SECOND SECTION

CASE OF RIKOMA LTD. v. LITHUANIA

(Application no. 9668/06)

JUDGMENT

STRASBOURG

18 January 2011

This judgment is final but it may be subject to editorial revision.

In the case of Rikoma LtD. v. Lithuania,
The European Court of Human Rights (Second Section), sitting as a Committee composed of:
	Nona Tsotsoria, President,
	Danutė Jočienė,
	Guido Raimondi, judges,
and Françoise Elens-Passos, Deputy Section Registrar,
Having deliberated in private on 14 December 2010,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1.  The case originated in an application (no. 9668/06) against the Republic of Lithuania lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by Rikoma Ltd., a company registered in Lithuania 
(“the applicant company”), on 3 March 2006.
2.  The applicant was represented by Ms L. Kovaitė-Simaitienė, a lawyer practising in Vilnius. The Lithuanian Government (“the Government”) were represented by their Agent, Ms Elvyra Baltutytė.
3.  On 19 January 2009 the President of the Second Section decided to communicate the application to the Government. In accordance with Protocol No. 14, the application was allocated to a Committee of three Judges. The Government objected to the examination of the application by a Committee. After having considered the Government's objection, the Court rejected it.
THE FACTS
I.  THE CIRCUMSTANCES OF THE CASE
4.  In 1997 the officers of the Vilnius City tax inspectorate investigated the applicant's declaration and payment of taxes. On 31 October 1997 they drew up a report in which the applicant was ordered to pay a sum of 906,566 Lithuanian litai (LTL; 262,444 euros (EUR)). The sum was comprised of LTL 457,139 (EUR 130,155) in tax arrears and interests, and LTL 449,427 (EUR 132,289) in fines.
5.  The applicant company contested the tax authorities' decisions before the Commission on Tax Disputes, a pre-trial tax-dispute settlement institution, which on 27 July 1999 partly granted its appeal and lowered the amount of fine to be paid to LTL 129,986 (EUR 37,644).
6.  On 19 August 1999 the tax authorities decided to seize some of the applicant company's property to secure the payment of tax arrears and penalties. The seizure remained in force until 28 September 2004.
7.  On 15 June 2001 the Vilnius Regional Administrative Court partly granted the applicant company's appeal.
8.  On 13 September 2001 the Supreme Administrative Court annulled the lower court's decision. It ordered the State tax inspectorate to freshly examine the tax dispute. It was established that the company, in breach of accounting rules, had failed to keep proper book-keeping records and therefore the tax authorities could not properly establish the tax base directly relying on the company's documents. The court concluded that in assessing the tax arrears the authorities could have recourse to the indirect method for establishing the tax base (Mokesčio bazės netiesioginio nustatymo metodas), when as a source of information the tax authorities rely on the financial documents of other companies, that the applicant company had business transactions with. The indirect method for establishing the tax base came into force by the Government's regulation of 3 September 1998.
9.  Between October 2001 and March 2004 the tax authorities conducted several new investigations of the company's tax payment records. Having had recourse to the indirect method for establishing the tax base, on 24 March 2004 the inspectors adopted a new decision as to the tax arrears and penalties which the applicant company was liable to pay, including those for the accounting years 1994-97.
10.  On 10 February 2005 the Commission on Tax Disputes upheld the tax authorities' decision.
11.  On 19 May 2005 the Vilnius Regional Administrative Court dismissed the applicant company's appeal as not founded.
12.  On 4 October 2005 the Supreme Administrative Court upheld the lower court's decision.
THE LAW
I.  ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE CONVENTION
13.  The applicant company complained that the length of the tax litigation proceedings had been incompatible with the “reasonable time” requirement, laid down in Article 6 § 1 of the Convention, which reads as follows:
“In the determination of his civil rights and obligations or any criminal charge against him, everyone is entitled to a ... hearing within a reasonable time by [a] ... tribunal...”
14.  The Government argued that Article 6 § 1 was not applicable to the present case, because the proceedings at issue concerned tax litigation. Alternatively, they submitted that the applicant company had, at least in theory, domestic remedies as regards the complaint about the length of the tax dispute, but had failed to exhaust them. Lastly, the Government contended that the length of the proceedings was reasonable.
15.  The applicant company contested these submissions.
A.  Admissibility
16.  The present case concerns tax litigation in which the applicant company was found liable to pay tax arrears and fines. The Court has consistently held that, generally, tax disputes fall outside the scope of “civil rights and obligations” under Article 6 of the Convention, despite the pecuniary effects which they necessarily produce for the taxpayer 
(see Ferrazzini v. Italy [GC], no. 44759/98, § 29, ECHR 2001‑VII). The facts of the instant case do not give reason to review that conclusion.
17.  However, having considered the circumstances of the present case, the Court finds that the general character of the legal provisions imposing fines for persistent tax law violations, the purpose of the penalties, which was both deterrent and punitive, as well as their severity, suffice to show that, for the purposes of Article 6 of the Convention, the applicant company was charged with a criminal offence (see, most recently, Impar Ltd v. Lithuania, no. 13102/04, § 22, 5 January 2010). It follows, that the Government's plea that the complaint is incompatible ratione materiae must be dismissed.
18.  As to the Government's submission that the applicant company did not exhaust the available domestic remedies to obtain redress for the length of proceedings, the Court recalls its case law to the effect that at the time when the present application was lodged with the Court, no such effective domestic remedies were available in Lithuania (see, most recently, Novikas v. Lithuania, no. 45756/05, § 16, 20 April 2010). Having examined all the materials submitted to it, the Court considers that the Government have not put forward any fact or convincing argument capable of persuading it to reach a different conclusion in the present case. Consequently, the Government's objection must be dismissed.
19.  Lastly, the Court finds that this complaint is not manifestly 
ill-founded within the meaning of Article 35 § 3 of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.
B.  Merits
20.  The Court finds that the applicant company was substantially affected by the proceedings in the present case when on 31 October 1997 the tax authorities informed it of the obligation to pay tax arrears and penalties (see Västberga Taxi Aktiebolag and Vulic v. Sweden, no. 36985/97, § 104, 23 July 2002). The proceedings ended on 4 October 2005, when the Supreme Administrative Court adopted its decision. Thus, for the purposes of Article 6 § 1, the period to be taken into consideration lasted nearly eight years for three levels of jurisdiction.
21.  The Court has frequently found violations of Article 6 § 1 of the Convention in cases raising issues similar to the one in the present case 
(see, most recently, Impar, cited above, §§ 25-28).
22.  Having examined all the material submitted to it, the Court considers that the Government have not put forward any fact or argument capable of persuading it to reach a different conclusion in the present case. In the light of its case-law on the subject, the Court considers that in the instant case the length of the proceedings was excessive and failed to meet the “reasonable time” requirement.
There has accordingly been a breach of Article 6 § 1.
II. OTHER ALLEGED VIOLATIONS OF THE CONVENTION
23.  Invoking Article 6 § 1 of the Convention, the applicant company complained that the domestic courts were partial in that they did not take into account all the relevant circumstances of the case and erroneously applied domestic law. The applicant company also alleged a breach of Article 7 § 1 of the Convention, in view of the fact that the indirect method for establishing the tax base, which came into force only in 1998, was used to assess the sum of unpaid tax for the period of 1994-1997. The applicant company further submitted that seizure of its assets was in violation of Article 1 of Protocol No. 1 to the Convention.
24. The Court has examined the above complaints as submitted by the applicant company. However, having regard to all the material in its possession and in so far as the matters complained of are within its competence, it finds that these complaints do not disclose any appearance of a violation of the rights and freedoms set out in the Convention or its Protocols. It follows that this part of the application must be rejected as being manifestly ill-founded, pursuant to Article 35 §§ 3 and 4 of the Convention.
25.  Lastly, and invoking Article 1 of Protocol No. 1 to the Convention, the applicant company complained about alleged breaches of its shareholders' rights. However, the Court notes that the present application was lodged by the applicant company. It follows, that this complaint is incompatible ratione personae with the provisions of the Convention within the meaning of Article 35 § 3 and must be rejected in accordance with Article 35 § 4.
III. APPLICATION OF ARTICLE 41 OF THE CONVENTION
26.  Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A.  Damage
27.  The applicant company claimed LTL 620,140 (approximately 
EUR 179,594) in respect of pecuniary damage.
28.  The Government contested the claim.
29.  The Court does not discern any causal link between the violation found and the pecuniary damage alleged; it therefore rejects this claim. Moreover, given that no claims for non-pecuniary damage have been submitted to the Court, it makes no award under this head.
B.  Costs and expenses
30.  The applicant company also claimed EUR 67,053 (approximately EUR 19,419) for the costs and expenses incurred before the domestic courts and LTL 14,384 (approximately EUR 4,169) for those incurred before the Court.
31.  The Government contested the claim.
32.  In connection with the lawyer's fees claimed, the Court notes that a considerable part of these fees concerned the applicant company's representation with regard to tax litigation proceedings before the domestic authorities. These fees do not constitute necessary expenses incurred in seeking redress for the violation of Article 6 § 1 of the Convention which the Court has found on account of length of proceedings alone (see, mutatis mutandis, Grauslys v. Lithuania, no. 36743/97, § 74, 10 October 2000). Accordingly, the Court finds it reasonable to award the applicant company the sum of EUR 2,000 for the proceedings before the Court.
C.  Default interest
33.  The Court considers it appropriate that the default interest should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
1.  Declares the applicant company's complaint concerning the excessive length of the proceedings admissible and the remainder of the application inadmissible;

2.  Holds that there has been a violation of Article 6 § 1 of the Convention;

3.  Holds
(a)  that the respondent State is to pay the applicant company, within three months, EUR 2,000 (two thousand euros), plus any tax that may be chargeable to the applicant company, in respect of costs and expenses, to be converted into Lithuanian litai at the rate applicable at the date of settlement;
(b)  that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amount at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;

4.  Dismisses the remainder of the applicant company's claim for just satisfaction.
Done in English, and notified in writing on 18 January 2011, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
	Françoise Elens-Passos	Nona Tsotsoria	Deputy Registrar	President