FIFTH SECTION

DECISION

Application no. 69776/17 HI TECH CORPORATION DOO against North Macedonia

The European Court of Human Rights (Fifth Section), sitting on 14 October 2021 as a Committee composed of:

Mārtiņš Mits, President, Jovan Ilievski, Ivana Jelić, judges, and Martina Keller, Deputy Section Registrar,

Having regard to the above application lodged on 20 September 2017,

Having regard to the observations submitted by the Government of the Republic of North Macedonia (“the Government”) and the observations in reply submitted by the applicant company,

Having deliberated, decides as follows:

THE FACTS

1. The applicant company, Hi Tech Corporation Doo – a medium-sized company that produces and sells electronic equipment, was set up in 1994 as a limited-liability company in North Macedonia. Its founders and sole shareholders are Mr Savo Stankovikj and Mr Milan Stankovikj. It was represented before the Court by Ms F. Shukalovska, lawyer practising in Skopje.

2. The Government were represented by their Agent, Ms D. Djonova .

The circumstances of the case

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

4. On 1 September 2009 the Internal Revenue Office ( Управа за јавни приходи, Регионална дирекција Скопје – “the IRO”) audited the applicant company for the purpose of assessing the income tax it had paid. The audit concerned the period between 1 January 2007 and 31 December 2008 (“the period under consideration”).

5 . In a decision of 27 October 2009, the IRO established that the applicant company had erroneously calculated its income tax on the basis of an incorrect application of the depreciation rate, and ordered it to pay 1,917,404 Macedonian denars (MKD – equivalent to approximately 31,180 euros (EUR)), including interest in the amount of MKD 388,658 (equivalent to approximately EUR 6,320).

6 . In an order of 21 May 2012, the IRO reopened the tax assessment proceedings for the period under consideration on the grounds of newly discovered facts, namely commercial transactions made in 2007. The new evidence was discovered during an audit for the period between 1 January 2009 and 31 October 2010.

7 . A fresh audit was conducted of the applicant company’s revenue and expenditure transactions in 2007. It was established that, inter alia , the applicant company had failed to declare income tax on certain sales transactions and had wrongfully declared deductible expenses.

8 . After one remittal, on 4 October 2013 the IRO issued a decision in which it declared the decision of 27 October 2009 null and void on account of procedural irregularities, as instructed by the Ministry of Finance. On the merits, it found that the applicant company was liable to pay additional income tax for the 2007 tax year in the amount of MKD 20,631,912 (equivalent to approximately EUR 335,480), including interest in the amount of MKD 10,631,624 (equivalent to approximately EUR 172,870). The applicant company lodged an appeal with the Ministry of Finance against that decision. It submitted that the evidence which had served as a basis for the reopening of the tax assessment proceedings had already been admitted in 2009 and assessed by the tax authorities. It further asserted that the five-year statutory limitation period for the reopening of the tax assessment proceedings had expired. On 19 May 2014 the Ministry of Finance dismissed the appeal, reiterating the same findings and reasoning as in the audit report. It observed that in accordance with section 110 of the Tax Procedure Act, the five-year statutory limitation period had started to run after the adoption of the decision of 27 October 2009.

9 . In decisions of 17 March 2016 and 3 March 2017, the Administrative Court and the Higher Administrative Court, respectively, dismissed the applicant company’s administrative-dispute claim, finding no grounds to depart from the reasons given by the administrative authorities. In so doing they referred to, inter alia , sections 249-60 of the Administrative Proceedings Act regarding the reopening of proceedings on the basis of new facts or new evidence. The latter judgment was served on the applicant company on 27 March 2017.

COMPLAINT

10. The applicant company complained under Article 1 of Protocol No. 1 to the Convention that tax proceedings had been reopened after the statutory limitation period had expired and that it had been unjustifiably ordered to pay an additional amount in income tax. Article 1 of Protocol No. 1 reads 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.”

THE LAW

11 . The Government argued that the applicant company could not have legitimately expected to retain the amount paid in income tax for the 2007 tax year, owing to its failure to comply with the statutory reporting and payment obligations. They further submitted that the applicant company had failed to object to the reopening of the proceedings after it had received the order of 21 May 2012.

12 . The Government further submitted that, in any event, the interference with the applicant company’s possessions had been lawful and in the general interest; it had been aimed at ensuring the collection of taxes and enforcing discipline in tax reporting; and it had been proportionate, given that the reopening of the tax assessment proceedings had been compatible with the diligence required through the use of a method of “tax-audit sampling” of the applicant company’s extensive paperwork. They submitted copies of two final decisions ( УЖ-3.бр.566/2017 , and УЖ ‑ 3.бр.73/2018 ) delivered in January and March 2018 in which the High Administrative Court had interpreted section 110 of the Tax Procedure Act (paragraph 9 above) to the effect that the adoption of an administrative decision interrupted the running of the five-year time-limit.

13. The applicant company maintained that the IRO had conducted a fresh audit of what it had already inspected in 2009, contrary to the notion of good governance. Its decision to reopen the tax proceedings had disregarded the five-year time-limit and its findings had been arbitrary.

14. The Court does not consider it necessary to examine all of the issues regarding admissibility raised by the Government, since this complaint is in any event inadmissible for the following reasons.

15 . The Court notes that the instant case falls to be examined under the second paragraph of Article 1 of Protocol No. 1 to the Convention, as the interference at stake was clearly aimed at “securing the payment of taxes”. (see Euromak Metal Doo v. the former Yugoslav Republic of Macedonia , no. 68039/14 , § 42, 14 June 2018, and Filkin v. Portugal , no. 69729/12, § 77, 3 March 2020) Moreover, according to the principle of “good governance”, where an issue in the general interest is at stake, it is incumbent on the public authorities to act in good time, in an appropriate manner and with the utmost consistency (see Megadat.com S.r.l. v. Moldova , no. 21151/04 , § 72, 8 April 2008).

16. In the present case it is not disputed between the parties that the order of 4 October 2013, given after the reopening of tax proceedings, amounted to an interference with the applicant company’s rights under Article 1 of Protocol No. 1. The Court sees no reason to hold otherwise (see, among other authorities, Euromak Metal Doo , cited above, § 43).

17. Having regard to the reasons given by the domestic authorities and the Government (see paragraph 12 above), the Court is satisfied that that interference was lawful and aimed to secure the payment of income tax.

18. In determining whether a fair balance exists, particular importance must be attached to the principle of good governance, which may call for an analysis of such elements as the conduct of the parties to the dispute, including the means employed by the State and their implementation (see paragraph 15 above).

19. As to the applicant company’s conduct, the Court observes that it has not been alleged that it had been involved in tax evasion or similar mala fide conduct. However, bearing sole responsibility for reporting and discharging its tax obligations, the applicant company was in full control of all the commercial and accounting documents relevant to its overall financial situation. Accordingly, it must have been aware of the circumstances on which the tax authorities reported in their decision of 4 October 2013 (see paragraph 7 above). The Court therefore considers that there was nothing to prevent the applicant company from reporting all those elements to the tax authorities in order to comply with the statutory requirements.

20. As to the conduct of the tax authorities, by means of cross-checks or the method of “tax-audit sampling” during the first tax audit, they established that the applicant company had erroneously calculated its income tax on higher expenditures through the incorrect application of the depreciation rate (see paragraph 5 above). During a subsequent tax audit for the period between 1 January 2009 and 31 October 2010, the tax authorities requested, on the basis of newly discovered evidence, the reopening of the tax assessment for the 2007 tax year (see paragraph 6 above). The Court attaches weight here to the Government’s arguments that, given the applicant company’s size, the method employed by the tax authorities during the first audit, the reasonableness of which was not disputed by the applicant company, could not have been applied in respect of all transactions of the applicant company, including those examined during the second audit (see paragraph 7 above).

21. As to the means employed by the tax authorities, the Court observes that the audit in question was carried out after tax proceedings had been reopened in accordance with section 110 of the Tax Procedure Act, the interpretation of which was consistent with the subsequent case-law on the matter (see paragraphs 12 above). The applicant company neither presented any arguments nor submitted any examples of domestic practice militating against such consistency. Having regard to the findings in the previous paragraph and its limited jurisdiction as regards the interpretation of the domestic law by the national courts (see Anheuser-Busch Inc. v. Portugal [GC], no. 73049/01, § 83, ECHR 2007 ‑ I), the Court finds no compelling reasons to call such an approach into question (see paragraph 9 above).

22. In view of all the above considerations, taken together with the wide margin of appreciation given to States in the area of taxation (see “Bulves” AD v. Bulgaria , no. 3991/03, § 63, 22 January 2009), the Court finds that the application is manifestly ill ‑ founded and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.

For these reasons, the Court, unanimously,

Declares the application inadmissible.

Done in English and notified in writing on 18 November 2021.

Martina Keller Mārtiņš Mits Deputy Registrar President