CASE OF A.P., M.P. AND T.P. v. SWITZERLAND
Violation of Art. 6-2;Not necessary to examine Art. 6-1;Not necessary to examine Art. 6-3;Costs and expenses award - Convention proceedings
C. Russo
7. The applicants are all Swiss nationals who live in the Canton of Zurich. They are the widow and sons of the late Mr P., who died on 28 February 1984. Mr P. had been the sole shareholder of a construction company, and the applicants were Mr P.’s only heirs. The company’s business was carried on by Mr P.’s sons. 8. An inventory of Mr P.’s estate was drawn up by the municipal authorities on 8 May 1984. A copy of that document in the Commission’s file is dated 17 May 1984. 9. The three-month period within which the applicants could have renounced the inheritance (Articles 566 § 1 and 567 § 1 of the Swiss Civil Code – see paragraph 24 below) apparently expired on 28 May 1984. 10. Between 1 and 3 October 1985 the tax authorities examined the books kept by the company. Their inspection showed that over a period of several years Mr P. had appropriated certain back payments due to the company and failed to declare them as income, thus evading both cantonal and federal taxes. 11. The cantonal and federal tax authorities each initiated proceedings against the applicants for recovery of the unpaid taxes and at the same time imposed fines for tax evasion. 12. It appears that the applicants cooperated with the tax authorities by providing them with the information needed to calculate the correct assessments. However, they resisted the imposition of the fines and appealed to the appropriate tribunals, maintaining that they were innocent of the tax offence committed by Mr P. 13. The cantonal proceedings ended on 2 November 1989 with a judgment of the Canton of Zurich Administrative Court. The Administrative Court considered that it was a principle of criminal law in a State based on the rule of law that the innocent should not be punished, and – departing from its earlier case-law – held that the imposition of fines on the heirs for tax evasion by the deceased was accordingly illegal. 14. On 16 January 1990 the Direct Federal Tax Department of the Zurich Cantonal Tax Office, deciding on an objection lodged by the applicants, issued an assessment of the direct federal tax unlawfully withheld by Mr P. over 1981/82 and 1983/84 and imposed fines on the applicants. The fines came to 3,875.85 Swiss francs (CHF) for 1981/82 and CHF 2,882.90 for 1983/84. Its reasoning included the following: “By incorrectly declaring his income, the taxpayer withheld taxes from the State and thus became guilty of tax evasion. Pursuant to Articles 130 § 1 and 129 § 1, respectively, of the Ordinance on Direct Federal Tax his heirs must therefore pay a fine of up to four times the amount in addition to the tax withheld. For the tax period 1981/82, when more than 5/10 was evaded, the fine amounts to 1.5 times the amount, and for the tax period 1983/84, when more than 3/10 was evaded, it amounts to 1.3 times the amount of the taxes withheld. However, as it can be observed that the heirs have done everything possible to clarify the incorrect declaration of taxes, the fine is reduced to 1/4.” The Cantonal Tax Office declined to follow the precedent set by the judgment of the Zurich Administrative Court on 2 November 1989 (see paragraph 13 above) on the ground that it could not deviate from clear provisions of federal law as long as the unconstitutional nature of those provisions had not been clearly established. 15. The applicants lodged an appeal against this decision with the Federal Tax Appeals Board of the Canton of Zurich, relying inter alia on Article 6 § 2 of the Convention. 16. The Federal Tax Appeals Board gave its decision on 19 September 1990. The assessment for 1981–82 was quashed on the ground that it had not been lawfully communicated to the applicants within the five-year limitation period (Article 134 of the Ordinance on Direct Federal Tax). The assessment for 1983–84 was upheld. In this context, the Federal Tax Appeals Board held that Article 6 § 2 could be relied on directly only in so far as it provided guarantees additional to those under the Federal Constitution – which it did not. In an obiter dictum the Federal Tax Appeals Board made a distinction between the presumption of innocence and the principle that only the guilty should be punished. The heirs’ liability to pay fines incurred by the taxpayer, which did not offend against the latter principle — as construed in domestic law and applied to the deceased — did not necessarily offend against the former presumption either. 17. The applicants lodged an administrative-law appeal with the Federal Court on 21 December 1990. In addition to reiterating their complaints concerning the fines, they argued that they were entitled, under Article 6 §§ 1 and 3 of the Convention, to a public hearing and to the rights of the defence. 18. The Zurich Federal Tax Appeals Board and the federal tax authorities, which had been invited to submit written comments pursuant to section 110 of the Federal Judicature Act (see paragraph 28 below), expressed the opinion that the appeal should be dismissed. The Direct Federal Tax Department of the Zurich Cantonal Tax Office, which had also been invited to submit comments, declined to do so. 19. The Federal Court dismissed the appeal without a hearing (section 109 of the Federal Judicature Act (see paragraph 29 below) in a judgment delivered on 5 July 1991 and served on the applicants on 16 October. Its reasoning included the following: “Unlike back tax, the fine for tax evasion (save in so far as it may comprise interest intended to compensate for delay) pursuant to Article 129 of the Ordinance on Direct Federal Tax is penal in character ... Moreover, the definition of tax evasion requires that the taxpayer should be guilty, whether by commission or by omission, of a breach of duty resulting in his being underassessed for tax. However, according to the principle that heirs inherit tax liabilities ... the latter are liable, under Article 130 § 1 of the Ordinance on Direct Federal Tax, up to the amount of their share in the estate, and irrespective of any personal guilt, for the deceased person’s evaded taxes and the fines. The provision in question of the Ordinance on Direct Federal Tax thus expressly contemplates that the heirs enter into the position of the deceased even in respect of the penal tax without being personally guilty. It follows that as regards the liability of heirs, the applicants cannot derive any argument from the presumption of innocence enshrined in Article 6 of the Convention, which only applies to persons charged with a criminal offence ... Nor can the general principles of the criminal law prayed in aid by the applicants avail them in the circumstances.” The Federal Court did not rule on the applicants’ claims under Article 6 §§ 1 and 3. 20. 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). 21. 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.” 22. According to Article 537 § 1 of the Swiss Civil Code, an inheritance passes upon the death of the deceased. 23. 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.” 24. 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). 25. 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). 26. An appeal against the decision given in the objection proceedings lay to the Cantonal Tax Appeals Board (Article 106). The Direct Federal Tax Department of the canton and the federal tax authorities could also bring such an appeal (Article 107). 27. 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). 28. 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)). 29. 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. 30. 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. 31. 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 21 above) derogates from this principle as a lex specialis. 32. 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.