FIRST SECTION

Applications nos . 24130/11 and 29758/11

A against Norway and B against Norway

lodged on 28 March 2011 and 26 April 2011 respectively

STATEMENT OF FACTS

1 . The first applicant, Mr A , was born in 1960 and lives in Norway. The second applicant, Mr B , was born in 1965 and lives in Florida, the United States of America. They are both Norwegian nationals. They were represented before the Court by Mr R. Kjeldahl, a lawyer practising in Oslo.

A. The circumstances of the case

2 . The facts of the cases, as submitted by the applicants, may be summarised as follows.

1. The first applicant

3 . In 2005 the tax authorities started a tax audit on a company named Software Innovation ASA. They subsequently reported the first applicant to Økokrim (the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime) with regard to matters that later led to his indictment for serious tax fraud. He was interviewed first as a witness on 6 December 2007, and on 14 December 2007 he was arrested. He admitted the factual circumstances but did not accept criminal liability. He was released after four days.

4 . On 14 October 2008 the first applicant was indicted of violations of sections 12-1 (1 )( a), cf. 12-2, of the Tax Assessment Act 1980 ( ligningsloven ).

5 . On 24 November 2008 the Tax Administration ( skattekontoret ) amended the tax assessment for the years 2002 to 2007, after issuing a warning to that effect on 26 August 2008. For the year 2002 the amendment was made on the ground that the first applicant had omitted to declare general income of 3,259,341 Norwegian kroner (NOK), which item was accordingly increased from NOK 65,655 to NOK 3,193,686. Moreover, with reference to sections 10-2(1) and 10-4(1) of the Tax Assessment Act, the tax office ordered him to pay a tax surcharge of 30%, to be calculated on the basis of the tax that he owed in respect of the undeclared amount. The first applicant did no t lodge an appeal against that decision and paid the outstanding tax due and the surcharge before the expiry of the three-week time ‑ limit for lodging an appeal.

6 . On 2 March 2009 the Follo District Court ( tingrett ) convicted the first applicant on charges of aggravated tax fraud and sentenced him to one year ’ s imprisonment on account of his having failed to declare in his tax declaration for 2002 NOK 3,259,341 in earnings obtained abroad. In the determining of the sentence regard was had to the fact that a tax surcharge had already been imposed on him.

7 . The first applicant appealed, complaining that, in breach of Article 4 of Protocol No. 7, he had been both prosecuted and punished twice: in respect of the same offence under section 12-1 he had been charged and indicted by the public prosecutor, then had a tax surcharge imposed by the tax authorities, which he had paid, and had thereafter been convicted and sentenced.

8 . By a judgment of 12 April 2010 the Borgarting High Court ( lagmannsrett ) unanimously rejected his appeal, as did the Supreme Court ( Høyesterett ) by a judgment of 27 September 2010.

9 . In its judgment, the Supreme Court first considered whether the two sets of proceedings in question had concerned the same factual circumstances ( samme forhold ). In this connection it noted the developments in the Convention case-law expounded in the Grand Chamber judgment of Sergey Zolotukhin v. Russia [GC], no. 14939/03, §§ 52, 53, 80 ‑ 82, 84, ECHR 2009) and the attempt in that judgment to harmonise by concluding as follows:

“... Article 4 of Protocol No. 7 must be understood as prohibiting the prosecution or trial of a second ‘ offence ’ in so far as it arises from identical facts or facts which are substantially the same. ... The Court ’ s inquiry should therefore focus on those facts which constitute a set of concrete factual circumstances involving the same defendant and [are] inextricably linked together in time and space ... ”.

10 . In the present instance, the Supreme Court observed, there was no doubt that the factual circumstances underlying the decision to impose tax surcharges and the criminal prosecution had sufficient common features to meet these criteria. In both instances, the factual basis was the omission to declare income in the tax declaration. The requirement that the proceedings relate to the same matter had accordingly been met.

11 . The Supreme Court next examined whether both sets of proceedings concerned an “offence” in the sense of Article 4 of Protocol No. 7. In this regard the Supreme Court reiterated its ruling reported in Rt. 2002 p. 509 (see paragraph 32 below) that tax surcharges at the ordinary level (30%) were covered by the notion of “criminal charge” in Article 6 § 1. That assessment had relied on the three so-called “Engel criteria” (the legal classification of the offence under national law; the nature of the offence; and the degree of severity of the penalty that the person concerned risked incurring) spelled out in the Court ’ s judgment in Engel and Others v. the Netherlands , 8 June 1976, § 82, Series A no. 22). Of importance for the Supreme Court ’ s assessment was the general preventive purpose of the tax surcharge and the fact that, because 30% was a high rate, the charge could involve very considerable sums. The Supreme Court further had regard to its judgment reported in Rt . 2004 p. 645, where it held in the light of the European Court ’ s case-law (that the notion of penalty should not have different meanings under different provisions of the Convention) that a 30% tax surcharge was also a criminal matter for the purposes of Article 4 of Protocol No. 7, a stance adopted without further discussion in Rt . 2006 p. 1409.

12 . The Supreme Court also noted that both the Directorate of taxation ( Skattedirektoratet ) and the Director of Public Prosecutions ( Riksadvokaten ) were of the view that it was unlikely that a tax surcharge at the ordinary level would not be deemed criminal punishment for the purposes of Article 4 of Protocol No. 7.

13 . The Supreme Court further had regard to the Court ’ s more recent case-law ( Mjelde v. Norway ( dec. ) , no. 11143/04, 1 February 2007; StorbrÃ¥ten v. Norway ( dec. ), no. 1277/04, ECHR 2007- ... (extracts); Haarvig v. Norway ( dec. ), no. 11187/05, 11 December 2007, with references to Malige v. France , 23 September 1998, § 35, Reports of Judgments and Decisions 1998 ‑ VII; and Nilsson v. Sweden ( dec. ), no. 73661/01, ECHR 2005 ‑ XIII) suggesting that a wider range of criteria than the “Engel criteria” applied to the assessment under Article 4 of Protocol No. 7. It found confirmation in Sergey Zolotukhin (cited above, §§ 52-57) – later followed in Ruotsalainen v. Finland (no. 13079/03, §§ 41 ‑ 47, 16 June 2009) – that the three “Engel criteria” for establishing the existence of a “criminal charge” in the sense of Article 6 applied equally to the notion of criminal punishment in Article 4 of Protocol No. 7.

14 . Against this background, the Supreme Court found no ground for departing from its above-mentioned plenary rulings of 2004 and 2006, holding that tax surcharges at the ordinary level were to be considered as “criminal punishment” ( straff ) for the purposes of Article 4 of Protocol No. 7.

15 . It went on to observe that a condition for protection under the above ‑ mentioned provision was that the decision which barred further prosecution – in this case the decision of 24 November 2008 to impose ordinary tax surcharges – was final. That decision had not been appealed against within the three-week time-limit, which had expired on 15 December 2008, and was in this sense final. If, on the other hand, the expiry of the six ‑ month time-limit for lodging a judicial appeal under section 11-1 (4) of the Tax Assessment Act were to be material, the decision had not yet become final when the District Court delivered its judgment of 2 March 2009.

16 . The words “finally acquitted or convicted” in Article 4 of Protocol No. 7 had been formulated with a view to situations where the barring decision was a judgment in a criminal case. The Court had established that a decision was final when it was res judicata , when no further ordinary remedies were available. In this regard, when a decision became res judicata according to the rules of national law would be decisive. Neither the wording nor the preparatory works, nor the case-law provided any guidance for situations where the barring decision was an administrative one. It was reiterated that in Rt . 2002 p. 557, the Supreme Court had pronounced a leading view to the effect that a final tax assessment decision, including a decision on tax surcharges, ought to be regarded as final when the tax payer was precluded from challenging it (p. 570), without specifying, however, whether it was the time-limit for administrative appeal or the one for judicial appeal which was decisive. In the present case, the Supreme Court observed that the best solution would be to consider that the three-week time-limit for administrative appeal was decisive in relation to Article 4 of Protocol No. 7. Otherwise, there would be clarity only after six months where the tax payer did not institute proceedings before the courts and, where he or she so did, only after a legally enforceable judgment, which period would vary and could be long. The clearest solution would therefore be to consider the time-limit for administrative appeal as being decisive.

17 . The Supreme Court noted that the first applicant had been charged on 14 December 2007 and that the warning about the modification to his tax assessment had been sent on 26 August 2008. Thereafter the case concerning the tax surcharges and the criminal case had been conducted in parallel until they had been decided respectively by a decision of 24 November 2008 and a judgment of 2 March 2009. A central question in this case was whether there had been successive prosecution, which was contrary to Article 4 of Protocol No. 7, or parallel treatment, which was permissible to some extent. In this connection the Supreme Court had regard to two decisions of inadmissibility, R.T. v. Switzerland ( dec. ), no. 31982/96, 30 May 2000, and Nilsson v. Sweden ( dec. ), no. 73661/01, § ECHR 2005 ‑ XIII, in particular the following passage from the latter:

“However, the Court is unable to agree with the applicant that the decision to withdraw his driving licence amounted to new criminal proceedings being brought against him. While the different sanctions were imposed by two different authorities in different proceedings, there was nevertheless a sufficiently close connection between them, in substance and in time, to consider the withdrawal to be part of the sanctions under Swedish law for the offences of aggravated drunken driving and unlawful driving (see R.T. v. Switzerland , cited above, and, mutatis mutandis, Phillips v. the United Kingdom , no. 41087/98, § 34, ECHR 2001-VII). In other words, the withdrawal did not imply that the applicant was ‘ tried or punished again ... for an offence for which he had already been finally ... convicted ’ , in breach of Article 4 § 1 of Protocol No. 7.”

18 . In the present case, the Supreme Court held, there could be no doubt that the there was a sufficient connection in substance and time. The two cases had their basis in the same factual circumstances – the lack of information in the tax declaration which had led to too low a tax assessment. The criminal proceedings and the administrative proceedings had been conducted in parallel (compare Ruotsalainen ). After the first applicant had been charged on 14 December 2007, a warning had followed on 26 August 2008 about an amendment to his tax assessment, then an indictment on 14 October 2008, the tax authorities ’ decision of 24 November 2008 decision to amend t he assessment, and the District Court ’ s judgment of 2 March 2009. To a great degree the administrative- and the criminal-law processing had been intertwined.

19 . The purpose behind Article 4 of Protocol No. 7, of providing protection against the burden of being exposed to a new procedure, had applied to a lesser degree here, where the first applicant had had no legitimate expectation of being exposed to only one procedure. In such a situation the interest in ensuring effective prosecution was preponderant.

2. The second applicant

20 . Following the tax audit in 2005 referred to in paragraph 4 above, during the autumn of 2007 the tax authorities reported to Økokrim that the second applicant had failed to declare in his tax declaration for the taxation year 2002 income of NOK 4,561,881 earned from his sale of certain shares. The said authorities decided on 5 December 2008 to amend the applicant ’ s tax assessment to the effect that he owed NOK 1,302,526 in tax in respect of the afore-mentioned income. In addition, with reference to s ections 10 ‑ 2 (1) and 10-4 (1) of the Tax Assessment Act, the tax office decided to impose a tax surcharge amounting to 30%, after issuing a warning to this effect on 16 October 2008. The second applicant paid the tax due and the surcharge and did not appeal against the decision, which became final on 26 December 2008.

21 . In the meantime, on 11 November 2008 the public prosecutor indicted the second applicant of a violation of section 12-1 (1) (a), cf. section 12-2, of the Tax Assessment Act on the ground that for the taxation year(s) 2001 and/or 2002 he had omitted to declare income of NOK 4,651,881 in his tax declaration, which represented a tax liability of NOK 1,302,526. The public prosecutor requested the Oslo City Court ( tingrett ) to pass a summary judgment ( forelegg ) based on his confession.

22 . On 10 February 2009 the second applicant withdrew his confession, as a result of which the public prosecutor issued a revised indictment on 29 May 2009 which included the same charges.

23 . On 30 September 2009 the City Court, after holding an adversarial hearing, convicted the second applicant on the charges and sentenced him to one year ’ s imprisonment, account being taken of the fact that he had already had a tax surcharge imposed on him.

24 . The second applicant appealed against City Court procedure to the Borgarting High Court, arguing in particular that by reason of the prohibition against double jeopardy in Article 4 of Protocol No. 7, the fact that he had had a tax surcharge imposed on him constituted a bar against criminal conviction. Thus he requested that the City Court ’ s judgment be quashed ( opphevet ) and that the prosecution case be dismissed ( avvist ) from the courts.

25 . By a judgment of 8 July 2010 the High Court rejected the second applicant ’ s appeal, relying essentially on its reasoning in the case of the first applicant, similar to that of the Supreme Court summarised above (see paragraphs 9 to 19 above). Thus, the High Court found that the tax authorities ’ decision of 5 December 2008 ordering him to pay a tax surcharge of 30% did constitute a criminal punishment ( straff ); that the decision had become “final” upon the expiry of the time-limit for lodging an appeal on 26 December 2008; and that the decision on the tax surcharge and the subsequent criminal conviction concerned the same matter.

26 . Moreover, as in the case of the first applicant, the High Court considered that parallel proceedings – both administrative and criminal ones – were to some extent permissible under Article 4 of Protocol No. 7, provided that the second proceedings had commenced before the first ones had become final. Where that minimum requirement had been fulfilled, an assessment had to be made of the state of progress of the second set and, not least, whether there was a sufficient connection in substance and in time between the first and the second decision.

27 . As to the concrete assessment of the second applicant ’ s case, the High Court observed that the criminal proceedings and the tax proceedings had in fact been conducted in parallel since as far back as the tax authorities ’ complaint to the police in the autumn of 2007 and until the decision to impose the tax surcharge had been taken in December 2008. This state of affairs was similar to the case of the first applicant. The second applicant had been indicted and the case referred to the City Court with a request for a summary judgment on the basis of his confession on 11 November 2008, thus, before the decision on the tax surcharge. Thus, the criminal proceedings had reached a relatively advanced stage by the time the decision to impose the tax surcharge had been taken. The nine -month period – from when the tax authorities ’ decision of 5 December 2008 had become final until the second applicant ’ s conviction of 30 September 2009 by the City Court – had been somewhat longer than the two-and-a-half -month period in the case of the first applicant. However, this could be explained by the fact that the second applicant had withdrawn his confession in February 2009, with the consequence that he had had to be indicted anew on 29 May 2009 and an ordinary trial hearing had had to be scheduled. Against this background, the High Court (like the City Court) concluded that there was undoubtedly a sufficient connection in substance and time between the decision on the tax surcharges and the later criminal conviction.

28 . On 29 October 2010 the Appeals Leave Committee of the Supreme Court refused the applicant leave to appeal, finding that such leave was warranted neither by the general importance of the case nor by any other reason.

B. Relevant domestic law and practice

29 . Under section 10-2(1) of Chapter 10 on Tax Surcharges ( Tilleggsskatt ) of the Tax Assessment Act, a taxpayer who has provided the tax authorities with inaccurate or incomplete information which has led to or could have led to too low a tax assessment may be liable to pay a tax surcharge. In the event that the conditions for imposing a tax surcharge are fulfilled, the surcharge will normally be assessed at 30% of the tax assessed on the amount which has been or could have been evaded (section 10-4 (1)).

30 . Chapter 12 on Punishment ( Straff ) includes the following provisions of relevance to the present case:

“Section 12-1 (Tax Fraud)

1. A person shall be punished for tax fraud if he or she with intent or as a result of gross negligence

(a) provides the tax authorities with incorrect or incomplete information when he is aware or ought to be aware that this could lead to advantages pertaining to taxes or charges, ...

Section 12-2 (Aggravated Tax Fraud)

1. Aggravated tax fraud shall be punished by a fine or up to 6 years ’ imprisonment. Aiding and abetting shall be punished likewise.

2. In deciding whether tax fraud is aggravated particular emphasis shall be placed on whether the act may lead to the evasion of a very significant amount in tax or charges, if the act is carried out in a manner which makes its discovery particularly difficult, if the act has been carried out by abuse of position or a relationship of trust or if there has been aiding and abetting in connection with the performance of professional duties.

3. In application of the criteria stated in subsection 2., several offences may be considered together.

4. This section shall also be applicable in the event of ignorance about the factors that make the act aggravated if the ignorance is seriously negligent.”

31 . In two plenary judgments of 3 May 2002 ( Rt. 2002 p. 557 and Rt. 2002 p. 497) the Supreme Court concluded that a criminal case should be dismissed if the accused had already been subjected to tax surcharges of 60%, or else there would be a violation of Article 4 of Protocol No. 7. Regard was had to an earlier ruling of 23 June 2000, in which the Supreme Court had concluded that a 60% tax surcharge constituted a “criminal charge” within the meaning of Article 6 of the Convention. Considering the matter as a whole in the light of the second and third of the so-called “Engel criteria” (see paragraph 43 below), the Supreme Court found that the character of the offence militated to some extent in favour of considering it as “criminal”, not least the close connection with the increased tax surcharge (60%), and with the ordinary criminal offence having the same objective constitutive elements as the latter, which were weighty considerations. The fact that the high percentage of the ordinary surcharge – 30% – could lead to a substantial financial liability meant that the severity of the sanction was comparable. Nor could it be decisive that a surcharge could not constitute a ground for imprisonment or that imprisonment could not be imposed as an alternative in the event of failure to pay.

32 . In a third judgment of 3 May 2002 ( Rt . 2002 p. 509), which concerned only Article 6 of the Convention, the Supreme Court found that the imposition of a 30% tax surcharge constituted a “criminal charge” for the purposes of that provision. In subsequent judgments reported in Rt . 2004 p. 645 and Rt . 2006 p. 1409, it held that a 30% tax surcharge was also a criminal matter for the purposes of Article 4 of Protocol No. 7. On the other hand, the majority of the Supreme Court found that the provision on ordinary tax surcharges in section 10-2, cf. section 10-4 (1) did not contain the same essential elements as the penal provision in section 12-1, and that it did not concern the same offence within the meaning of Article 4 of Protocol No. 7; in particular, whereas the latter presupposed intent or gross negligence, the former was imposed on near-strict grounds and the provisions served different purposes.

33 . The following information concerning the system of tax surcharges is set out in the judgments of 3 May 2002.

34 . Under the Tax Assessment Act 1911, tax surcharges at a rate of 100% could be imposed. The rules adopted in 1980 provided in section 10 ‑ 4 (1) for one standard rate of 30%, irrespective of guilt on the part of the taxpayer (and also a 15% charge in special exonerating circumstances). The setting up of a standard rate was guided by the desire to remove as far as possible the criminal character of a tax surcharge. Because of the similarities with criminal punishment, the tax authorities had been reluctant to impose tax surcharges. With a flat-rate tax surcharge it was considered that there would be a greater chance of criminal proceedings being brought in the more serious cases. The rules were, however, not implemented as the prosecution authorities lacked the capacity to deal with a substantial increase in this type of case. Therefore, in 1986 section 10-4 (1) was amended so as to authorise the imposition of 60% tax surcharges where section 10-2 (1) was breached with intent or through gross negligence. Under this new provision and sections 12-1 and 12-2 as amended in 1992, a two-tier system was introduced in order to take account of instances of intent and gross negligence ( Rt. 2002, p. 557 at p. 564).

35 . Under national law (as it stood prior to the Supreme Court ’ s 2002 judgments), tax surcharges were not considered criminal punishment. Liability to pay ordinary surcharges was established on near-strict grounds. According to the drafting history ( Ot.prp.nr 29 (1978-1979 ), pp. 44–45), the Ministry attached significant weight to considerations of general prevention. A strong chance of a sanction in the form of a tax surcharge was viewed as more important than fewer and stricter sanctions. The tax surcharge was first and foremost to be a reaction to a taxpayer ’ s having provided incorrect or incomplete declarations or information to the tax authorities, and to the considerable work and costs incurred by the community in carrying out controls and investigations. It was considered that those costs should to a certain extent be borne by those who had provided the incorrect or incomplete information ( Rt. 2002 p. 509, at p. 520).

36 . The taxpayer had an extensive duty to provide such information and material as was relevant for the tax assessment. This duty was fundamental to the entire national tax system and was underpinned by a system of controls and effective sanctions in the event of a violation. Tax assessment was a mass operation embracing millions of citizens. The purpose of tax surcharges was to secure the foundations of the national tax system. It was accepted that a properly functioning taxation system was a precondition for a functioning State and thus a functioning society ( Rt. 2002 p. 509, at p. 525).

COMPLAINTS

37 . The applicants complained that, in breach of Article 4 of Protocol No. 7, they had been both prosecuted and punished twice: in respect of the same offence under section 12-1 they had been charged and indicted by the public prosecutor and had had tax surcharges imposed on them by the tax authorities, which they had paid, and they had thereafter been convicted and sentenced.

QUESTIONS TO THE PARTIES

Were any of the applicants tried and punished again for an offence for which they had already been finally convicted , in breach of Article 4 of Protocol No. 7 ?

In this regard :

(a) Is so-called “parallel proceedings” permissible under this provision as it has been interpreted and applied in the Court ’ s case-law?

(b) If so, was there a sufficiently close connection, in substance and in time, between the decision on the tax surcharges and the later criminal proceedings to consider them both as forming part of the sanctions under Norwegian law for the offence in question ?