Protocol No. 16 to the Convention: Grand Chamber of the ECtHR considered the second request from the Supreme Court concerning the proportionality of a tax penalty

Request R16-2026-001 concerned a dispute between a private enterprise and the tax authority regarding the lawfulness and proportionality of a penalty amounting to UAH 63,860,222.48 imposed for the sale of fuel and alcoholic products through a cash register (Register of Settlement Operations) that was registered with the tax authorities but not included in the annexes to the licences. The enterprise considered the sanction disproportionate given its status as a small business entity, whereas the tax authority insisted on the obligation to amend the licences within one month and on the established fact of the infringement (ruling of the Administrative Cassation Court within the Supreme Court – https://reyestr.court.gov.ua/Review/132336169).

The Supreme Court referred two questions to the ECtHR:

1) Having regard to the mandatory nature of the provisions of tax law, is a national judicial authority empowered not to apply the direct provisions of legislation that prescribe financial sanctions for non-compliance with the requirements of tax legislation and instead to apply a lower amount of sanction not provided for by law?

2) By what criteria may a sanction prescribed by Article 17 of the Law of Ukraine of 19 December 1995 No. 481/95-VR “On State Regulation of the Production and Circulation of Ethyl, Cognac and Fruit Alcohol, Alcoholic Beverages, Tobacco Products, Liquids Used in Electronic Cigarettes, and Fuel” be regarded as a disproportionate interference with the right guaranteed by Article 1 of Protocol No. 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms?

The Grand Chamber of the ECtHR unanimously delivered the following advisory opinion:

1. Article 1 of Protocol No. 1 to the Convention provides that any interference by a public authority with the peaceful enjoyment of possessions must be lawful and pursue a legitimate aim. Contracting States must ensure that their national legal systems, taken as a whole, contain safeguards capable of preventing a disproportionate burden in the light of the circumstances of each case. As regards the imposition of financial sanctions for non-compliance with the requirements of tax legislation, a fair balance must be struck between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights. This entails establishing whether the person concerned has had to bear an individual and excessive burden. In this connection, decisions in the field of taxation, other charges or penalties ordinarily involve an assessment of political, economic and social questions which the Convention leaves within the competence of the Contracting States. This justifies according the national policy-making authorities a particularly wide margin of appreciation.

Although the Court’s case law contains numerous examples of criteria for assessing the proportionality of a sanction prescribed by law, it does not provide an exhaustive list that can be applied in every specific situation. The choice of the criteria applicable in each individual case depends on an assessment of all the relevant circumstances of that case. What is decisive from the standpoint of the Convention is that the national legal system, viewed as a whole, is capable of preventing disproportionate consequences in individual cases.

2. Article 1 of Protocol No. 1 to the Convention does not prescribe the mechanism by which proportionality is to be ensured. It does not prohibit the existence of automatic sanctions laid down by law to penalise certain conduct – provided, however, that the sanction itself as prescribed by law is proportionate.

Compliance with this provision depends not on the mechanism chosen but on whether the legal system as a whole affords safeguards capable of preventing a disproportionate burden. The choice of the appropriate means in this regard falls within the competence of the Contracting States. The Convention neither confers on national courts nor requires that they be conferred any specific powers of adjustment. The question whether such powers exist under domestic law belongs to the sphere of the national legal order.

The full text of the advisory opinion is available at: https://hudoc.echr.coe.int/?i=003-8648077-12325389.