FOURTH SECTION

DECISION

Application no. 36642/14 M.A. against Hungary

The European Court of Human Rights (Fourth Section), sitting on 28 November 2017 as a Committee composed of:

Faris Vehabović, President, Carlo Ranzoni, Iulia Motoc, judges, and Andrea Tamietti, Deputy Section Registrar ,

Having regard to the above application lodged on 12 May 2014,

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

1. The applicant, Mr M.A., is a Hungarian national who was born in 1972. The President granted the applicant ’ s request for his identity not to be disclosed to the public (Rule 47 § 4). He was represented before the Court by Mr D. Karsai, a lawyer practising in Budapest.

2. The Hungarian Government (“the Government”) were represented by their Agent, Mr Z. Tallódi, of the Ministry of Justice.

A. The circumstances of the case

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

4. The applicant used to be employed as a civil servant at the Prime Minister ’ s Office on a post of head of division. On 5 April 2014 he was dismissed from service. He received a severance payment in the amount of 6,403,950 Hungarian forints (HUF; approximately 20,600 euros (EUR)), which statutorily corresponded to eight months ’ salary.

5 . In application of Acts nos. XC of 2010, CXXIV of 2010 and CCL of 2013, the part of the severance payment exceeding HUF 3.5 million (approximately EUR 11,200) was subjected to special tax ( különadó ) at the rate of 75%. In the applicant ’ s case, this uppermost portion amounted to HUF 2,903,950 (approximately EUR 9,300). The amount deducted as special tax was thus HUF 2,177,963 (approximately EUR 7,000).

6 . The remainder of the severance payment was subjected to the general personal income-tax rate of 16%, so the overall tax burden on the entirety of the severance payment was 42.7%.

7. After a period of unemployment, as of 12 November 2014 the applicant took up a new job, with a monthly gross salary of HUF 283,000 (approximately EUR 900).

8 . In 2014, the applicant ’ s total annual revenue before tax was HUF 12,337,532 (approximately EUR 39,600). This sum is comprised of his compounded salaries (HUF 5,933,582 – approximately EUR 19,000) and the severance payment. The various payroll burdens, including the special tax, amounted to HUF 4,225,048 (approximately EUR 13,600). The overall tax burden on the applicant ’ s annual revenue was thus about 34%.

9 . The levy of the special tax on the severance payment alone reduced the applicant ’ s total annual gross revenue by 17.6%.

10 . In the first half of 2015, the average salary in Hungary was HUF 243,276 (approximately EUR 780).

B. Relevant domestic law

Section 138(2) of Act no. CCL of 2013 provides:

“In section 10 of Act no. XC of 2010 on the Adoption and Modification of Certain Economic and Financial Laws, ‘ 98 ’ shall be replaced by ‘ 75 ’ ”.

– the private individual has worked for a body or organisation involved with State funds;

– the payment is effected on account of the termination of the private individual ’ s employment relationship; and

– the amount of income exceeds HUF 3.5 million (in certain cases HUF 2 million).

COMPLAINTS

15. The applicant complained under Article 1 of Protocol No. 1 about the imposition of the special tax rate on part of his severance payment, which in his view was a disguised and unjustified deprivation of his possessions. He also argued that Article 14 of the Convention read in conjunction with Article 1 of Protocol No. 1 had been violated because only those dismissed from the public sector were subjected to the tax.

THE LAW

A. Complaint under Article 1 of Protocol No. 1 to the Convention

16. The applicant complained about the levying of the special tax on part of his severance payment. He relied on Article 1 of Protocol No. 1, which provides as follows:

“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.”

1. The parties ’ arguments

(a) The Government

17 . The Government submitted that the interference with the applicant ’ s right to property had been prescribed by law and was in accordance with the general interest. The introduction of the 75% special tax rate was intended, among other things, to promote the fairness of taxation, an aim supported by further community interests, such as financial stability and the protection of the public purse. The Government stressed that Contracting States had a wide margin of appreciation in the field of taxation, but when interfering with the peaceful enjoyment of someone ’ s possessions a “fair balance” must nevertheless be struck between the demands of the general interest and the requirements of the protection of the individual ’ s fundamental rights. They submitted that tax rates significantly exceeding the impugned one were not unknown in various tax regimes: in Austria, Belgium, Spain or the Scandinavian countries, in the case of high revenues, marginal tax rates removing two thirds of the taxable revenue were not uncommon; and the highest rates under current European tax regulations were around 60%.

18. The Government further emphasised that the special tax was not applicable to severance payments under HUF 3.5 million – an amount more than thirteen times higher than the average monthly wage in Hungary at the relevant time. The sharing of burdens resulting from the special tax could not be deemed unfair or unjust.

(b) The applicant

19. The applicant argued that the interference did not serve the public interest. In 2014 – the year when the alleged violation of the applicant ’ s right to property had occurred – the State ’ s budget was in balance, and the economy grew with more than 3%, according to data from the National Statistics Office. For him, it was hardly justifiable to insinuate that the payment of a severance payment to a civil servant after many years of service was a “waste of public money”.

20. In respect of proportionality, the applicant contended that although severance payments not exceeding HUF 3.5 million were indeed exempted from the special tax, they were nevertheless subjected to the general 16% personal income-tax rate. The overall tax burden on the applicant ’ s severance payment was 42.7% (see paragraph 6 above). At the same time, he was in utter need of that payment, since he had been unemployed for more than seven months in the material year.

2. The Court ’ s assessment

22. However, the present application must be distinguished from that case.

23. At the outset, the Court accepts that the impugned taxation represents an interference with the applicant ’ s right to peaceful enjoyment of possessions and will examine the issue under the first paragraph of Article 1 of Protocol No. 1, subject to the specific rule concerning the payment of taxes contained in Article 1 in fine (see N.K.M. v. Hungary , cited above, § 45).

24. The Court observes that the interference has a legal basis in section 138(2) of Act no. CCL of 2013 (see paragraph 12 above).

25 . Given the margin of appreciation regarding the determination of what is “in the public interest” granted to general measures interfering with the peaceful enjoyment of possessions, the Court accepts that the “sense of social justice of the population”, in combination with the interest to protect the public purse and to distribute the public burden satisfies the Convention requirement of a legitimate aim, notwithstanding its broadness. The Court has no convincing evidence on which to conclude that the reasons referred to by the Government were manifestly devoid of any reasonable basis (see the first subparagraph of § 59 of the N.K.M. v. Hungary judgment). It is true that in paragraph 59 in fine of N.K.M. v. Hungary , the Court has expressed some doubts about the adequacy of the taxation measures in the circumstances of Ms N.K.M.; however, those doubts were connected to a specific Constitutional Court decision dealing with the issue of the 98% tax regime.

26. The general principles concerning the proportionality of the interference are outlined in paragraphs 60 to 64 of the N.K.M. v. Hungary judgment.

27. As it transpires from its case-law, in the area of social and economic legislation including in the area of taxation as a means of such policies States enjoy a wide margin of appreciation, which in the interests of social justice and economic well-being may legitimately lead them, in the Court ’ s view, to adjust, cap or even reduce the amount of severance normally payable to the qualifying population. However, any such measures must be implemented in a non-discriminatory manner and comply with the requirements of proportionality; that is to say, there has to be a reasonable relationship of proportionality between the means employed and the aim sought to be realised. The question to be answered is whether, in the applicant ’ s specific circumstances, the application of the special tax law imposed an unreasonable burden on him or fundamentally undermined his financial situation – and thereby failed to strike a fair balance between the various interests involved (see N.K.M. v. Hungary , cited above, §§ 65 and 42).

29. This state of affairs resulted in an overall tax rate on the severance payment of 42.7% and, on the entire annual income, of 34% (compare and contrast N.K.M. v. Hungary , cited above, § 66, where the Court noted that the overall tax burden on the entirety of the severance was approximately 52%). The impugned tax regime, taken alone, reduced the applicant ’ s gross annual revenue by 17% (see paragraphs 6, 8 and 9 above).

30. For the Court, the volume of tax imposed in the present case cannot therefore be considered confiscatory. Indeed, it shares the Government ’ s view (see paragraph 17 above) that tax rates equalling or exceeding the ones to which the applicant was subjected are not uncommon in relation to high income brackets in many European countries.

31. The Court also observes that after the adoption of the N.K.M. judgment, the special tax regime was changed and the more lenient rate of 75% was introduced, meaning that the new provisions are significantly less burdensome than the previous ones.

32. The special tax regime as such had been in place since the 2010 tax year, long before the applicant ’ s dismissal (see, a contrario , N.K.M. v. Hungary , cited above, § 74); and the change that occurred shortly before the disbursement of his severance payment was in his favour.

33. Furthermore, in contrast to the applicant in N.K.M. v. Hungary , the applicant in the present case was not exposed to substantial personal hardship. After a period of unemployment of some seven months, he took up a new job with a monthly salary of approximately EUR 900. Due to the severance payment of approximately EUR 20,600, which served the goal of labour integration (see N.K.M. v. Hungary , cited above, § 67), the Court is not ready to accept that he had to suffer a substantial deprivation of financial means.

B. Complaint under Article 14 of the Convention

36. The applicant also complained that the impugned legislation only concerned severance payments received in the public sector. In his view, this was discriminatory, in breach of Article 14 in conjunction with Article 1 of Protocol No. 1.

Article 14 of the Convention provides:

“The enjoyment of the rights and freedoms set forth in [the] Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.”

1. The parties ’ arguments

37. The Government accepted that there was a difference in treatment, but argued that it was justified, in particular because severance payments in the private sector were not paid from the State budget, which the impugned law was, after all, aimed at protecting.

38. The applicant disagreed, arguing in particular that the economic situation in the country at the material time did not warrant such drastic measures to protect the public purse.

2. The Court ’ s assessment

39. The Court notes that the complaint concerns the allegedly discriminatory taxation of the applicant ’ s severance payment, thus bringing the issue within the ambit of property rights protected by Article 1 of Protocol No. 1.

Article 14 is therefore applicable.

40. In order for an issue to arise under Article 14, there must be a difference in the treatment of persons in analogous, or relevantly similar, situations (see, amongst many authorities, Khamtokhu and Aksenchik v. Russia [GC], nos. 60367/08 and 961/11, § 64, ECHR 2017; X and Others v. Austria [GC], no. 19010/07, § 98, ECHR 2013; and Konstantin Markin v. Russia [GC], no. 30078/06, § 125, ECHR 2012 (extracts)). In other words, the requirement to demonstrate an analogous position does not require that the comparator groups be identical. An applicant must demonstrate that, having regard to the particular nature of his or her complaint, he or she was in a relevantly similar situation to others treated differently (see Clift v. the United Kingdom , no. 7205/07, § 66, 13 July 2010).

41. The Court reiterates, firstly, that the Contracting Parties, by necessity, enjoy wide latitude in organising State functions and public services, including such matters as regulating access to employment in the public sector and the terms and conditions governing such employment, in the context of their obligations under the Convention. Secondly, for institutional and functional reasons, employment in the public sector and in the private sector may typically be subject to substantial legal and factual differences, not least in fields involving the exercise of sovereign State power and the provision of essential public services. Civil servants, unlike persons employed in the private sector, may be engaged in the exercise of the State ’ s sovereign power, and therefore their functions as well as the duty of loyalty owed to their employer may be of a different nature, although the extent to which this is the case may depend on the specific functions they have to perform. Thirdly, as a result of the above, it cannot be assumed that the terms and conditions of employment, including the financial ones, or the eligibility for social benefits linked to employment, will be similar in the civil service and in the private sector, nor can it therefore be presumed that these categories of employees will be in relevantly similar situations in this regard. Another important difference in this context is that the salaries as well as the employment-linked social benefits of State employees, unlike those of private-sector employees, are paid by the State. Fourthly, as employers, the State and its organs are not in a comparable position to private-sector entities either from the perspective of the institutional framework they operate under or in terms of the financial and economic fundamentals of their activities; the funding bases are radically different, as are the options available for taking measures to counter financial difficulties and crises (see Fábián v. Hungary [GC] , no. 78117/13, §§ 122 and 127, ECHR 2017 (extracts)).

42. The Court therefore needs to ascertain whether the applicant, a former civil servant, was in a situation relevantly similar to that of an individual dismissed from his or her job in the private sector. It must be borne in mind that it is incumbent on the applicant who has alleged the differential treatment to demonstrate the existence of an “analogous or relevantly similar situation” (see Fábián , cited above, § 129).

43. The Court has already held that the distinction between the sources of the salaries of employees in the public and private sectors is capable of removing the comparability of those sectors and that these two categories of employees “could hardly be regarded as being in an analogous or relevantly similar situation within the meaning of Article 14” (see, mutatis mutandis, Fábián , cited above, § 131 in fine and 132). In the Court ’ s view, when Government are attempting to protect the public purse, it is not unreasonable for them to reduce in the first place State expenditure itself. In the instant case, that means recovering, by virtue of the special tax, part of the State ’ s expenditure on severance payments made by State employers to civil servants.

44. The Court therefore finds that the applicant has not demonstrated that, as a former member of the civil service whose employment, remuneration and social benefits were dependent on the State budget, he was in a relevantly similar situation to employees in the private sector for the purposes of the taxation of severance payments (see, mutatis mutandis, Fábián , cited above, §§ 133 and 134).

45. It follows that there has been no indication of any discrimination and, therefore, no appearance of a violation of Article 14 taken in conjunction with Article 1 of Protocol No. 1. Consequently, this part of the application is likewise manifestly ill-founded within the meaning of Article 35 § 3 (a) and must be rejected, pursuant to Article 35 § 4 of the Convention.

For these reasons, the Court, unanimously,

Declares the application inadmissible.

Done in English and notified in writing on 7 December 2017 .

Andrea Tamietti Faris Vehabović              Deputy Registrar President