court. Thus, article 6 requires the court to make an effective examination of the parties’ arguments and evidence, at least in order to assess their relevance.
Without requiring a detailed answer to each of the complainants’ arguments, the court’s obligation to give reasons for its decision requires, however, that the party concerned can expect a specific and explicit answer to the decisive aspects of the outcome of the proceedings in question (Ruiz Torja and Hiro Balani v. Spain, Judgment of the 9th of December 1994).
The procedural conduct adopted by the first instance does not meet the requirements imposed by article 6 paragraph 1 of the European Convention on Human Rights and article 425 paragraph 1 letter b) of the Civil Procedure Code, the assumptions being subsumed to the grounds for cassation provided by article 488 paragraph (1), points 5 and 6 of the Civil Procedure Code.
Concerning the request for the defendant (the General Directorate for Administration of Large Taxpayers – the Dispute Resolution Service) to resolve the suspended contestation, taking into account the requirements of the right to a fair trial, the inadequate and inconsistent reasoning of the first instance’s judgment is observed, a circumstance equivalent to failing to investigate the substance of the case and which makes the judicial control impossible.
Thus, the analysis of the first instance does not clearly state which are the legal conditions in which the suspension of the administrative contestation procedure can be ordered and if, in the particular circumstances of the case, they have been correctly interpreted and applied by the competent authority or, on the contrary, if the measure constitutes an excess of power in the sense of article 2 paragraph (1) of Law no. 554/2004.
For all of these reasons, since the essential circumstances of the resolution of the case have not been clarified by the court of first instance, under article 497 corroborated with article 488 paragraph (1) points 5, 6 and 8 of the Civil Procedure Code and article 20 paragraph (3) of the Law on contentious administrative no. 554/2004, with the application of the principle of accessorium sequitur principale, the High Court of Cassation and Justice ordered the admission of the appeal, the cassation of the repealed sentence and the referral of the case to the Cluj Court of Appeal.
We are convinced that this ruling of the High Court of Cassation and Justice, which comes to sanction the conduct of the hierarchically inferior national courts, constitutes yet another victory in the ongoing battle between taxpayers and tax authorities.