Lexploria

AS TO THE ADMISSIBILITY OF

Application No. 26449/95

by SPACEK Ltd.

against the Czech Republic

The European Commission of Human Rights sitting in private on

14 October 1996, the following members being present:

Mr. S. TRECHSEL, President

Mrs. G.H. THUNE

Mrs. J. LIDDY

MM. E. BUSUTTIL

G. JÖRUNDSSON

A.S. GÖZÜBÜYÜK

A. WEITZEL

H. DANELIUS

F. MARTINEZ

L. LOUCAIDES

J.-C. GEUS

M.P. PELLONPÄÄ

G.B. REFFI

M.A. NOWICKI

I. CABRAL BARRETO

B. CONFORTI

N. BRATZA

I. BÉKÉS

J. MUCHA

D. SVÁBY

G. RESS

A. PERENIC

C. BÎRSAN

P. LORENZEN

K. HERNDL

E. BIELIUNAS

E.A. ALKEMA

M. VILA AMIGÓ

Mr. H.C. KRÜGER, Secretary to the Commission

Having regard to Article 25 of the Convention for the Protection

of Human Rights and Fundamental Freedoms;

Having regard to the application introduced on 22 November 1994

by SPACEK Ltd. against the Czech republic and registered on 6 February

1995 under file No. 26449/95;

Having regard to :

- the reports provided for in Rule 47 of the Rules of Procedure of

the Commission;

- the observations submitted by the respondent Government on

5 October 1995 and the observations in reply submitted by the

applicant on 3 January 1996;

Having deliberated;

Decides as follows:

THE FACTS

The applicant is a limited liability company incorporated under

Czech law with its head office in Prague. It is represented before the

Commission by Mr. B. Mazourek, a lawyer practising in Prague.

A. Particular circumstances of the case

The facts of the case, as submitted by the parties, may be

summarised as follows.

On 22 April 1993, the Prague 5 Finance Office (Financní úrad)

decided that the applicant company was required to pay additional

income tax of 385,600 Czech crowns for 1991 and penalty of 37,200 Czech

crowns because on incorporation the company had not increased the

income tax base for the tax year 1991 although it was obliged to do so

as it had changed its status. The tax base was to be increased by the

equivalent of 713,971 crowns. According to the opinion of the Finance

Office, Section 25 of the Private Business Activities Act No. 105/1990

(Act) (Zákon o soukromém podnikání obcanu) and the Regulation on the

procedure for passing from single to double entry book-keeping

(Regulation) (Postup prechodu z jednoduchého úcetnictví na podvojné

úcetnictví) of the Ministry of Finance had been breached.

On 17 August 1993, the Prague Finance Department (Financní

reditelství pro hl. m. Prahu) dismissed the applicant's appeal. It

stated that the Prague 5 Finance Office had correctly decided the case

in accordance with the Private Business Accounting Rules (Rules)

(Zásady vedení úcetnictví pri soukromém podnikání obcanu) and the

Regulation. The Rules and the Regulation were issued by the Ministry

of Finance in Financial Bulletins Nos. 5 and 6-7 respectively and were

issued in order to clarify obligations arising from Section 25 of the

Private Business Activities Act. The Finance Department also found

that the Regulation was to be considered as a generally binding

regulation since the Ministry of Finance was required to issue more

detailed regulations on this matter.

On 22 December 1993, the Prague Municipal Court (Mestsky soud v

Praze) rejected the applicant's appeal against the Prague Finance

Department's decision. The Court considered that the Ministry of

Finance was entitled to regulate the way in which accounting books were

to be kept in 1991 and there was no law or other legal act obliging the

Ministry to publish the Rules in the Official Gazette. Under Section

8 para. 1 b) of the Official Gazette Act No. 131/1989 (Zákon o sbírce

zákonu), regulations of central administrative authorities and other

central authorities were to be published only where the law so

required. So long as the applicant did not increase the income tax

base for 1991, and the Regulation was not being complied with, Section

25 para. 2 of the Private Business Activities Act was being violated.

On 1 March 1994 the applicant company lodged a constitutional

appeal and alleged a violation of its right under Section 2 para. 4 of

the Constitution, according to which "everyone shall be allowed to do

anything which is not forbidden by law, and no one shall be forced to

do anything which is not required by law", and under Section 4 para. 1

of the Charter of Fundamental Rights and Freedoms according to which

"obligations shall be imposed only by law and within its limits and by

observing fundamental rights and freedoms". The applicant submitted

that the Prague Municipal Court had not settled the question of the

conformity of the Regulation with the requirements of the Official

Gazette Act and had not taken into consideration the principle that any

secondary legal act must be published in the Official Gazette, have an

appropriate title and form, made to become valid and enforceable in

order to be binding on individuals and legal entities not subordinate

to the issuing body.

The applicant company also criticised the opinion of the Prague

Municipal Court that it was "obliged to observe internal regulations"

which, in the applicant's view, were not applicable to individuals and

legal entities. It submitted that it was not possible for the company

to learn the contents of such internal regulations from the Official

Gazette. Obligations imposed by the Rules were incompatible with the

Official Gazette Act No. 131/1989. Moreover, the later Act

No. 545/1992 did not adopt measures similar to the Regulation, either.

On 2 June 1994, the Constitutional Court (Ústavní soud) rejected

the applicant's appeal as ill-founded. The Court found that:

"Section 25 of the Private Business Activities Act ...

established the obligation to perform single or double

entry book-keeping in compliance with accounting principles

as prescribed by law. In 1991 the ... Ministry of Finance

was entitled to prescribe conditions and requirements for

accounting ... To specify obligations set out in

Section 25 ..., the ... Ministry of Finance issued the

Private Business Accounting Rules, ... published in

Financial Bulletin No. 5. This measure ... further defined

obligations on businesses in respect of book-keeping.

Moreover, Section 29 paras. 1 and 3 define the

responsibility of businesses for the state of accounting

records and sets out the sanctions arising from violation

of the obligations under [the above-mentioned] Section 25

... or failure to observe the principles. This measure,

which sets up standards of book-keeping for private

businesses, was followed by the Ministry of Finance

Regulation ... of 17 April 1991, ... published in Financial

Bulletin No. 6-7 ... The date of the entry into force of

this Regulation is not specifically given; nevertheless, it

states that the transfer from single to double entry book-

keeping shall always take place on 1 January of an

accounting year ...

... as regards any insufficiency in the publication of that

Regulation ..., the Court can, in general, agree with the

applicant that ordinary legal acts become valid only when

published in the Official Gazette. In cases where there is

no reason to publish generally binding legal acts of

central administrative authorities, such legal acts must be

announced in the Official Gazette. In this case it was a

regulation of a ... central administrative authority which,

in view of Section 8 para. 1 b) of the Official Gazette

Act, had to be published in the Official Gazette only if so

provided by law. This was not the case for Section 25 of

the Private Business Activities Act."

B. Relevant domestic law

The obligation for businesses to keep single or double entry

book-keeping in compliance with accounting principles was governed by

Section 25 para. 2 of the Private Business Activities Act No. 105/1990.

This Act specified neither the legal form under which accounting

principles should be adopted nor the authority entitled to issue them.

The Ministry of Finance has jurisdiction over accounting matters by

virtue of Section 60 of the Competence of the Federal Central

Authorities Act No. 194/1988 (Pusobnost federálních ústredních orgánu).

However, ministries were able to issue legal acts only on the basis and

within the scope of the Federal Parliament Acts and after they had been

authorised to do so by law. According to Sections 8 and 9 of the

Official Gazette Act, acts of the central organs of state

administration must be published in full in the Official Gazette or

announced by a notification therein in order to acquire the status of

legal regulations.

The Private Business Accounting Rules, issued by the Ministry of

Finance and published on 15 June 1990 in Financial Bulletin No. 5,

entered into force on 1 June 1990. On 17 April 1991, the Ministry of

Finance issued the Regulation on the procedure for passing from single

to double entry book-keeping and on 30 May 1991 it was published in

Financial Bulletin Nos. 6-7. The Regulation, in contrast to the Rules,

lacked any reference to the Private Business Activities Act, and did

not specify the date of its entry into force, its subject-matter or the

sanctions arising from non-respect of its provisions. Neither the

Rules nor the Regulation were published and/or notified in the Official

Gazette.

COMPLAINTS

The applicant company alleges that the decisions of the Czech

authorities to impose additional tax on it have violated its right

under Article 1 of Protocol No 1. Under these decisions, the applicant

was allegedly obliged to comply with the Private Business Accounting

Rules and the Regulation on the procedure for passing from single to

double entry book-keeping which were never published or announced in

the Official Gazette, and which, it claims, never acquired the quality

of a generally binding "law" within the meaning of Article 1 of

Protocol No 1.

PROCEEDINGS BEFORE THE COMMISSION

The application was introduced on 22 November 1994 and registered

on 6 February 1995.

On 17 May 1995 the Commission decided to give notice of the

application to the Czech Government and to invite them to present their

observations on the admissibility and merits of the application.

The Government's written observations were submitted on 5 October

1995. The applicant's observations in reply were submitted on

3 January 1996.

THE LAW

The applicant company alleges that the decisions of the Czech

authorities to impose additional tax on it have violated its right

under Article 1 of Protocol No 1 (P1-1). Under these decisions, the

applicant was allegedly obliged to comply with the Private Business

Accounting Rules and the Regulation on the procedure for passing from

single to double entry book-keeping which were never published or

announced in the Official Gazette, and which, it claims, never acquired

the quality of a generally binding "law" within the meaning of Article

1 of Protocol No. 1 (P1-1).

Article 1 of Protocol No. 1 (P1-1) provides:

"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 Government first submit that the application is incompatible

ratione materiae with the provisions of the Convention. They point out

that the issue in the present case concerns the determination by the

State of duties of its citizens, the promulgation of laws and

regulations and their binding effect, which are matters not covered by

the Convention.

The Government further submit that the applicant has not

exhausted the domestic remedies which were at its disposal, and that

the application should be declared inadmissible on this ground.

Despite the fact that the right to the peaceful enjoyment of

possessions is safeguarded in domestic legislation by Section 11 of the

Charter of Fundamental Rights and Freedoms, the applicant's

constitutional appeal alleged exclusively the violation of the right

determined by Section 2 para. 4 of the Constitution and Section 4

para. 1 of the Charter. The Government submit that in order to exhaust

all domestic remedies, the applicant should also have alleged the

violation of the right to the peaceful enjoyment of possessions.

As regards the substance of the applicant's complaint, the

Government claim that the application is manifestly ill-founded.

The Government underline that according to Section 25 of the

Private Business Activities Act, the applicant was obliged to keep

single or double entry book-keeping, in compliance with established

accounting principles. However, the Private Business Accounting Rules

published in the Financial Bulletin merely determined accounting

methods to be used by businesses on the basis of Section 25. They

cannot, therefore, be regarded as a legal act.

The Government point out that the Financial Bulletin, which is

intended for the public, contains provisions, communications,

instructions, positions and regulations regarding the application of

binding laws, and also regulations already published in the Official

Gazette which are required to be published therein or which the

Ministry of Finance has been authorised to issue. The Financial

Bulletin, as well as the Official Gazette, are distributed to

subscribers or sold by SEVT a.s. (Printed Forms State Editorial

Publisher, p.l.c., Státní Editorní Vydavatelství Tiskopisu, A.S.).

The Government also submit that the Ministry of Finance was

authorised to regulate accounting. The publication of the Rules based

on Section 25 of the Private Business Activities Act was fully within

the Ministry's competence. There was no legal provision which required

the administrative authority to promulgate the conditions and

provisions relating to accounting in the Official Gazette. According

to the Official Gazette Act, measures adopted by administrative

authorities are promulgated by the publication of their entire text or

by announcement of their introduction, if so required by law. If the

publication of the Rules in the Official Gazette or by the announcement

of their introduction had been required under Section 25 of the Private

Business Activities Act, there is no doubt that the Rules would have

been published in this manner. However, the Rules were published in

the Financial Bulletin of which the applicant was - or should have

been - aware.

The applicant disagrees with the Government's reasoning

concerning the Commission's competence ratione materiae to examine its

case. It also considers that all domestic remedies have been

exhausted. In its view, reaching a decision on the breach of rights

under Section 2 para. 4 of the Constitution and Section 4 para. 1 of

the Charter of Fundamental Rights and Freedoms amounts to reaching a

decision on the violation of the right to the peaceful use of property

under Section 11 of the Charter and Article 1 of Protocol No. 1 (P1-1)

to the Convention.

The applicant submits that the company kept, in accordance with

Section 25 of the Private Business Activities Act, single entry book-

keeping in 1991 and double entry book-keeping in 1992. Therefore,

there was no obligation to increase the income tax base, as the

Constitution and the Charter do not allow obligations of this kind to

be imposed except by law. In the present case, the obligation was

imposed by the above-mentioned Rules which did not have the status of

a legal act.

The applicant disputes the Government's characterisation of the

Rules and Regulation as measures of the administrative authorities

passed under a generally binding legal regulation. However, even if

the Rules and Regulation had been published in the Official Gazette

according to Section 8 para. 1b) of the Official Gazette Act - which

was not the case - they would not have become generally binding legal

regulations. According to Article 8 para. 2 (Art. 8-2), the measures

referred to in Article 8 para. 1 (Art. 8-1) as well as any internal by-

laws, may not be called "public notices" or "rulings", or "decrees".

It follows that the obligation to increase the tax base was not imposed

by law or any other generally binding regulation.

The applicant company states that Section 25 of the Private

Business Activities Act did not contain any authorisation for the

Ministry of Finance to pass any generally binding secondary legal

regulation, although such authorisation is required by the

Constitution.

The applicant considers that tax laws, by which the State

provides for payment of taxes must comply with formal, as well as

substantive, requirements for laws. In the present case, the State

authorities provided for payment of taxes in a manner which was not

allowed by the Act determining the formal status of all legal acts.

The publication in the Financial Bulletin - even if it was delivered

to each company - is irrelevant so long as publication in the Bulletin

is no substitute for notification in the Official Gazette stipulated

by law.

Finally, the applicant submits that increase of the income tax

base cannot be considered as an accounting transaction. It should not

have been governed by the Ministry of Finance's regulations. The

obligation to increase the income tax base concerns taxes, and may,

therefore, be governed only by law. It is true that the obligation to

pay income tax was imposed by law. However, the key issue of the

definition of the tax base appeared merely in the form of a regulation

which was never published or announced in the Official Gazette.

The Commission recalls that Article 26 (Art. 26) of the

Convention requires the exercise of only those domestic remedies which

relate to the breaches alleged and can at the same time provide

effective and sufficient redress. An applicant does not need to

exhaust remedies which would be a pure repetition of remedies already

exercised by him (cf. No. 9248/81, Dec. 10.10.83, D.R. 34 p. 78).

The Commission refers to its established case-law to the effect

that a person has exhausted domestic remedies when he has raised in

substance before the highest competent national authority the complaint

he makes before the Commission. Even where the Convention is directly

applicable in the State's domestic law (as is the case in the Czech

Republic), the person concerned may also rely before the domestic

courts on "other arguments to the same effect" (cf. No. 10.3.77, D.R. 8

p. 185; No. 11425/85, Dec. 5.3.85, D.R. 53 p. 76).

The Commission observes that in the present case the final

decision regarding the applicant's claim is the decision of the

Constitutional Court of 2 June 1994.

The Commission notes that the applicant alleged before the

Constitutional Court that the requirement to pay additional income tax

of 385,600 Czech crowns for 1991 was based on the Federal Ministry of

Finance's regulations which were not published in the Official Gazette.

The Commission therefore considers that the applicant raised in

substance in the domestic proceedings the complaint he now makes before

the Commission.

Consequently, the Commission finds that the requirement as to the

exhaustion of domestic remedies has been satisfied and that the

application cannot be rejected on the basis of Articles 26 and 27

para. 3 (Art. 26, 27-3) of the Convention.

Finally, as to the substance of the case, the Commission has

conducted a preliminary examination of the parties' arguments. It

considers that the application raises complex factual and legal issues

which cannot be resolved at this stage of its examination, but require

an examination of the merits. The Commission concludes, therefore,

that the application is not manifestly ill-founded within the meaning

of Article 27 para. 2 (Art. 27-2) of the Convention. No other grounds

for declaring it inadmissible have been established.

For these reasons, the Commission, by a majority,

DECLARES THE APPLICATION ADMISSIBLE, without prejudging the

merits of the case.

H.C. KRÜGER S. TRECHSEL

Secretary President

to the Commission of the Commission

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SPACEK LTD v. THE CZECH REPUBLIC

SPACEK LTD v. THE CZECH REPUBLIC

LEXI