AUERBACH v. THE NETHERLANDS
Inadmissible
The applicant, Mr X.G.R. Auerbach, is fiscal consultant. He is a Dutch national, who was born in 1968 and lives in Eindhoven. He was represented before the Court by Professor M.W.C. Feteris of the Fiscal Law Department of the Rotterdam Erasmus University, who also works as a fiscal advisor in Amsterdam. The facts of the case, as submitted by the parties, may be summarised as follows. In 1993, the applicant’s employers provided him with a company car. The car’s catalogue price was NLG. 33,090. The applicant used this car at least three days a week for transport from his home to his office. The distance between both places was more than 30 kms. The applicant further used this car for private purposes. The distances travelled for private purposes in 1993 exceeded 1,000 kms. On 28 February 1995, the Eindhoven Tax Inspector issued the income tax assessment (aanslag inkomstenbelasting) for 1993 in respect of the applicant. In the determination of the applicant’s taxable income for 1993, the Tax Inspector had added – pursuant to the 1964 Netherlands Income Tax Act (Wet op de Inkomstenbelasting; “ITA”) as amended in 1990 – an amount of NLG. 7,491 (i.e. 24% of the catalogue price of the applicant’s company car) to the applicant’s taxable income. On 6 April 1995, the applicant filed an objection (bezwaar) with the Eindhoven Tax Inspector against the 1993 assessment. He complained that the 24% increase of his taxable income instead of 20% was contrary to the principle of equality (gelijkheidsbeginsel) as guaranteed by, inter alia, Article 26 of the International Covenant on Civil and Political Rights. He submitted that, under Article 42 of the ITA, there is a difference in treatment between two categories of persons who are in a same situation, namely – on the one hand – persons who, because of Article 42 § 4 of the ITA, have to add to their taxable income 24% of the catalogue price of the car placed at their disposal; these persons are taxed for their private use of this car (20%) and for their “excess” commuter travel (where a one-way journey from their home to their place of work exceeds a distance of 30 kms) (4%); and – on the other hand – persons in identical circumstances apart from the fact that they use their company car for less than 1,000 kms a year for private purposes, and are fully exempted from adding a percentage of the car’s catalogue price to their taxable income. Thereby, according to the applicant, the taxation of the “excess” commuter travel is made dependent on the number of kilometres travelled for private purposes with a company car. He argued that this difference in treatment lacked any objective and reasonable justification and that, therefore, Article 42 § 4 of the ITA should not be applied. He requested that his taxable income be reduced by NLG. 1,323 (i.e. the difference between 20% and 24% of his company car’s catalogue value), which would result in a reduction of NLG. 661 for the income tax due for 1993. The Tax Inspector rejected the applicant’s objection on 14 August 1995. On 8 September 1995, the applicant appealed to the ‘sHertogenbosch Court of Appeal (Gerechtshof). In its judgment of 18 December 1995, the Court of Appeal found in favour of the applicant. It held that the reasons stated by the legislator for creating the difference in treatment at issue could not be regarded as constituting an objective and reasonable justification. Consequently, it quashed the Tax Inspector’s decision of 14 August 1995 and reduced the determination of the applicant’s taxable income accordingly. The Court of Appeal further ordered the Tax Inspector to reimburse the applicant’s legal costs, including the court fees paid by him. On 29 January 1996, the State Secretary of Finances (Staatssecretaris van Financiën) filed an appeal in cassation with the Supreme Court (Hoge Raad) against the judgment of 18 December 1995. In the State Secretary’s first complaint in cassation, it was argued, inter alia, that the Court of Appeal’s judgment of 18 December 1995 created in effect a new and significantly more serious inequality of treatment between, on the one hand, persons living more than 30 kms from their place of work and who commute to work either with their own car or with public transport, and, on the other, persons living more than 30 kms from their place of work and who commute to work with a company car. In the State Secretary’s third cassation complaint, it was stated that the problems concerning Article 42 ITA as identified in the Supreme Court’s judgment of 22 March 1995, reported in “Beslissingen in Belastingzaken Nederlandse Belastingrechtspraak” (Netherlands Fiscal Law Reports – “BNB”) no. 1995/140, were under discussion in the Working Group on fiscal-technical reform regarding income tax/wage tax and that, in the light of the signal given by the Supreme Court, it was to be expected that the legislative measures resulting from the Working Group’s study would also include a termination of the possible inequality of treatment identified by the Supreme Court. According to the State Secretary, it followed from a Supreme Court judgment of 6 October 1993 (BNB, no. 1993/332c*) that the judicial authorities in cases like the present refrain from interfering where a removal of an inequality in law is to be expected. On this basis, the State Secretary argued that there was no need for the judicial authorities to interfere, as there were indications that an amendment, in which the difference in treatment complained of would be removed, was being prepared. In its judgment of 15 July 1998, the Supreme Court ruled that the applicant was treated unequally without justification. However, it upheld the Tax Inspector’s decision of 14 August 1995. Consequently, the Supreme Court quashed the judgment of 18 December 1995 with the exception of the costs order against the Tax Inspector, and further ordered the State Secretary to reimburse the applicant’s legal costs in the cassation proceedings. This judgment, insofar as relevant, reads as follows: “3.2. In objecting to the application of this so-called increased fixed amount for car costs (verhoogde autokostenforfait), the <applicant> has argued before the Court of Appeal that the legislator unjustly subjects him to different treatment from those taxpayers to whom Article 42 § 5 ITA, fourth paragraph, is not applied, as those taxpayers, unlike the <applicant>, use their company car for private purposes for a distance of less than 1,000 kms <per year> but, like the <applicant>, live more than 30 kms from their place of work and drive with their employers’ car to and from work. ... 3.4. In answering the question whether it concerns an inequality in treatment prohibited by these Treaties [including Article 14 of the Convention in conjunction with Article 1 of Protocol No. 1], it must be stated at the outset that they do not prohibit every inequality in treatment of equivalent cases. The legislator has a certain margin of appreciation in answering the question whether cases, for the purposes of the application of these Treaties, are to considered as equivalent and, if so, whether there is an objective and reasonable justification for nevertheless regulating those cases in a different manner. 3.5. The difference in treatment challenged by the <applicant> has been created by the Act of 4 July 1990 ... The aim of this Act was to make a contribution to both reducing commuter traffic as such (limitation of mobility) and reducing the use of cars for commuting purposes (limitation of car mobility). ... 3.7. It thus follows from the <legislative> history of the creation of the <four percent> addition ... that the legislator, as a basic premise, no longer wished to make a link between the strictly private use of the car and its use for commuting purposes. The legislator did not therefore intend to tax – through the introduction of an increased percentage of the fixed amount for car costs (autokostenforfait) – the higher sum of income considered as being derived from employment as an extra advantage, made dependent on the travel distance, on account of private use. 3.8. This entails that the addition of four percent of the catalogue price of the <company> car, though in form an increase of the fixed amount for car costs, in nature has the character of an independent addition for the cases where tax payers habitually travel at least three days a week over a one-way distance of 30 kms between their home and their work place using for this a car placed at their disposal for work purposes. The Supreme Court fails to see that, for the application of that independent addition, it is of any relevance whether or not the car, apart from commuter travel, has not or only to a limited extent been used for private purposes. 3.9. The considerations set out in 3.6. to 3.8. lead to the conclusion that the legislator, by not prescribing the addition of four percent of the catalogue price in cases where there is no or only a limited private use of the <company> car, has given preferential treatment to a limited group within a category of equivalent cases - in short: commuter travel over more than 30 kms -, and has thus treated equivalent cases unequally. 3.10. Members of the Netherlands Parliament (Staten-Generaal) have shown doubts as to the legitimacy of that unequal treatment. It has been stated in justification on the Government side that, from the point of view of transport arranged by the employer, the employees privileged by the proposed regulation are on a par with employees who, either collectively or not, are transported by their employer in minibuses and the like. That contention is, however, in all reasonability untenable. Within the group of employees whose transport is arranged by the employer, those disposing of a <company> car are in a completely different situation from those who are, either collectively or not, transported by the employer in minibuses and the like. As of old, the legislator itself has not viewed these cases as equivalents. It has long since made a difference within the relevant group of employees by including employees disposing of a <company> car as being liable to income tax for the private use of such a car. The form chosen for this, the fixed amount for car costs, prompted an addition of a fixed amount for private use <of a company car> to the taxable income in all cases where an employer has made a car available, unless the tax payer can convincingly prove that, on an annual basis, the car has been used for private purposes for less than (at present) 1,000 kms. In addition, the “employer’s car” in the latter situation is further treated differently from other transport arranged by the employer, as in that situation the value of the real private use is taxed. Also, given this long standing difference, the argument made in an earlier phase of the examination of the draft Act, that the distinction of the employees with a <company> car runs up against practical difficulties, is defective. 3.11. Moreover, the Supreme Court has not found outside this legislative history any grounds of a fiscal or non-fiscal nature that can justify the unequal treatment at issue. 3.12. Further, it cannot be said that the unequal treatment results in a quantitatively unimportant advantage as, with the addition of 4% of the catalogue price of a <company> car, quickly one finds that an increase in income of NLG. 1,500 to NLG. 2,000 is involved. 3.13. Even taking into consideration the margin of appreciation of the legislator, the above also leads to the conclusion that the legislator cannot in all reasonability have held that it concerns here unequal cases, or that there is a reasonable and objective justification for the unequal treatment of those cases. The <cassation> complaints I and II, insofar as they are based on a different opinion, fail. 3.14. The <cassation> complaint I ... is however successful insofar it points out that not to apply the rule contained in Article 42 § 4 of the ITA would result in an equally unjustifiable inequality in treatment, namely in respect of employees who habitually commute, involving a one-way travel distance of more than 30 kms, with their own car or with public transportation without having a public-transport-declaration [for fiscal deduction purposes] (openbaar vervoerverklaring). This could only be remedied by the non-application of the entire <regulation on the> “capping <of the tax allowance for commuters>” (“aftopping”). The Supreme Court considers for the time being that such a consequence of the inequality found is disproportionate. It is for legislator to remove the inequality found. The Supreme Court assumes that the Bill announced in the <cassation> complaint III will be presented <to Parliament>.” Pursuant to Article 42 § 3 of the 1964 Netherlands Income Tax Act (Wet op de Inkomstenbelasting), employees disposing of a company car provided by their employer must add a fixed amount to their taxable income because of the use of such a car for private purposes. The wording of this provision fixes this amount, the so-called fixed amount for car costs (autokostenforfait), at 20% of the catalogue price of the car concerned. Following the adoption of the Act of 4 July 1990 amending income tax and salaries tax [capping of the tax allowance for commuters] (Wet tot wijziging van de inkomstenbelasting en de loonbelasting [aftopping reiskostenforfait]), this fixed amount was increased by 4% (i.e. to 24%) in those cases where an employee habitually travels at least three days a week between his or her home and work place when the distance of a oneway journey between these two places exceeds 30 kms (Article 42 § 4). Article 42 § 5 of the Income Tax Act provides that the rules contained in Article 42 §§ 2 - 4 are not applied where it appears that, on an annual basis, the company car has been used for private purposes for a total distance not exceeding 1,000 kms. In that situation no fixed amount for car costs has to be added to the taxable income, but the actual benefit must be added on the basis of a fixed amount per kilometre, e.g. 500 kilometres at 60 cents per kilometre. The underlying rationale of the Act of 4 July 1990 was of an environmental nature, i.e. to reduce commuter traffic by encouraging employees to live closer to their place of work, as well as to reduce the use of cars for commuter travel by encouraging employees to opt either for public transport or other forms of collective transport arranged by the employer. In the original proposal contained in the Bill, which resulted in the Act of 4 July 1990, the existing possibilities for tax deduction of costs for commuting to work and the exemption from taxes of compensation paid by employers in respect of commuting costs were limited to a maximum (aftopping). Costs for commuting to work for distances in excess of 30 kms were to be considered as “private” and no longer eligible for tax allowances. As to the application of the fixed amount for car costs in cases concerning a company car, the commuter traffic in excess of 30 kms was to be considered as “private“ and lead to the application of a higher percentage. This would only apply, however, where a car was also being used for private purposes. If the car would only be strictly used for work purposes, including commuting, the fixed amount for car costs would not come into play. As this approach met with the objection that only one single kilometre driven by a company car for private purposes could result in the addition to the taxable income of the fixed amount for car costs, the Bill was amended. The fixed amount for car costs would be applied when a company car was to be used for private purposes involving a distance of 1,000 kms or more a year. In the determination of this question, the distance between the home and place of work – whether or not it was more than 30 kms – would be irrelevant. If the limit of 1,000 kms for private use were exceeded, an addition of 20% of the car’s catalogue price would be applied where the commuting to work remained limited to a distance of less than 30 kms from the home. For commuting involving a distance between the home and place of work of more than 30 kms, a percentage of 24% would be applied. Although some critical questions were put during the parliamentary debate the system as amended was adopted by the Act of 4 July 1990. In a judgment of 22 March 1995 (BNB no. 1995/140), the Supreme Court held that: “In the present proceedings, the question has not been raised whether the rules contained in Article 42 §§ 4 and 5 [ITA] entail a prohibited unequal treatment in respect of those case in which a car made available by an employer is used for private purposes for less than 1,000 kms per year. That question must at present, however, remain unresolved, since its answer also requires an investigation of the facts for which there is no scope in cassation proceedings.” The rules contained in Article 42 of the ITA remained in force until 1 January 2001 when fiscal reform legislation came into force - the Income Tax Act 2001. This Act provided that the distance between the home and place of work is no longer relevant in the determination of the addition of the fixed amount for car costs in respect of company cars. Only the distance for private purposes for which the company car is used is relevant. In case this use is less than 500 kms per year, no fixed amount has to be added to the taxable income. For a distance between 501 - 4,000 kms, 15% of the car’s catalogue value must be added to the taxable income, for distances between 4,001 - 7,000 kms, 20%, and for distances exceeding 7,000 kms, 25%. Commuter travel is considered to be work-related. Article 1 of the Constitution (Grondwet), provides: "All persons present in the Netherlands shall be treated in the same way in similar situations. Discrimination on the ground of religion, philosophical convictions, political leanings, race, sex, or any other ground whatsoever shall not be allowed." Article 120 of the Constitution reads: "The courts shall not rule on the constitutionality (grondwettigheid) of statutes and treaties." Under Article 120 of the Constitution, as interpreted in the constant caselaw of the Supreme Court, the judiciary is not permitted to examine the lawfulness of Acts of Parliament. The courts can, however, review the lawfulness of subordinate legislation and of all other acts of the administration including the lawfulness of decisions which have a general character such as regulations, plans or directives (cf. Hoge Raad, 1 December 1993, Beslissingen in Belastingzaken 1994, no. 64). Article 93 of the Constitution provides that provisions of international treaties and decisions of international (intergovernmental) organisations which, according to their content, may be binding on anyone shall have binding force after they have been published. Pursuant to Article 94 of the Constitution, such provisions of international treaties and decisions of international organisations take precedence over domestic statutory rules in case of conflict. As regards the prohibition on discrimination, the Netherlands Supreme Court recognised in a judgment of 2 February 1982 (Nederlandse Jurisprudentie – “NJ”, 1982, no. 424 [corrected in NJ 1982, no. 475]), that Article 26 of the International Covenant on Civil and Political Rights is a provision of an international treaty which, according to its content, may be binding on anyone, and must therefore in principle be applied directly by the Netherlands courts. However, in a number of judgments the Supreme Court has declined to construe Article 26 of the Covenant in such a way as to deprive national legislation of its effect even if it considered that a given measure constituted unlawful discrimination, holding that – where various options were open to the national authorities to remove such discrimination – the choice should be left to the legislator in view of the social and legal implications attending each possible course of action (Hoge Raad, 12 October 1984, NJ 1985, no. 230; and Hoge Raad, 23 October 1988, NJ 1989, no. 740). In its judgment of 16 November 1990 (NJ 1991, no. 475), cited in the Court’s Kroon and Others v. the Netherlands judgment of 27 October 1994, the Supreme Court came to a similar finding with regard to Article 14 of the Convention taken together with Article 8 (Series A no 297-C, p. 50, § 14).