CASE OF EUROMAK METAL DOO v. "THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA"
Violation of Article 1 of Protocol No. 1 - Protection of property (Article 1 para. 1 of Protocol No. 1 - Peaceful enjoyment of possessions;Possessions);Pecuniary damage - claim dismissed (Article 41 - Pecuniary damage;Just satisfaction);Non-pecuniary damage - award (Article 41 - Non-pecuniary damage;Just satisfaction)
Aleš Pejchal;Armen Harutyunyan;Kristina Pardalos;Krzysztof Wojtyczek;Linos-Alexandre Sicilianos
5. The applicant company was set up in 1998 as a limited liability company. Its founders and sole shareholders were Ms Zhaneta Pavlovska and Mr Rasko Pavlovski. It traded in scrap metal and for that purpose it purchased waste aluminium, copper, iron and other metals, processed them and then offered the product for sale. 6. The applicant was registered for the purposes of the Value Added Tax Act (the “VAT Act”) and declared VAT on all invoices issued. VAT was also declared on all incoming invoices. This made it possible for the applicant company periodically to request VAT deductions from the State, which it did (in accordance with the rules of the “tax credit” system). 7. Until the subsequent events, the applicant company had been submitting regular tax returns to the tax authorities, notifying the State of its VAT calculations, payments and deductions. The State had processed the tax returns without indicating any wrongdoing or additional amounts due on the part of the applicant company. 8. On 22 September 2009 the Internal Revenues Office, regional directorate – Skopje (Управа за јавни приходи, Регионална дирекција Скопје – “the IRO”) issued an order to audit the applicant company for the purposes of VAT. The audit took place over several days during the months of October and November 2009 and took into account the period between 1 January 2005 and 30 June 2009. 9. On 6 November 2009 a tax assessment was compiled by the IRO. It was established that the applicant company’s suppliers were registered for the purposes of VAT but some of them had not declared or paid VAT to the State, even though it had clearly been declared in the invoices sent to the applicant company. That finding was based on earlier audits of those companies, which remained without further specification. The audit further established that some of the invoices did not contain the addresses of the suppliers. Lastly, the audit found that all invoices from the suppliers had been paid in full by the applicant company and that VAT had been declared on all invoices from the applicant company. On account of the above issues related to the applicant company’s suppliers, the audit concluded that the applicant company had failed to meet the conditions necessary to benefit from the VAT deductions it had received. 10. Relying on the tax assessment conducted earlier, on 20 November 2009 the IRO issued two decisions in respect of erroneous calculation of VAT, ordering the applicant company to pay an additional 3,827,546.00 Macedonian denars (MKD, around 62,000 euros (EUR)) in VAT. According to the IRO, those were the amounts the applicant company had unlawfully deducted from its tax obligations during the period 2005-07. An appeal lodged against those decisions had no suspensive effect. 11. The applicant company lodged an appeal with the Minister of Finance against the decisions of 9 December 2009. In the appeal it stated that it had met all of its VAT obligations stemming from the suppliers’ invoices and that it could not be held responsible for the suppliers’ mistakes. 12. On 8 February 2010 the Minister of Finance dismissed the appeal, reiterating the same findings and reasoning as in the audit report. 13. On 22 March 2010 the applicant company received a written reprimand from the IRO. The reprimand stipulated the full amount, including interest, to be paid by the applicant company. It amounted to MKD 6,059,124 (around EUR 100,000). 14. On 23 April 2010 the applicant company lodged an administrative action with the Administrative Court (Управен суд). 15. On 29 April 2010 the IRO blocked the applicant company’s bank account pursuant to the payment decisions. 16. By a decision of 28 March 2011 the Administrative Court remitted the case to the Ministry of Finance, having found that the second-instance decision had been issued by an unauthorised person acting in the name of the Minister. 17. On 26 May 2011 the Ministry of Finance again dismissed the appeal of the applicant company, reiterating the findings from the audit. 18. On 22 July 2011 the applicant company lodged another administrative action. 19. On 1 March 2013 the Administrative Court dismissed the action. The relevant part of the judgment reads: “... the cumulative conditions to obtain a deduction ... were not met. Specifically, the income of the applicant company was created by companies which failed to meet their legal obligations in relation to the payment of VAT ... In the deliberations the court took into account the claims by the appellant that it was wrongfully deprived of the right to claim VAT deductions because the errors found in the tax assessment had pertained to other [companies] ... These claims were rejected by the court ... inter alia taking into account that it is in the interests of every taxpayer to know and be aware of those with whom they engage in business.” 20. On 17 September 2013 the applicant company appealed to the Higher Administrative Court (Виш управен суд). 21. In a final judgment of 13 March 2014 the Higher Administrative Court upheld the findings and conclusions of the tax authorities and stated the following: “... [T]he appellant failed to fulfil the cumulative conditions prescribed in sections 33 and 34 of the VAT Act to obtain a VAT deduction specifically because the monetary inflow of the appellant as a taxpayer was done by other taxpayers who failed to meet their obligations to declare or pay tax. ... The court examined the complaint that all of the outstanding issues in the audit reflected errors committed by third parties and that the appellant should not be forced to bear the obligations of third parties ... but dismissed them ... having in mind that every taxpayer has an interest to enter into relations with other subjects.” 22. On 2 February 2017 the applicant company was removed from the register of companies and ceased to exist. According to a document issued by the register of companies, it was removed in accordance with section 552-B of the Companies Act (Закон за трговски друштва), specifically for not having submitted an annual financial statement (завршна сметка) to the authorities for the year 2014. 23. The applicant company’s bank account remained blocked by the IRO until 10 April 2017, when it was closed. Due to lack of funds on the account, the IRO failed to collect any money from the applicant company. 24. On 9 December 2011 the prosecution for organised crime (Основно јавно обвинителство за гонење на организиран криминал и корупција) filed an indictment against several individuals for criminal enterprise, abuse of office and tax evasion. The indictment encompassed the individuals responsible for several, but not all, of the applicant company’s suppliers. It was alleged that the individuals used the supplier companies to issue fake invoices which were not the result of real commercial activity. The supplier companies as legal entities were not directly indicted. The domestic courts found the accused guilty of the offences by a judgment of 29 March 2013, which became final on 9 January 2014.