CEDH · CASELAW;DECISIONS;DECCOMMISSION;ENG — 1 septembre 1993

.sDD6737AE { font-size:11pt } .s211D6B00 { margin-top:0pt; margin-bottom:0pt; line-height:normal; widows:0; orphans:0; font-size:8.5pt } .sBB9EE52A { font-family:Arial }                          AS TO THE ADMISSIBILITY OF                          Application No. 19087/91                        by Olav Ómar KRISTJÁNSSON                           Gudmundur THÓRDARSON and                           THYSK-ÍSLENSKA hf.                        against Iceland           The European Commission of Human Rights (Second Chamber) sitting in private on 1 September 1993, the following members being present:              MM.    S. TRECHSEL, President                  H. DANELIUS                  G. JÖRUNDSSON                  J.-C. SOYER            Mrs.   G.H. THUNE            MM.    F. MARTINEZ                  L. LOUCAIDES                  J.-C. GEUS                  M.A. NOWICKI                  I. CABRAL BARRETO                    Mr.   K. ROGGE, Secretary to the Chamber         Having regard to Article 25 of the Convention for the Protection of Human Rights and Fundamental Freedoms;         Having regard to the application introduced on 25 October 1991 by Olav Ómar Kristjánsson, Gudmundur Thórdarson and Thysk-Íslenska hf. against Iceland and registered on 18 November 1991 under file No. 19087/91;         Having regard to the report provided for in Rule 47 of the Rules of Procedure of the Commission;         Having deliberated;         Decides as follows: THE FACTS         The facts of the case, as submitted by the applicants, may be summarised as follows.         The first and second applicants are Icelandic citizens, born in 1948 and 1945 respectively. They reside at Reykjavík. The first applicant is the director of, and major shareholder in, the third applicant which is a limited company with is headquarters in Reykjavík. The second applicant was the company's comptroller until 1986. Before the Commission the applicants are represented by Mr. Jón Steinar Gunnlaugsson, a lawyer practising in Reykjavík.         In November 1985 the tax authorities commenced an investigation relating to the tax declarations submitted by the third applicant. A certified accountant was asked to examine the matter and submitted his reports in January 1986. It appears that certain negotiations commenced between the tax authorities and the applicants concerning the reports. It does not appear, however, that these negotiations solved the problem for which reason the Directorate of Internal Revenue (Ríkisskattstjóri) proceeded with its investigations and, on 22 April 1986, decided that the third applicant should pay a total of 6,451,503 ISK in reassessed additional sales tax for the years 1981-1984. On 29 April 1986 the Directorate furthermore decided that the third applicant's income tax for the tax year 1985 should be reassessed from 6,007,433 ISK to 50,577,954 ISK and its net value tax from 502,353 ISK to 1,538,723 ISK.         The third applicant appealed against these decisions to the Director of the Internal Revenue who, however, upheld them by two decisions dated 30 October 1987.         The third applicant lodged a further appeal with the Internal Revenue Board (Ríkisskattanefnd) which is the highest administrative authority empowered to decide in matters of taxation.         In two decisions dated 17 April 1989 the Internal Revenue Board dismissed both cases. In the case concerning taxes for the tax year 1985 the Board stated inter alia :   (translation)         "It has been established, and is actually recognised by the       applicant, that the original tax return for the year 1985 as well       as the returns for the preceding years were incomplete in that       the attached annual accounts lacked sufficient accounting       support. Thus, assessment of taxes for the year 1985, and for the       previous assessment years for which the applicant requests       relief, was unsupported by adequate tax return documents. In the       opinion of the Board the applicant has not remedied these defects       or has remedied them in such a way as to make it possible, on       appeal, to deal with the requests on their merits.         It is clear that the Director of Internal Revenue reassessed the       applicant's taxes for 1985 in accordance with the authorisation       in Section 101, subsection 3, of Act no. 75/1981 concerning Tax       on Income and Property, solely on the basis of the applicant's       new tax return for 1985 as there is no indication that the       Director possessed other evidence in the case at that time. The       Director should properly have requested an investigation by the       Director of Tax Investigation of the applicant's new return for       1985 before proceeding to reassess the taxes, ... or called for       a report on the investigation performed by the department of       investigations .... This was especially important in view of the       fact that the applicant's accounts had not been audited by a       certified accountant and of the statement in a letter from the       applicant's board of directors to the effect that the accounts       for the operating year 1984 and previous operating years were       incomplete. Also, the new return and annual accounts obviously       lacked the necessary foundation for acceptability.         With regard to the above, neither the requests of the applicant       nor those of the Director of Internal Revenue can be granted. The       case must be dismissed on account of inadequate preparation."         In the case concerning the additional sales tax for the years 1981-1984 the Board stated :   (translation)         "An appeal is made against a reassessment made by the       Director of Internal Revenue of sales tax relating to the       operating years 1981, 1982, 1983 and 1984.         With reference to the (above) decision of the Internal       Revenue Board ... the appeal is dismissed."         The parties disagreed on how to interpret the above decisions and as the tax authorities considered that they did not affect the validity of their previous decisions from 1986 and 1987, they now resumed their efforts to collect the taxes due. On 14 September 1989 the Reykjavík Magistrate's Court (Fógetaréttur Reykjavíkur) granted the authorities' request for distress to be levied on the third applicant's goods for the non-payment of taxes. This decision was subsequently upheld by the Supreme Court (Hæstírettur) on 21 June 1991.         In the meantime the above tax irregularities had been brought to the attention of the State Criminal Investigation Police. Following the investigations made the public prosecutor served an indictment of 29 December 1989 on the first and second applicants for having made wrongful tax declarations, thereby evading taxes on the third applicant's income and net value on a large scale.         The indictment, which was the object of dispute between the parties, read as follows :   (translation)         "I.   Violations of the Act concerning Tax on Income and Property         By a tax return for Thysk-Íslenska Ltd., signed on the company's       behalf by the defendants Ómar Kristjánsson and Gudmundur       Thórdarson and received by the Director of Internal Revenue on       2 July 1985, they made declarations for taxation purposes for the       income year 1984. The return was accompanied by an annual       financial statement for the said year and various other documents       commonly accompanying tax returns. Taxes were assessed on the       unchanged tax bases as declared in the return. In November 1985       the department of investigation of the Directorate of Internal       Revenue commenced an investigation of the company's tax       declarations and accounts, which brought to light large scale       evasion in respect of the declaration of revenues and assets in       the tax return of 2 July 1985, as well as accounting       irregularities. The investigation subsequently continued with the       assistance of a certified auditor who, on 6 January 1986,       delivered a statement of the company's revenues and expenses in       1984 and its assets and liabilities at the end of that year. The       statement showed evasion on a vast scale. This statement was       delivered to the defendants immediately when it became available.       The matter having progressed this far, taxes were to be       reassessed. In these circumstances the board of Thysk-Íslenska       Ltd. retained a certified auditor to review or audit the       available books and records and prepare a new annual financial       statement, which the board subsequently, on 12 April 1986,       delivered to the Directorate of Internal Revenue with a tax       return, requesting that taxes be reassessed on the basis of these       documents. This reassessment of the company's income and net       value taxes led to an increase amounting to 45,606,891 ISK.       According to the profit and loss accounts, profit before income       tax and net value tax amounted to 63,569,386 ISK but the       corresponding revenues according to the earlier return amounted       to 19,632,135 ISK and the balance, i.e. understated income, to       43,937,251 ISK. In addition to this the statement showed an       'unexplained increase in assets', 45,502,296 ISK, and       construction costs at Lynghals 10 entered as expense, 2,231,917       ISK, all as further explained later. After municipal business       expense tax had been corrected the difference between the profit       and loss accounts is described as follows :         A. Sales tax understated                       ISK     (135,967)          Commissions understated                      -        641,118          Cost of goods overstated                     -     47,214,556          Payroll overstated                           -         47,809          Other operating expenses understated         -      (447,380)          Municipal business expense tax overstated    -        611,580          Depreciation understated                     -      (117,770)          Interest revenues overstated                 -       (27,191)          Interest expenses, indexation et al. overstated -    292,070          Reduction of inventory understated           -    (3,402,020)          Reduction of accounts receivable understated -     (745,394)   --------------------          Undeclared according to profit and loss accountsISK43,931,411   --------------------         B. Cost of construction of Lynghals 10 entered as          expense, - undeclared income                ISK     2,231,917   --------------------         C. 'Unexplained increase in assets' is indicated by          the following according to the balance sheet at          31 December 1984 accompanying return dated 12 April          1986 (item 20)            1.   Drafts receivable understated           ISK     8,702,404          2.   Accounts receivable understated          -      6,910,183          3.   Drafts payable overstated                -      8,239,312          4.   Debts unpaid at the end of year owing to goods              purchases, overstated                    -     23,296,139          5.   Cash and bank accounts understated       -      1,488,070          6.   The tax collection office, savings coupons, etc.              understated                              -        117,669          7.   Share ownership understated              -        105,000   --------------------                                                     ISK    48,858,777   --------------------              The following is subtracted :          8.   Loan from the National Bank of Iceland,              Hypothecation Department, understated   ISK     (207,000)          9.   Balance on time deposit account, understated -(187,751)          10. Sales in 1984, understated               -    (1,188,143)          11. Debt due the Cooperative Bank Ltd., understated -(468,449)          12. Debt due the same, understated           -    (1,083,498)          13. Debt due the Fisheries Bank, understated -     (166,579)          14. Debt due the City of Reykjavík, understated -   (37,061)   --------------------          'Unexplained increase in assets', correctionsISK 45,502,296   --------------------            Undeclared income according to above (A - C)ISK   91,665,624   --------------------       D. The following is subtracted :          Sales tax in accordance with decision of 22 April          1986, with additions to 31 December 1984    ISK   (4,475,353)   --------------------          Undeclared income                           ISK    87,190,271          Reserve contribution increased to 25%        -   (18,852,749)            Increase of income tax base                 ISK    68,337,522          Tax rate                                                 51%   --------------------          Income tax evaded                           ISK    34,852,137   --------------------         E. Evaded net value tax at end of 1984 1.2% of          ISK 84,958,354 (87,190,271 - 2,231,917)     ISK     1,019,499   --------------------          Evaded income tax and net value tax         ISK    35,871,636   --------------------         F. The computed difference in income and net value          taxes if the undeclared income, ISK 87,190,271          is distributed over the years 1981-1984 to          conform closely to each year's operating revenues,          with price level adjustment under Section 53 of the          Income Tax Act, no. 75/1981, cf. Act no. 8/1984,          reserve contributions, municipal business expense          tax and taxes due at end of each year taken into          account                                     ISK     2,788,300   --------------------          Evaded income tax and value tax             ISK    33,083,336   --------------------          The above evasion of income and net value taxes is considered        to violate Section 107, subsections 1 and 6, of Act no. 75/1981        concerning Tax on Income and Property.                           II. Accounting Offences          The defendants are furthermore charged with having        misrepresented the following for purposes of deception in the        annual financial statement for 1984 and for neglect and disorder        in respect of the fundamental aspects of the keeping of accounts        for that year, and called to responsibility for the records and        the preparation of the financial statement in general falling        far short of meeting the requirements of the generally accepted        standards for keeping of business records and for end-of period        accounting procedures.          1.     For having wrongfully, under the heading 'Long Term        Liabilities' in the annual statement, listed a debt to the        Cooperative Bank of Iceland Ltd. in the amount of 15,000,000        ISK, whereas no debt to the bank corresponding to this term in        fact existed.              2.     For having wrongfully, in the same manner as described        under (1) above, listed a debt to the National Bank in the        amount of 22,922,100 ISK.        3.     For having wrongfully stated the assets item 'Accounts        Receivable' in the balance sheet too low by an amount of up to        8,510,184 ISK.        4.     For having wrongfully stated the assets item 'Drafts        Receivable' in the balance sheet too low by an amount of up to        6,397,684 ISK.        5.     For having wrongfully, under the heading 'Various        Operating Expenses Unpaid' in the balance sheet, stated unpaid        goods purchases in the amount of 7,758,691 ISK, whereas no such        liability item in fact existed. The above offences are        considered to violate Section 158 of the General Penal Code no.        19/1940.        6.     For having neglected to take stock at the end of 1983 and        at the end of 1984 in the manner prescribed by Section 14 of Act        no. 51/1968 concerning Business Records, or to preserve a        registration of inventory which may have been prepared in        accordance with Section 16 of that Act.        7.     For having neglected to have Customers' Account (a) under        the special sales, inventory and customer accounting system        compared with and balanced to the corresponding compound        accounts (nos. 12000 and 12100) ever since accounting by        computer was adopted at the beginning of 1983, thus causing a        great difference to be formed between the accounts; this being        in contravention of the provisions of Section 4, subsection 1,        of Act no. 51/1968, and Section 1(4) of Regulation no. 417/1982.        8.     For having neglected to balance the debit and credit        entries of the financial accounts, causing a difference of        10,328,549.54 ISK according to a transcript dated 21 February        1985, and of 5,616,625.13 ISK according to a transcript dated        29 November 1985, this being in contravention of Section 3,        subsection 1, of Act no. 51/1968 concerning Business Records.        9.     For having neglected, when the annual financial statement        was prepared, to correct the relevant accounts (journal        accounts) and to check their conformity with the annual        statement, and for having parted with documents (work notes)        supporting these final and transfer entries. Thereby the        provisions of Section 11, subsections 2 and 3, and Sections 15        and 16 of Act no. 51/1968 covering Business Records, were        violated.        10.    For having neglected to record goods sold on credit in        voucher books or on separate voucher forms consecutively        numbered in advance as provided for in Section 13, subsection        2, of Act no. 51/1968 concerning Business Records and Section        7 of Regulation no. 417/1982.          The above offences under nos. 6-10 incl. are considered to be        in violation of Section 262 of the General Penal Code, no.        19/1940, cf. Section 25 of Act no. 51/1962 concerning Business        records."          The case was filed with the Reykjavík Criminal Court. The applicants immediately requested that the case be dismissed arguing that the above indictment lacked the clarity prescribed by law, was seriously faulty and based on an inadequate investigation.            On 5 March 1990 the Criminal Court rejected the request for dismissal, a decision which was upheld by the Supreme Court on 16 March 1990. In its decision the Supreme Court stated inter alia :   (translation)          "The part played by each defendant in the acts concerned, and        their connections to Thysk-Íslenska Ltd., could have been        described in better detail in the indictment. But the charges        are explained, and the indictment is based on the defendants'        joint liability for those acts.          In describing the alleged criminal acts the indictment refers        to tax investigations and tax returns. This may be difficult to        avoid in a case of this nature, and is not to be criticised.          It is clear that the charges in the indictment are based on an        investigation performed by the department of investigations of        the Directorate of Internal Revenue and the State Criminal        Investigation Police, and the scale of the evasion of income and        net value taxes is based on a comparison between two tax returns        of Thysk-Íslenska Ltd. and two annual financial statements for        the year 1984 which accompanied them. The defence counsel have        various observations to make with regard to the substance of        this evidence.          Given the status of this case at the time the indictment was        issued the public prosecutor was, under Section 115 of Act no.        74/1974, in his right to do so. It is not to be decided here how        the procedure in the Criminal Court is to be conducted, but it        is clear that in the course of that procedure the defence        counsel can bring forth all the observations they have to make        in criticism of the material aspects of the evidence.          In accordance with the above and in other respects concerning        the reasons for the decision under appeal, the conclusion of the        Criminal Court shall stand."          Accordingly, the case continued in the Criminal Court where a hearing was held on 5 December 1990. The first and second applicants were there, both represented by counsel, and they had the opportunity to address the court and to submit what in their opinion was of relevance to the outcome of the case. The applicants stressed in particular that proof was lacking in respect of the alleged tax evasion related to the income year 1984. They maintained that if tax evasion had taken place, this related to the previous years. However, no investigations had been conducted of the tax returns of the previous years and therefore no evidence was offered as to what related to the income year 1984, the year which in their opinion was the subject of the indictment.          The Court heard twelve witnesses and in addition documentary evidence was submitted. On the basis of an evaluation of this evidence the Criminal Court found the applicants guilty inter alia of tax evasion in respect of which the Court in its 120-page judgment concluded :   (translation)          "The court concludes, following an evaluation of the above        reassessed annual accounts for the years 1981 to 1984, both        years included, that Thysk-Íslenska Ltd. with its tax return as        prepared by the company, including its earlier annual accounts        for 1984, did evade payment of income tax in an amount not lower        than 24,223,128 ISK and of net value tax and extra net value tax        in an amount not lower than 1,829,253 ISK or a total of        26,161,381 ISK.        ...        As described it has been established that the taxes evaded by        Thysk-Íslenska Ltd. on account of the operating year 1984        amounted to a minimum of 26,161,381 ISK. It is clear that this        figure is also due to accumulated revenue during 1981 - 1984,        both years included, which, as explained above, had not been        declared previously.        ...        At the time to which this case relates the defendant Ómar        Kristjánsson was chairman of the board of Thysk-Íslenska Ltd.,        its managing director and principal owner. During the same        period the defendant Gudmundur Thórdarson was a member of   the        board, and responsible for the company's accounts and financial        statements. Both defendants had powers of procuration on behalf        of the company. The defendant Ómar Kristjánsson has furthermore        stated that he ran the company almost as if it were his own        property.          By reference to the above it has been established that the        defendants, by virtue of their position within Thysk-Íslenska        Ltd., carried the responsibility for the above actions, as they        must have been aware that the tax return and annual accounts        signed by them and received by the director of taxes on 2 July        1985 were incorrect in important respects. Thus, the defendants        are guilty of the conduct for which charges are brought in        Chapter I of the indictment. The conduct of both defendants was        in violation of Section 107, subsection 1, of Act no. 74/1981,        and as their violation was of a serious nature they have also        committed a violation of subsection 6 of the same section."          The first applicant was sentenced to 15 months' imprisonment and to a fine of 40,000,000 ISK. The second applicant was sentenced to 5 months' imprisonment and to a fine of 1,000,000 ISK.          Both the public prosecutor and the first and second applicants appealed against the judgment to the Supreme Court. The applicants especially protested against being found guilty of tax evasion in connection with the operations of the third applicant company on account of years other than the income year 1984, as the indictment in the case was, in their opinion, exclusively based on reassessed tax return statements relating to the company's operations during that year. They further emphasised that the dismissal of the tax case by the Internal Revenue Board ought to be interpreted as invalidating the reassessment of the tax involved and that, consequently, there was no foundation for sentencing them in accordance with Section 107 of the Act concerning Tax on Income and Property.          The case was heard during public hearings in the Supreme Court from 13 to 16 May 1991. Both applicants were represented in court by counsel. The first applicant was also present whereas the second applicant, for reasons unknown, had decided not to appear. The applicants had under Icelandic law the possibility to address the Court but the first applicant chose not to avail himself thereof. The Supreme Court had at its disposal the complete case-file, including all transcripts of the lower court as well as the judgment of the Criminal Court. Certain further documentary evidence was submitted by the parties. The public prosecutor presented the case of the prosecution and the two defence counsels presented the case of the applicants. The representatives were allowed to take the floor twice and to submit what in their opinion would be of relevance to the outcome of the case. The Court did not hear any witnesses and the parties did not request the hearing of witnesses either, a possibility open to them under Section 46 of the Supreme Court Act which reads as follows :   (translation)          "The Supreme Court may in special cases permit that        witnesses be heard in court and also permit the        examination of the parties to the case as well as expert        witnesses."          By judgment of 21 June 1991 the Supreme Court upheld the Criminal Court judgment. In respect of the applicants' objection to the indictment the Court stated :   (translation)          "The evidence shows that the concealing of the income of Thysk-        Íslenska Ltd. which appeared in its revised annual financial        statement and its new tax return for 1985 on account of its        operations in 1984, did not take place during that year, but        rather had its origins in the operations of earlier years. The        certified auditor who prepared the new documents for the        Directorate of Internal Revenue explained in his statement in        court, as described in the Criminal Court judgment, that in his        opinion it could hardly be doubted that the income had        accumulated over some years. This was also the opinion of the        leaders of Thysk-Íslenska Ltd., who requested the tax        authorities to distribute the non-declared income over the years        when the taxes were to be redetermined. This was not done;        instead taxes were assessed anew on the basis of the revised tax        return documents as if the entire non-declared income belonged        to the operating year 1984.          The indictment in this case is based on the documentation which        the leaders of Thysk-Íslenska Ltd. delivered to the tax        authorities as a basis for reassessment of taxes. However,        calculations on which part F of chapter I of the indictment is        based are made with a distribution of undeclared income over the        years 1981-1984 in view. When viewing the substance of the        indictment in relation to its premises and its foundation it        must clearly be interpreted as bringing charges on account of        all established non-declaration of the income of Thysk-        Íslenska ltd., and not solely on account of the part which is        to be considered as relating only to the operating year 1984.        The defendants' counsel have had every opportunity to conduct        their defence before this court in accordance with this.          Furthermore, it must be held, with the facts of the case in        view, that distributing the undeclared income over more years        than 1984 in the Criminal Court judgment, in the manner done,        was due and proper, since the evidence in the case made this        possible and it was also to the benefit of the defendants and        in full conformity with the principle expressed in Section 60,        subsection 2, of the Act concerning Tax on Income and Property."          As regards the applicants' allegations as to the effect of the dismissal of the tax case by the Internal Revenue Board, the Supreme Court stated :   (translation)          "When the (tax authorities) sent the case to the State Criminal        Investigation Police for an investigation there, which led to        the issuing of an indictment and the institution of judicial        proceedings, the case was in every respect subject to judicial        authority, cf. Section 108, subsection 1-3 of Act no. 75/1981        and the principles underlying Sections 75-110 of the Code of        Criminal Procedure, no. 74/1974, and this includes the        evaluation of the amount of undeclared income and evaded taxes        and consequently the basis for determination of a fine according        to Section 107, subsection 1 of Act no. 75/1981. ... The        decision of dismissal in question by the Internal Revenue Board,        therefore, has no bearing on this case."          Furthermore the Supreme Court stated :          "The Criminal Court of Reykjavík, with two certified auditors        on the bench, reached the conclusion that the annual financial        statement of Thysk-Íslenska Ltd. had been deficient in various        respects, and that it was certain that a large amount of net        income had not been declared. The minimum amount not declared        during the years 1981 - 1984, both years included, was        furthermore considered well-nigh certain. On the other hand the        distribution of this income over the years in question was        considered unclear, and in the judgment all doubt in this        respect is stated to be viewed in favour of the defendants. The        Court examined and reassessed the company's annual accounts for        all the years. After evaluating the reassessed annual accounts        the Court held that an evasion by Thysk-Íslenska Ltd. of income        tax amounting to not less than 24,332,128 ISK and net value tax        and extra net value tax amounting to not less than 1,829,253        ISK, or of taxes totalling 26,161,381 ISK, was proven.          When viewing the evidence and the reasoning of the Criminal        Court, the amount of the evaded taxes cannot be deemed lower        than stated above. The Criminal Court rightly convicted the        defendants of this conduct and related it to the correct        criminal provisions.          The defendants' accounting and forgery offences are deemed to        be in violation of the provisions of the laws and regulations        stated in the Criminal Court judgment. The provisions of the        judgment relating thereto shall stand."          The Supreme Court reduced the sentences imposed. The first applicant was sentenced to 12 months' imprisonment, of which 9 were suspended, and to a fine of 20,000,000 ISK. The second applicant received a suspended sentence of 3 months' imprisonment and furthermore had to pay a fine of 1,000,000 ISK.     COMPLAINTS          As regards the proceedings concerning the payment of taxes the applicants complain that the third applicant was denied the right under Icelandic law to have a disputed tax problem determined by the highest Icelandic administrative authority in the field of taxation, i.e. the Internal Revenue Board. They consider this to be in violation of Article 6 para. 1 and Article 13 of the Convention.          The applicants furthermore consider that the judge in the Magistrates' Court was not an impartial judge when he decided to grant the tax authorities' request for distress to be levied on the third applicant's goods for the non-payment of taxes. They invoke Article 6 para. 1 of the Convention in this respect.          Moreover, the applicants complain that the Supreme Court in the tax collection case rendered judgment on claims quite different from those adjudicated in the Magistrates' Court. They also invoke Article 6 para. 1 of the Convention as regards this issue.          As regards the criminal case the applicants complain that the Supreme Court found them guilty of offences for which they had not been indicted. This refers to the fact that they were found guilty of tax evasion relating to the years 1981-1984, whereas they had only been indicted for having submitted an incorrect tax return in 1985, relating to the income year 1984. They maintain that no lawful evidence was offered of the alleged non-declaration of taxes relating to the years 1981- 1983, and that instead the conviction was based on a calculation model which the Criminal Court of Reykjavík had invented. The applicants consider this to be contrary to Article 6 paras. 1, 2 and 3 of the Convention.          The applicants furthermore complain that