CASE OF E.L., R.L. AND J.O.-L. v. SWITZERLAND
Violation of Art. 6-2;Costs and expenses award - Convention proceedings
C. Russo
7. The applicants are all Swiss nationals who live in the Canton of Obwalden. They are the widow, the son and the daughter of the late Mr L. 8. Mr L. was the owner of a mail-order company. In 1984 he declared certain moneys to the tax authorities; he maintained that these were profits lawfully made in Germany from capital speculation and investments, and were not taxable in Switzerland. 9. Mr L. died on 7 October 1985. 10. The three-month period within which the applicants could have rejected the inheritance (Articles 566 § 1 and 567 § 1 of the Swiss Civil Code) expired on 7 January 1986. 11. On 18 August 1989 the Obwalden Cantonal Tax Office, having come to the conclusion – in the absence of vouchers supporting Mr L.'s allegations – that the moneys declared were in reality income generated by Mr L.'s mail-order firm which he had unlawfully failed to declare in Switzerland, initiated proceedings against the applicants for recovery of unpaid cantonal and federal taxes, and at the same time imposed fines for tax evasion. 12. It appears that the applicants cooperated with the tax authorities, enabling them to make a correct assessment of the taxes due. 13. The Commission's file contains no information about any proceedings to contest the recovery of cantonal tax arrears or the related fine. 14. On 15 September 1989 the applicants appealed to the Obwalden Cantonal Tax Appeals Board against the decision of 18 August 1989 in so far as it related to direct federal taxes. 15. On 19 December 1989 the Cantonal Tax Appeals Board gave its decision. It considered that the tax authorities had failed to prove that the moneys in question were undeclared taxable income, but found it established that Mr L. had deliberately failed to declare the interest received from it. Accordingly, it partly upheld the applicants' appeal, significantly reducing the amount of back tax to be paid. It also reduced the fine to one-quarter of the additional amount normally due in view of the fact that Mr L. had himself reported the moneys concerned to the authorities. 16. The Direct Federal Tax Administration lodged an administrative-law appeal to the Federal Court. 17. The applicants filed a written defence arguing, inter alia, that it was contrary to Article 6 § 2 of the Convention to impose a fine on the heirs of a taxpayer for tax evasion committed by the latter. 18. The Obwalden Cantonal Tax Appeals Board and Cantonal Tax Office were invited to submit written comments pursuant to section 110 of the Federal Judicature Act. The Cantonal Tax Office declined to do so. The Cantonal Tax Appeals Board expressed the opinion that the appeal should be dismissed. 19. In a judgment delivered on 22 May 1992 the Federal Court upheld the appeal. It held that the Cantonal Tax Appeals Board had erred in imposing the burden of proof on the tax authorities. Since their investigations had revealed prima facie evidence that Mr L. had been guilty of tax evasion, it had been for the applicants to demonstrate that the moneys in question had not in fact been undeclared taxable income. Since the applicants had not done so, the assessment of back taxation should be allowed to stand. The Federal Court rejected the suggestion that the imposition of a tax fine on the heirs of the taxpayer for tax evasion committed by the latter was contrary to Article 6 § 2 of the Convention. After referring to its case-law, it went on to hold: “[In earlier cases the Federal Court] has held that although the tax fine constituted a real penalty, it was directed at the deceased personally and not at the heirs; the heirs were required, under Article 130 § 1 of the Ordinance on Direct Federal Tax, only to ensure that the fine was paid and only up to the value of their share of the estate. That the fine was not directed at the heirs also appeared from the fact that the fine was determined in principle [grundsätzlich] according to the guilt of the deceased and the heirs could escape their liability by renouncing the inheritance. As the Federal Court has held, the effect of the arrangement laid down in Article 130 § 1 of the Ordinance on Direct Federal Tax – according to which in pending proceedings the heirs take the place of the deceased, and [new] proceedings were to be initiated and pursued against the heirs if the evasion was discovered only after the death of the deceased – is only that all cases are dealt with in the same way, irrespective of the time factor.” However, as the fine had to be determined anew, the case was referred back to the Cantonal Tax Appeals Board. 20. The applicants applied to the Commission on 29 October 1992. 21. On 4 February 1993 the Cantonal Tax Appeals Board gave a decision setting the fine at 14,678.80 Swiss francs (CHF), or 25% of the amount that would normally have been due, in view of the applicants' basically cooperative attitude. 22. The applicants lodged an administrative-law appeal to the Federal Court on 12 May 1993. They produced, inter alia, medical evidence from which it appeared that in the final years of his life Mr L. had not been wholly responsible for his actions and they suggested that a fine of not more than CHF 1,000 would be more appropriate to reflect his guilt. The Obwalden Cantonal Tax Office and Cantonal Tax Appeals Board and the Federal Tax Administration were invited to submit written comments, and they asked the Federal Court to dismiss the appeal. 23. In a judgment delivered on 6 January 1995 the Federal Court upheld the applicants' appeal in so far as it was argued that the question of Mr L.'s diminished responsibility should have been considered and referred the case back to the Obwalden Cantonal Tax Appeals Board for a second time. 24. On 8 June 1995 the Obwalden Cantonal Tax Appeals Board gave a decision in which it reduced the fine that would have been payable by Mr L. himself on the ground of his diminished responsibility, and in view of the applicants' attitude set the final amount at 25% of that figure, or CHF 5,513.80. 25. At the relevant time, tax evasion was punishable by a fine of up to four times the amount evaded, the fine being payable in addition to the amount due (Article 129 § 1 of the Ordinance on Direct Federal Tax). 26. Article 130 § 1 provided, inter alia: “If the evasion is discovered only after the death of the taxpayer, proceedings shall be brought against his heirs. Irrespective of personal guilt, the heirs shall be jointly liable for the deceased person's evaded taxes and the fine incurred by him up to an amount not exceeding their share in the estate.” 27. According to Article 537 § 1 of the Swiss Civil Code, an inheritance passes upon the death of the deceased. 28. The relevant parts of Article 560 of the Swiss Civil Code provide: “1. The heirs shall automatically acquire the entire estate as soon as it passes. 2. Subject to the statutory exceptions, all claims and actions, property rights and other rights in rem and possessions of the deceased shall automatically pass to them, and they shall become personally liable for the deceased's debts.” 29. Under Article 566 § 1 of the Swiss Civil Code, the heirs have the right to renounce the inheritance which has devolved to them. The time-limit for so doing is three months (Article 567 § 1). 30. It was open to the taxpayer to lodge an objection against an assessment of direct federal tax to the authority which had made it (Article 105 of the Ordinance on Direct Federal Tax). 31. An appeal against the decision given in the objection proceedings lay to the Cantonal Tax Appeals Board (Article 106 of the Ordinance on Direct Federal Tax). The Direct Federal Tax Department of the canton and the federal tax authorities could also bring such an appeal (Article 107). 32. An administrative-law appeal lies to the Federal Court against the decision of the Federal Tax Appeals Board (section 98 (e) of the Federal Judicature Act). Such an appeal may be lodged by both the tax debtor and the federal tax authorities (Article 112 of the Ordinance on Direct Federal Tax). 33. If the Federal Court orders an exchange of written pleadings, it asks the authority which gave the decision to forward the case file (section 110 (2) of the Federal Judicature Act), at the same time inviting it to submit its comments in writing (section 110 (1)). The cantonal authority which gave the last decision at cantonal level is also invited to comment (section 110 (3)), as is the federal authority which would itself have been entitled to lodge an appeal (section 110 (1)). 34. At the material time, section 109 (1) of the Federal Judicature Act made it possible for a three-judge Chamber of the Federal Court to dismiss an administrative-law appeal as manifestly ill-founded without a hearing, provided that its decision was unanimous. 35. Under Article 333 § 1 of the Swiss Criminal Code, the general provisions of the Code apply to offences created by other federal laws unless the latter provide otherwise. 36. Article 48 § 3 of the Criminal Code provides that a fine lapses if the convicted person dies. However, pursuant to Article 333 § 1 of the Criminal Code, Article 130 § 1 of the Ordinance on Direct Federal Tax (see paragraph 26 above) derogates from this principle as a lex specialis. 37. Section 179 (1) of the Federal Direct Taxation Act of 14 December 1990, in force since 1 January 1995, provides for the liability of heirs, inter alia, for any fines determined with legal force. According to section 179 (2), the heirs shall not be so liable if the tax evasion proceedings are concluded after the death of the taxpayer, provided that the heirs themselves are guiltless and do what they can to enable the tax authorities to make a correct assessment.