How the evolving jurisprudence of the ECtHR is protecting taxpayers from state oppression

(a summary of “Taxation at the European Court of Human Rights” by Robert Attard and Paulo Pinto de Albuquerque)

When a Russian tax case over international tax avoidance with an element of transfer pricing led to the collapse of a financial empire, the imprisonment of its ultimate beneficial owner and officers of the company put on trial, the company’s lawyers resorted to the European Court of Human Rights (ECtHR) for redress. Over sixty years after the signing of the European Convention on Human Rights (ECHR) in 1950, the “Yukos cases” (OAO Neftyanaya Kompaniya Yukos v. Russia no. 14902/04, 20 September 2011) could be considered the first time that the ECtHR “showed its teeth” on a tax matter – and it did so emphatically, with a financial award of €1.9b.

This summary of the Yukos cases, which I paraphrase here, comes from the book “Taxation at the European Court of Human Rights"[i], co-authored by my 安永 colleague Robert Attard with Paulo Pinto de Albuquerque. The book, which makes engaging reading for any tax professional, considers how taxation crept into the jurisprudence of the ECtHR almost “by stealth” and anticipates how its future evolution might be shaped by the principles of the Convention.

The authors explain that in 1950, taxation was not a primary concern for the drafters of the ECHR. The world was coming to terms with the moral aftermath of a war of “unprecedented brutality.” The ECHR responded to the United Nation’s Universal Declaration of Human Rights, which hadn’t in fact mentioned taxation at all; however, some of the ECHR drafters had the foresight to ;anticipate the potential for states to use taxation as an “instrument of oppression.” They add, “Nazism had been vanquished, but the world was aware that predatory communist regimes were as dangerous."

Concerns about taxation were initially raised in the context of the Right to Property (Article 1), which was expanded in 1951 to clarify that states would not be prevented from collecting taxes. The preamble to the ECHR establishes that state signatories “enjoy a margin of appreciation, subject to the supervisory jurisdiction of the European Court of Human Rights” and several of the Convention’s articles concede that fundamental human rights may, in certain circumstances, be sacrificed in the name of public interest, public order, national security and the economic well-being of the country.

The Yukos cases, however, placed aggressive taxation squarely within the purview of the ECtHR. Attard and de Albuquerque explain, “Taxation and the ECHR became the subject of academic publications, it began to be included in the syllabi of several tax courses, and its added value began to be appreciated.” In fact, in the last twenty years there has been a surge in cases. They cite, for example, that in the summer of 2022, three out of twenty-two cases pending before the Grand Chamber were tax cases. “It has become abundantly clear that tax policies of state signatories must be regularly stress-tested against the requirements of the ECHR,” they say.

The book includes a chapter dedicated to each main Article of the ECHR, detailing the tax cases that have been brought under each. These are too numerous to summarize here, but under the Right to Property, there have been cases relating to withholding tax (e.g., Shchokin v. Ukraine nos. 23759/03 and 37943/06, 4 October 2010), cases relating to the proportionality of tax penalties (e.g., N.K.M. v. Hungary no. 66529/11, 14 May 2013) and cases relating to punitive measures (e.g., Mamidakis v. Greece no. 35533/04, 14 September 2011). Under Article 6, the Right to a Fair Trial, there have been cases relating to the importance of equal access to the contents of the tax investigation file (Chambaz v. Switzerland no. 11663/04, 5 April 2012). Even Article 8, the Right to Respect for Private and Family Life has been invoked, with a finding that phone tapping within a financial crime investigation constitutes “interference by a public authority” (Huvig v. France no. 11105/84, 24 April 1990).

What’s important to take away from this detailed analysis is that tax cases are raising important and complex issues that influence the development of the tax policy of the contracting states – and the authors make it clear that supranational guidance is both important and needed. In examining these rulings, the authors demonstrate the evolving jurisprudence of the court. They explain that some pronouncements have set important case law, some they consider disappointing, others have been confusing and they await with bated breath the outcomes of other cases, including one relating the dissemination of stolen tax data when the dissemination is deemed in the public interest. They say, “The power to tax has been used to harass citizens and, in isolated instances involving corporations, has been used to destroy too” and add that “The fact that violations were reported under so many articles is a cause for concern.” From being an “uninvited guest” in the early days, taxation has made its way to the core of ECHR.

Looking ahead, the authors anticipate that there will be scope to examine some of the BEPS 2.0 measures from a human rights perspective – among other regulatory developments. They explain that prior judgments of the ECtHR have not objected to exchanges of information analogous to those that are being contemplated in the BEPS Action Plan. However, disclosure obligations on taxpayer and promoter could raise concerns relating to the “nemo tenetur se ipse accusare” (right to silence) principle. Similarly, they argue that penalties for non-compliance, especially when described as having a dissuasive function, lend themselves to scrutiny under Article 1 of Protocol 1 attracting the procedural guarantees of Article 6.

In the years ahead, as tax policy becomes even more complex, we can expect to continue to see tax matters under examination by this important institution. To conclude in the authors’ words, “Experience has shown that the power to tax must be carefully scrutinized. The ECtHR has a major role to play in protecting taxpayers from state oppression.”

The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organization or its member firms.

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[i] Robert Attard, Paulo Pinto de Albuquerque, Taxation at the European Court of Human Rights (Wolters Kluwer, 2023) ISBN 9789403518961