SECOND SECTION

DECISION

AS TO THE ADMIS S IBILITY OF

Application no. 68741/01 by CBC-UNION, S. R. O. against the Czech Republic

The European Court of Human Rights (Second Section), sitting on 20 September 2005 as a Chamber composed of:

Mr J.-P. Costa , President , Mr I. Cabral Barreto , Mr K. Jungwiert , Mr V. Butkevych , Mr M. Ugrekhelidze , Mrs A. Mularoni , Mrs E. Fura-Sandström , judges , and Mr S. Naismith , Deputy Section Registrar ,

Having regard to the above application lodged on 6 February 2001 ,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicant,

Having deliberated, decides as follows:

THE FACTS

The applicant, C BC-Union, s.r.o ., is a private company with its headquarters in Karlovy Vary . It is represented before the Court by Mr J iří Koz á k, a lawyer practising in Liberec .

A. The circumstances of the case

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

On 29 May 1993 the applicant company acquired a building under construction from the Town of Teplice ( Město Teplice ) at an auction. The original lawful asking price, CZK 22,540,000 (EUR 751,333), was not reached and the bidding finally stopped at 1,409,000 (EUR 46,967). On 1 July 1993 the applicant company concluded a purchase contract whereby the purchase price was fixed at CZK 1,409,000.

On 23 February 1994 the Finance Office issued a tax order against the applicant company ordering it to pay a gift tax of CZK 3,877,548 (EUR 129,252), the base of assessment being fixed at CZK 21,134,100 (EUR 704,470) by virtue of the Taxation Act.

On 10 March 1994 the Finance Office, in reply to the applicant company ’ s letter of 7 March 1994 , explained that the basis of the taxation had been the difference between the asking price and the final bid.

On 19 December 1996 , on the applicant company ’ s appeal, the Ústí nad Labem Finance Directorate ( Finanční ředitelství ) reduced the tax due to CZK 1,087,876 (EUR 36,263), taking into account a new expert assessment made of the taxation basis (CZK 8,488,200 (EUR 282,940)).

On 10 February 1999 the Ústí nad Labem Regional Court ( krajský soud ) dismissed the applicant ’ s action against the tax order finding, in particular:

“The transfer of the estate was effected in 1993, when [the Taxation Act], as amended by Act no. 18/1993, was in force. If the real estate was transferred for a lower price than that established by the expert ... the tax liability is shared between the assignor and assignee. Under section 10 the real estate-transfer tax base is the price of the estate legally established on the date of the acquisition of the whole real estate, or part of it if the transfer was effected partly free of charge. Gift tax under section 6(1) of the [Taxation] Act was payable on real estates acquired by an act in law other than the death of an owner, provided that the act in law was effected fully or partly free of charge. ...

Under section 7(1) of [the Taxation Act], the base of the gift tax was the price of the estate minus the price which was paid if the act in law was effected partly free of charge. The [Taxation] Act did not take into account the current value of the estate and only considered the legally established price. The first-instance authority ’ s error in establishing the price and tax base was rectified by the [Finance Directorate] ... which requested that a new expert report be submitted on the price of the property at the date of its acquisition; it informed [the applicant company] about the findings of the expert, and discussed [the applicant company ’ s] comments with the expert, who issued another report, which was not challenged by [the applicant company].”

On 10 April 1999 the applicant company lodged a constitutional appeal ( ústavní stížnost ) alleging , inter alia , a violation of Article 11 § 5 of the Charter of Fundamental Rights and Freedoms ( Listina základních práv a svobod ) .

On 3 August 2000 the Constitutional Court ( Ústavní soud ) dismissed the applicant company ’ s constitutional appeal, endorsing the reasons on which the lower administrative and judicial authorities had based their decisions.

B. Relevant domestic law

Act no. 357/1992 on Inheritance Tax, Gift Tax and Real Estate-Transfer Tax, as amended by Act no. 18/1993 (in force at the relevant time)

Under section 5, persons liable to gift tax were those who had acquired property. Section 6(1)(a) provided that gift tax was payable on estates acquired by an act in law other than the death of an owner, provided that the act in law was effected fully or partly free of charge. Under section 7(1)(c), the gift tax basis was the price of the taxable property minus the price paid if the property was acquired partly free of charge.

Section 8(1)(a) provided that persons liable to pay real estate-transfer tax were those who had assigned estates. Under section 9(1) real estate-transfer tax was payable on transfers of property rights to estates provided that the transfers were carried out fully or partly in return for payment. Section 10 provided that the real estate-transfer tax base was the price of the estate established under the relevant legal provisions on the day of its acquisition.

Commentary to section 10 of the Taxation Act (written by J. Dunovský, administrator of the Ministry of Finance)

“Real estate-transfer tax is assessed as a percentage of the price established in accordance with the law ... Parties to a purchase contract may, with reference to the Civil Code and Decree no. 393/91, ... agree on a higher price or ... a lower price. However, tax is based on the price calculated under Decree no. 393/1991, as amended. The purchase price or price agreed between the parties is not decisive ...”

Act no. 357/1992 on Inheritance Tax, Gift Tax and Real Estate-Transfer Tax, as amended by Act no. 322/1993, which entered into force on 1 January 1994

Under section 5 persons liable to gift tax are those who received estates. Section 6(1)(a) provides that gift tax is payable on estates acquired free of charge by an act in law other than the death of an owner. If the assignee acquired the estate partly free of charge, only the relevant part of the estate was taxable. Under section 7(1)(c) the gift tax base was the price of the taxable estate.

Section 8(1)(a) provided that persons liable to pay real estate-transfer tax are those who have assigned or sold estates. Under section 9(1) real estate-transfer tax is payable on the transfer of an estate carried out in return for payment. Section 10 provides that the real estate-transfer tax base was the price established under the relevant legal provisions on the day of the acquisition of the estate, even if the price agreed between the parties is lower than the legally established price; the difference is not taxable under the provisions on gift tax. If the price agreed is higher than the legally established price, the price agreed constitutes the tax base.

Charter of Fundamental Rights and Freedoms

Under Article 11 § 5 taxes and fees may be levied only on the basis of law.

Governmental Project on Principles of the Taxation Act ( 18 September 1991 )

Principle no. 5

“Gift tax was payable on movable and immovable items, debts, securities and other property rights acquired by an act i n law other than the death of a citizen, provided that the act in law was effected fully or partly free of charge. ...”

Principle no. 6

“T he gift tax basis was the price of the acquired property ...”

Principle no. 9

“ The real estate-transfer tax base is the price of the property. If the payment is lower than the price established under special regulations, the transfer is considered to be carried out up to the amount of the payment in return for payment, and the transfer corresponding to the difference between the payment and the price established under the special regulation as the transfer free of charge, which is subjected to the gift tax.”

Governmental Project of the Taxation Act (as submitted in 1992 to the Czech National Council)

Section 10 concerning the tax base provided that the real estate-transfer tax base is the price agreed, at least the price established under special regulations.

B. Relevant domestic practice

In cases relating to facts which had occurred prior to the amendment of the Taxation Act, which entered into force on 1 January 1994 , the domestic courts generally held that real estate-transfer tax had to be paid on transfers of real estates, which were carried out in return for payment. The courts considered that if the purchase price was lower than the legally established price, the estate was transferred partly free of charge. The difference between the prices constituted the gift tax base [1] .

In 1996 certain appellate courts expressed a different legal view. [2]

COMPLAINT

The applicant company complains under Article 1 of Protocol No. 1 to the Convention that the national authorities imposed the gift tax on it although the law then in force did not provide for this.

THE LAW

The applicant company complains that the gift tax imposed on it by the national authorities violated its right under Article 1 of Protocol No. 1 to the Convention, which 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 use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

1. Arguments before the Court

(a) The Government

The Government reiterate at the outset the general principles of the interpretation of the term “law” within the meaning of Article 1 of Protocol No. 1 as established by the Court ’ s case-law.

According to them, the provisions of the Taxation Act applied in the present case were clear, in that a transfer of immovable property which was carried out partly free of charge, was partly liable to the real estate-transfer tax and partly to the gift tax. In fact, if the ownership of the real estates was transferred for a lower price than the price legally established, the transfer was considered to be partly taxed and partly free of charge. The total of the bases of both taxes corresponded to the price of the property fixed under price regulations.

The Government further state that the national authorities dealt with the applicant company ’ s objections and arguments against the allegedly wrong interpretation of the Taxation Act thoughtfully and in detail. Their interpretation corresponded to the national constant interpretation. They referred to a number of decisions of national courts in respect of this issue which constitute the relatively constant case-law while admitting that some of them were adopted after the applicant company had concluded the purchase contract.

The Government further point out that the applicant company did originally not contest its duty to pay the gift tax, challenging only its amount. It disputed the interpretation of the relevant parts of the Taxation Act, for the first time, in its appeal against the tax order delivered on 22 March 1994 .

The Government add that the commentary to section 10 of the Taxation Act presented by the applicant company contains the author ’ s personal opinion which is not legally binding. They refer to an opinion of M. Bakeš, expert in financial law, published in January 1994, from which it clearly appears that until Act no. 322/1994 en tered into force, i.e. until 31 December 1993 , the difference between the lower purchase price and higher price established under the price regulations was subjected to the gift tax.

They consider that the fact the Taxation Act did not expressly provide, that the difference between the agreed lower price and the price established under the price regulations was to be considered as an act performed free of charge, which was subjected to the gift tax, does not justify the conclusion that such an operation was not carried out legally. In their opinion, the contents of the relevant parts of the Taxation Act constituted a sufficient legal base.

They conclude that the relevant provisions of the Taxation Act comply with the general requirements of foreseeability of the “law” within the meaning of Article 1 of Protocol No. 1. As to the existence of a legitimate aim underpinning the interference complained of by the applicant company, the Government maintain that the latter does not complain that the interpretation of the relevant provisions of the Taxation Act do es not pursue a legitimate aim or that a “fair balance” between the demands of the general interest of the community in the payment of taxes and the requirements of t he protection of the individual ’ s fundamental rights had been breached . In fact, it focuses on the question of the foreseeability of the interpretation of the Act.

(b) The applicant company

The applicant company disputes the arguments of the Government. It notes that a transfer of real estates is to be considered as one legal act.

It underlines that at the moment of the conclusion of the purchase agreement there was no case-law which would offer a binding interpretation of the relevant provisions of the Taxation Act. With reference to the draft of the Taxation Act submitted by the Government to the Czech National Council in 1992 and the discussion among deputies, the applicant company states that the intention of deputies was to tax the transfers of real estates by the real estate-transfer tax calculated from the price established under the price regulations.

In reply to the Government ’ s argument that it did not challenge the interpretation of the national law at the very beginning, the applicant company submits that after having consulted the director of the Finance Office and having found that the Office was bound by the instructions of the Ministry of Finance, it requested the re-opening of the proceedings adducing the expert opinion and calculation of the gift tax on the basis of an acceptable difference. In so doing, the applicant company wished to minimise impending damage.

The applicant company adds that the commentary to section 10 of the Taxation Act written by Mr J. Dunovský is not his personal opinion only, the author being introduced as an employee of the Ministry of Finance. On the other hand, the Government ’ s referen ce to the article written by M. Bakeš only includes a list of legislative modifications.

The applicant company shares the opinion of the Government that the absolute clarity of a law is an unattainable ideal. However, the law shall not be interpreted against its aim, sense and contents. It maintains that the fiscal authorities applied an internal instruction of the Ministry of Finance no. 262/46611/93 of 9 September 1993 which indicated the binding procedure for competent fiscal authorities. This explains why the application of the relevant provisions of the Taxation Act by the competent administrative and judicial authorities was to a large extent uniform.

The applicant company concludes that the relevant provisions of the Taxation Act , as they are interpreted by the Government, do not satisfy the general principles of the foreseeability requirement included in the term “law” as defined by the Court.

In the light of the circumstances of the case, it considered it superfluous to maintain that the interpretation of th ese provisions did not pursue a legitimate aim or that the fair balance between its rights and the public interest had been breached. The fact that the applicant company paid the gift tax of CZK 1,087,876 when it did not actually have to pay any tax, constitutes a breach of the fair balance between its rights and the public interest to pay taxes. It alleges that the disputed interpretation of the law did not pursue a legitimate aim.

2. The Court ’ s assessment

(1) Whether there was interference

The assessment of gift tax on the applicant company by the Czech tax authorities constituted an interference by a public authority with the applicant company ’ s enjoyment of its possessions within the meaning of Article 1 of Protocol No. 1 to the Convention.

(b) Whether the interference was lawful

In the present case, only the question of the lawfulness of the interference with the applicant company ’ s rights, within the meaning of the second paragraph of Article 1 of Protocol No. 1, is at issue. Like the Government, the Court observes that in its original application brought to the Court, the applicant company was not disputing that the interference complained of was in pursuit of aims in the public interest.

The Court recalls that taxation, as an interference with the rights guaranteed in Article 1 of Protocol No. 1, is justified under the second paragraph of Article 1. This provision expressly reserves the right of Contracting States to enforce such laws as they may deem necessary to secure the payment of taxes (see the Gasus Dosier- und Fördertechnik GmbH v. the Netherlands judgment of 23 February 1995, Series A no. 306-B, p. 48, § 59).

When speaking of “law”, Article 1 of Protocol No. 1 alludes to the same concept to be found elsewhere in the Convention (see Špaček, s.r.o. v. the Czech Republic , no. 26449/95, § 54, 9 November 1999 ). This concept comprises statutory law as well as case-law, implying qualitative requirements, notably those of accessibility and foreseeability (see Beyeler v. Italy [GC], no. 33202/96, § 109, ECHR 2000-I , and Cantoni v. France , judgment of 15 November 1996, Reports of Judgments and Decisions 1996-V, § 29, S.W. and C.R. v. the United Kingdom judgments of 22 November 1995, Series A no. 335-B and 335-C, § 35 and § 33, respectively).

The Court notes that the scope of the notion of foreseeability depends to a considerable degree on the content of the text at issue, the field it is designed to cover and the number and status of those to whom it is addressed. A law may still satisfy the requirement of foreseeability even if the addressee has to take appropriate legal advice to assess, to a degree that is reasonable in the circumstances, the consequences which a given action may entail. This is particularly true in re lation to persons carrying on a professional activity, who are used to having to proceed with a high degree of caution when pursuing their occupation. They can on th at account be expected to take special care in assessing the risks that such activity entails ( see, Špaček, s.r.o. v. Czech Republic , mentioned above, § 59).

In the present case, the tax was imposed on the applicant company pursuant to sections 6(1)(a) and 7(1)(c) of the Taxation Act then in force and which provided that a gift tax was payable on real estates acquired by an act in law other than the death of an owner, provided that the act in law was effected fully or partly free of charge. At the same time, an assignor of an estate had to pay real estate-transfer tax under section 8(1) of the Taxation Act.

The Court observes that the interference complained of by the applicant company had a statutory basis in Czech law. Duly published in the Official Gazette, the Taxation Act was accessible to the applicant company. As for the foreseeability of the relevant provisions, it notes that foreseeability does not mean absolute certainty (see Rekvényi v. Hungary [GC], no. 25390/94, § 34, ECHR 1999-III). Moreover, the Court has recognised that “many laws are couched in terms which, to a greater or lesser extent, are vague and whose interpretation and application are questions of practice” (idem, § 34).

The Court agrees with the applicant company that the aims and intentions of the national legislation body are essential in the procedure of drafting and adopting a particular law. The purpose of any law is, however, to serve society and to be applied in its daily life. While the role of the legislator is crucial in building the national legal system, the role of national tribunals and courts to interpret and apply that law is fundamental for its functioning.

The Court observes that the Taxation Act did not clarify the notion of “donation”. Nevertheless, it cannot be said, after careful reading of the Act, that its provisions were, at the relevant time, too vaguely formulated to enable the applicant company to interpret them as meaning that it would be liable to pay the gift tax.

The Court considers that the applicant company, when taking part in the public auction and purc hasing the property concerned, sh ould have been aware of the way in which the Taxation Act then in force was applied by the administrative and judicial authorities . A law may still satisfy the requirement of foreseeability if the person concerned has to take appropriate expert advice to assess, to a degree that is reasonable in the circumstances, the consequences which a given action may entail. That is particularly true in relation to persons carrying on professional activity. With the benefit of appropriate expert advice, the applicant company could have foreseen the consequences of its actions (see, mutatis mutandis , the Cantoni v. France judgment of 15 November 1996 , Reports 1996-V, p. 1629, § 35).

The Court finds that the interference complained of had a sufficient legal basis in Czech law to comply with the requirements of the second paragraph of Article 1 of Protocol No. 1.

The application is therefore manifestly ill-founded within the meaning of Article 35 § 3 of the Convention and must be rejected under § 4 of that provision.

For these reasons, the Court by a majority

Declares the application in admissible.

S. Naismith J.-P. Costa              Deputy Registrar President

[1] Decision s of the Constitutional Court no. IV.ÚS 250/96 of 28 November 1997 , no. III. ÚS 51/95 of 15 June 1995 , no. III. ÚS 135/94 of 3 November 1994; judgments of the Ostrava Regional Court no. 22 Ca 288/99-39 of 5 June 2001, nos. 22 Ca 689/96-24 and 22 Ca 690/96 of 15 May 1997; judgment of the Plzeň Regional Court no. 15 Ca 439/94 of 30 November 1994; judgment of the České Budějovice Regional Court no. 10 Ca 375/94 of 19 October 1994, no. 10 Ca 173/94 of 22 June 1994, no. 10 Ca 67/95 of 15 March 1995; judgment of Prague Municipal Court no. 28 Ca 94/94 of 17 May 1994, no. 28 Ca 239/95 of 28 May 1996

[2] Judgment s of the Brno Regional Court no. 30 Ca 156/95 and no. 30 Ca 170/95 of 11 December 1996