Procedural Rules in Tax Law in the Context of European Union and Domestic Law

Transcription

1 EUCOTAX Series on European Taxation Procedural Rules in Tax Law in the Context of European Union and Domestic Law Editors: Michael Lang Pasquale Pistone Josef Schuch Claus Staringer Law & Business

2 Published by: Kluwer Law International PO Box AH Alphen aan den Rijn The Netherlands Website: Sold and distributed in North, Central and South America by: Aspen Publishers, Inc McKinney Circle Frederick, MD United States of America Sold and distributed in all other countries by: Turpin Distribution Services Ltd. Stratton Business Park Pegasus Drive, Biggleswade Bedfordshire SG18 8TQ United Kingdom Printed on acid-free paper. ISBN # 2010 Kluwer Law International BV, The Netherlands All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission from the publisher. Permission to use this content must be obtained from the copyright owner. Please apply to: Permissions Department, Wolters Kluwer Legal, 76 Ninth Avenue, 7th Floor, New York, NY , USA. permissions@kluwerlaw.com Printed in Great Britain.

3 Summary of Contents Preface List of Contributors xxxvii xxxix Part I General Part 1 General Part 3 Arjo van Eijsden, Bernd-Roland Killmann, Gerard T.K. Meussen (final editor) with assistance of Janco van Dam and Daniel Smit Community Customs Law: An Example of Balancing Harmonization and Procedural Autonomy of Member States 49 Bernd-Roland Killmann Part II National Reports 71 Austria 73 Lisa Paterno and Nicole Tüchler Belgium 117 Isabelle Richelle Czech Republic 145 Danuse Nerudova and Tomas Balco

4 Summary of Contents Denmark 157 Henrik Klitz Estonia 187 Tiiu Albin, Marek Herm, Inga Klauson and Erki Uustalu Finland 215 Kristiina Äimä, Kaj Grüssner and Matti Alpua France 241 Alexandre Maitrot de la Motte Germany 265 Klaus-Dieter Drüen and Daniel Drissen Hungary 303 Dániel Deák and Borbála Kolozs Italy 355 Agostino Ennio La Scala and Mario Tenore Netherlands 427 Arjo van Eijsden and Gerard T.K. Meussen Norway 469 Johan Bernhard Hjort, Kyrre Isaksen and Rino S. Lystad Poland 493 Łukasz Adamczyk and Marta Uss Romania 519 Ciprian Adrian Păun Russian Federation 545 Danil V. Vinnitskiy Slovakia 565 Renáta Bláhová and Martin Jakubec Slovenia 591 Koželj Klara, Ðukic Tatjana and Drobež Tomšic Mateja Spain 615 Pedro M. Herrera vi

5 Summary of Contents Switzerland 631 Michael Beusch United Kingdom 649 Grahame H.J. Turner Annex Questionnaire: Procedural Rules in Tax Law in the Context of Community Law and Domestic Law 689 vii

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7 List of Contributors Łukasz Adamczyk (National Reporter, Poland) Łukasz Adamczyk is a lawyer and a Ph.D. candidate at Warsaw University, former Mondi Packaging Fellow at the WU Wien. Kristiina Äimä (National Reporter, Finland) Kristiina Äimä is acting professor of international tax law at University of Helsinki. She specializes in International and European Tax Law. She defended her doctoral dissertation, The taxation of interest payments between associated enterprises at University of Helsinki in August Äimä also works for KPMG and teaches European Tax Law at the Helsinki School of Economics. In the past she has done consultancy for European Commission s permanent representation in Finland. Tiiu Albin (National Reporter, Estonia) Tiiu Albin, LL.M. (Maastricht) is a Junior Researcher/Ph.D. candidate and tutor for a master s course in Comparative Corporate Taxation at Maastricht University, the Netherlands. She is one of the YIN (Young IFA Network) representatives of the Estonian branch of IFA (International Fiscal Association).

8 List of Contributors Matti Alpua (National Reporter, Finland) Matti Alpua holds a Master of Laws degree from the University of Lapland. Alpua worked as Customs Adviser within the National Board of Customs before joining KPMG. Tomas Balco (National Reporter, Czech Republic) Tomas is Senior Tax Manager at PricewaterhouseCoopers, currently based in Almaty, Kazakhstan, where he provides international and domestic tax advice related to the structuring of inbound and outbound investments to and from Central Asia and Mongolia. He is active academically as Associate Professor at KIMEP in Almaty and visiting professor at the University of Economics in Prague. He holds a Magister and Doctor in Law degrees from the Masaryk University, Brno, Czech Republic (2001) as well as Master of Laws degree (LL.M.) in International Tax Law from WU Wien ( ). He is a Chartered Certified Accountant member of ACCA, London, UK since 2004 (FCCA since 2009). Michael Beusch (National Reporter, Switzerland) Michael Beusch (Dr.iur., attorney at law) is a judge at the Swiss Federal Administrative Court and lectures on tax law at the Universities of Zurich (since 2001) and Lucerne (since 2008) and as a guest lecturer at the European Tax College in Tilburg/Netherlands (since 2008). In addition, he is the editor of the only Swiss online Journal for Swiss and International Tax Law ( and has published numerous articles on various aspects of tax and (general) procedural law. Renáta Bláhová (National Reporter, Slovakia) Renáta Bláhová is partner at LeitnerLeitner, responsible for their office in Bratislava, which has the name BMBLeitner. She is president of Slovak branch of the International Fiscal Association and member of Methodological Commission for Direct Taxes at Ministry of Finance in Slovakia. She is a certified Slovak auditor and tax advisor and completed her masters degree in International Tax Law at the Vienna University of Economics. Her specialization is Slovak and international tax law with a focus on tax aspects of domestic and cross-border transactions. xl

9 List of Contributors Dániel Deák (National Reporter, Hungary) Prof. Dr Dániel Deák is active as full-time professor at the Corvinus University of Budapest, Faculty of Business Administration. He heads the Department of Economic Management, Financial and Fiscal Law, teaching and doing research in the field of comparative and international business law and taxation. Furthermore he is research fellow at the Taxation Law and Policy Research Institute, Monash University, Melbourne. He has been recognized in the profession of international taxation as the founding president of the Hungarian national branch of the International Fiscal Association (IFA). Running his own law office, he also works as a member of the Budapest Bar, assisting foreign investors in legal and tax planning. Daniel Drissen (National Reporter, Germany) Daniel Drissen is a research assistant and doctoral candidate at the Faculty of Law (Chair of Corporate Tax Law), Heinrich Heine University Düsseldorf. Drobez Toms ic Mateja (National Reporter, Slovenia) Drobez Toms ic Mateja Ph.D. in Tax Law at Faculty of Law, Ljubljana Slovenia, is a certified tax adviser, responsible for dealing with all advice on direct taxation matters (personal income tax, corporate income tax). She assists taxpayers during tax audits or tax inspections. She has about 10 years of experience in accounting and taxation. She is also a court expert for tax issues and an author of many articles relating to accounting and taxation. Occasionally she gives lectures and courses on taxation. Klaus-Dieter Drüen (National Reporter, Germany) Prof. Dr Klaus-Dieter Drüen has held the Chair of Corporate Tax Law since 2007 and is one of the directors of the Centre for Business and Corporate Law (CBC) at Heinrich Heine University, Düsseldorf. Before obtaining the Chair of Corporate Tax Law, he taught as assistant professor at the universities of Bochum and Düsseldorf. From 2000 to 2006 Prof. Drüen worked as a senior researcher at the Ruhr University Bochum (Chair of Tax Law, Prof. Dr Seer). xli

10 List of Contributors Ðukic Tatjana (National Reporter, Slovenia) Mag. Tatjana Ðukić works as an assistant at the University of Ljubljana, Faculty of Administration. She assists doc. dr. Maja Klun in the areas of the tax system and public finance. After having worked for a few years as a tax adviser at the Chamber of Small Business and Crafts and as a licensed tax adviser in Slovenia, she is now doing research on tax issues. At the moment she is preparing a doctoral thesis on the topic: Impact of Thin Capitalization Rules before and after the Harmonization of Income Corporate Tax Base on the capital structure of and investment in the Slovenian economy. Kaj Grüssner (National Reporter, Finland) Kaj Grüssner holds a Master s degree in Taxation from Åbo Akademi University. Grüssner manages EC law-based claims on behalf of both domestic and foreign pension and investment funds at KPMG Finland. Marek Herm (National Reporter, Estonia) Marek Herm, LL.M. (Leiden) is a tax lawyer at the Law Office of Raidla Lejins & Norcous, Tallinn, Estonia. He is also the Estonian correspondent of the IBFD and a Ph.D. candidate at the law faculty of the University of Tartu. Pedro M. Herrera (National Reporter, Spain) Pedro M. Herrera is Professor of Tax Law at the Spanish Distance University (UNED) of Madrid, Chairman of the International Tax Law Branch of the Spanish Association of Tax Law Advisors and former Research Advisor to the Institute of Fiscal Studies (Spanish Ministry of Finance). He is a Doctor of Laws. He is also a member of the Editorial Board of the Italian Rivista di Diritto Tributario Internazionale, the Italian review, Diritto e Pratica Tributaria Internazionale, and the Russian Yearbook of International Tax Law. Johan Bernhard Hjort (National Reporter, Norway) Cand. jur. University of Oslo 1990, presently Legal Counsellor at the Norwegian Ministry of Finance, Tax Law Department; previously Counsellor at the Permanent xlii

11 List of Contributors Mission of Norway to the European Union, Brussels. He was Project Manager of the Ministry s Customs Act Project and also a negotiator in the Norwegian Ministry of Foreign Affairs, negotiating Trade Facilitation in the WTO Doha Development Round. Kyrre Isaksen (National Reporter, Norway) Cand. jur. University of Oslo 2005, LL.M., University of Heidelberg 2006 is presently Advisor at the Norwegian Ministry of Finance, Tax Law Department. He has previously worked as research assistant at the University of Oslo, Department of Public Law. Martin Jakubec (National Reporter, Slovakia) Martin Jakubec is manager based in the Bratislava office of LeitnerLeitner. He holds a masters degree in Economics from the University of Economics in Bratislava as well as a masters degree in Law from the Comenius University (Faculty of Law). His practice is focused on the Slovak tax administrative law and VAT law. Bernd-Roland Killmann (Report on Community Customs Law, General Report) Mag. Dr.iur. Bernd-Roland Killmann M.B.L.-HSG is a member of the Legal Service of the European Commission. Before joining the Commission in 1997, he worked for law firms in Austria and Italy. He holds a one-year diploma from the Paul H. Nitze School of Advanced International Studies (SAIS) of the Johns Hopkins University Bologna Centre. Inga Klauson (National Reporter, Estonia) Inga Klauson, LL.M. (Maastricht) is a Chief Specialist of the Tax Policy Department of the Ministry of Finance of Estonia. She is also an Estonian correspondent of Tax Analysts and YIN (Young IFA Network) representative of the Estonian branch of IFA (International Fiscal Association). xliii

12 List of Contributors Henrik Klitz (National Reporter, Denmark) Henrik Klitz received his Masters Degree in Law from University of Copenhagen in He is an adviser at the Danish National Tax Tribunal and is currently also a Ph.D. Fellow at the University of Copenhagen working on a thesis on tax appeals and the legal protection of taxpayers. He has taught tax law at the University of Copenhagen and has conducted the Tribunal s Moot Court Competition for law students. Borbála Kolozs (National Reporter, Hungary) Lecturer at Corvinus University Budapest, Hungary; Lecturer at ELTE JOTOKI Budapest, Hungary; Research Fellow, Atax, University of New South Wales, Sydney; Research Fellow, Taxation Law and Policy Research Institute, Monash University, Melbourne. The author can be contacted at borbalakolozs@gmail.com. Koz elj Klara (National Reporter, Slovenia) Koz elj Klara was a Head of the International Section within the Chamber of Tax Advisers in Slovenia. In 2008 she obtained an LL.M. degree in Vienna on tax law and has much practical experience in tax matters. She works at the Institute for Domestic and International Tax Law in Ljubljana. Agostino Ennio La Scala (National Reporter, Italy) Agostino Ennio La Scala, tax professor at the University of Palermo, Faculty of Law, Ph.D. in International and Comparative Tax Law at the University of Genua is Scientific Coordinator of the Summer School Towards European International Tax Law, Jean Monnet Programme, European module. Rino S. Lystad (National Reporter, Norway) Cand. jur. University of Oslo 1992 is presently Legal Counsellor at the Norwegian Ministry of Finance, Tax Law Department. He has previous experience as a lawyer and deputy judge. xliv

13 Alexandre Maitrot de la Motte (National Reporter, France) List of Contributors Prof. Dr Alexandre Maitrot de la Motte (1977) is Professor of Tax Law and Public Law at the University of Paris 12, where he is the Director of the Master programme in business and tax law ( Master 2 Fiscalité Appliquée ). He regularly publishes articles about EC direct taxation and about fiscal State Aids in the main French reviews (Revue de Droit Fiscal, L Année Fiscale, Revue des Affaires Européennes European and Law Affairs). He is also specialized in French personal taxation. His book, Souveraineté fiscale et construction communautaire was published in 2005 (LGDJ). He is also Of Counsel to a law firm. Gerard T.K. Meussen (National Reporter Netherlands, General Report) Prof. Dr Gerard T.K. Meussen is professor of tax law at the Radboud University in Nijmegen, the Netherlands. He is also a technical advisor to BDO CampsObers Tax Advisors in Tilburg, the Netherlands and acts as a part-time judge in the Courts of Appeals of Amsterdam and Arnhem, the Netherlands. He has specialized in personal and corporate income tax as well as European tax law. He speaks regularly at international tax conferences and publishes in international tax magazines. Danuse Nerudova (National Reporter, Czech Republic) Associate Prof. Ing. Danuse Nerudova, Ph.D., is head of the Department of Accounting and Taxes, Faculty of Economics and Business, Mendel University Brno, Czech Republic; she is also a researcher at the Research Centre of Faculty of Economics and Business, Mendel University Brno, Czech Republic. Lisa Paterno (National Reporter, Austria) Lisa Paterno obtained a law degree at the Vienna Law School in She is a research assistant at the Institute of Austrian and International Tax Law at WU (Vienna University of Economics and Business) and a Ph.D. candidate in tax law. Her main research field is fiscal State aid and personal income taxation. The author can be contacted at lisa.paterno@wu.ac.at. xlv

14 List of Contributors Ciprian Adrian Pǎun (National Reporter, Romania) Ciprian Adrian Pǎun is a graduate of the LL.M. programme of the Law School of the Westfälische Wilhelms-Universität, Münster, Germany and is a Dr juris at the University of Cluj-Napoca. He is a senior lawyer and holds a teaching position at the Faculty of Economics and Business Administration in Cluj-Napoca. Between 2007 and 2008, he was an OMV Research fellow in the field of European and International Tax at the Institute for Austrian and International Tax Law of the Vienna University of Economics and Business Administration. Isabelle Richelle (National Reporter, Belgium) Isabelle Richelle is Professor on taxation at HEC Business School of the University of Liège. She is also a member of the Brussels Bar where she specializes in corporate taxation, European and international taxation, and environmental taxation. She is a member of several scientific organizations. Daniel Smit Daniel Smit studied Netherlands Law and Tax Law at the Erasmus University Rotterdam, the Netherlands, from 1998 to 2004 and graduated cum laude. He currently teaches European and International Tax Law and is employed as a faculty staff member at the Fiscaal Instituut Tilburg of the University of Tilburg and works as a tax advisor at Ernst & Young Belastingadviseurs LLP in Rotterdam. Daniel Smit is currently doing promotional research into the influence direct taxes of the free movement provisions in EC law have on relationships with non-ec Member States. Mario Tenore (National Reporter, Italy) Born in Salerno 1979, Mario Tenore is associate at Maisto e Associati (Milan). He was an assistant professor at the Wirtschaftsuniversität Vienna (Austria) as well as the assistant researcher to Prof. Pasquale Pistone for the EURYI-ESF project on The impact of European law on the relations with third countries in the field of direct taxes. He has an economics degree from the University of Salerno (Italy), an LL.M. in Italian tax law from the Suor Orsola University of Naples and a cum laude Advanced LL.M. in International Taxation from the University of Leiden (the Netherlands). In 2008 he obtained his doctoral degree (cum laude) at the II University of Naples; xlvi

15 List of Contributors he wrote a dissertation on the taxation of cross-border dividends, which was awarded the 2009 European Academic Tax Thesis Award. He has published in specialized journals about international and EC tax matters, both in Italian and in English. Nicole Tüchler (National Reporter, Austria) Nicole Tüchler obtained a business administration degree at WU (University of Economics and Business) in She is a research assistant at the Institute of Austrian and International Tax Law at WU as well as a Ph.D. candidate in tax law. Her main research field is personal and corporate income taxation. The author can be contacted at nicole.tuechler@wu.ac.at. Grahame H.J. Turner (National Reporter, United Kingdom) Grahame graduated in Physics at the University of Warwick in 1972, qualified as a Chartered Accountant in 1978 and as a Chartered Tax Adviser in Grahame has specialized in UK taxation relevant to large groups since 1979, working in the commercial sector. Grahame graduated from Queen Mary with an LL.M. (Tax) in 2007 and has been training students for the ADIT Paper III (EU option) examination since January He is also a Visiting Lecturer at Kings College, University of London, where he teaches an EC Tax Law module for the LL.M. postgraduate degree and has enrolled with The Institute of Advanced Legal Studies (University of London) as a research student studying for a Ph.D. researching the interaction between UK Direct Taxation legislation and Community law. Marta Uss (National Reporter, Poland) Marta Uss is a lawyer and a Ph.D. candidate at Nicolaus Copernicus University in Toruń, former TPA Horwath Fellow at the WU Wien. Erki Uustalu (National Reporter, Estonia) Erki Uustalu, LL.M. (Leiden) is a Senior Tax Manager at PricewaterhouseCoopers and is lecturing on international and European tax law at Tartu University, Estonia. He is the Secretary General of the Estonian branch of IFA (International Fiscal Association). xlvii

16 List of Contributors Janco van Dam Janco van Dam graduated from Erasmus University Rotterdam, the Netherlands, in Tax Economics. He completed a post-graduate course in European Fiscal Studies at the same university in He has worked for Ernst & Young Belastingadviseurs LLP in Rotterdam, where he has been a member of the Tax Controversy Group since 1 January Arjo van Eijsden (National Reporter Netherlands, General Report) Arjo van Eijsden graduated in both Netherlands Law and Tax Law in Since then he has worked for Ernst & Young Belastingadviseurs LLP in Rotterdam, from 2008 as partner. Since 1 January 2007 he has held various positions at Ernst & Young, including chairmanship of the Tax Litigation Advisory Group. Furthermore, he leads the Netherlands-Belgium Tax Controversy Group and heads the Netherlands EY Tax Opinion Board. Arjo has published on various tax law topics, including European law. He is a regular guest speaker at conferences, courses and lectures. Danil V. Vinnitskiy (National Reporter, Russia) Prof. Dr Danil V. Vinnitskiy Head of the Department of tax and financial law, the Urals State Academy of Law (Ekaterinburg, Russia); Member of the European Association of Tax Law Professors and of the Presidium of the International Association of Financial Law (which unites scholars from CIS countries); Author of more than 160 publications, including eleven monographs and seven textbooks on tax and financial law (including those prepared with co-authors) he is also editor of collections of articles on the topical issues of financial and tax law, General editor of the Russian Yearbook of International Tax Law, Member of the scientific councils of a number of the RF state bodies and has acted as an expert for the RF Constitutional Court. xlviii

17 Russian Federation Danil V. Vinnitskiy Procedural rules play a key role in Russian tax law and determine the effectiveness of certain norms and court and administrative practice. Some procedural rules are established directly by the RF Tax Code, however, judicial procedural rules are provided for by other special normative acts. The Russian Federation is a non-eu Member State and, but for some exceptions (e.g., the Partnership Agreement), the rules of EC law are not binding on it. However, there are cases of an indirect ( soft ) influence of certain concepts of EC law on Russian law, including procedural rules in tax law. (We cannot exclude the reverse effect, either: the influence of optimal legal models which are practiced in third countries and international organizations on EC law.) I. LEGAL PROTECTION IN DOMESTIC LAW 1. AUTHORITIES IMPOSING TAXES IN THE RUSSIAN FEDERATION The organizational structure of authorities imposing taxes in the Russian Federation (RF) is defined in a special federal law the RF Tax Code (the first part of this Code has been in effect since 1 January 1999). Michael Lang, Pasquale Pistone, Josef Schuch and Claus Staringer, Procedural Rules in Tax Law in the Context of European Union and Domestic Law, pp # 2010 Kluwer Law International BV, The Netherlands.

18 Danil V. Vinnitskiy According to Article 30(1) of the RF Tax Code, tax authorities form a single centralized system controlling compliance with tax laws, correct computation and payment of taxes to the RF budgetary system. The organization of the tax authorities includes the central tax administration and its territorial subdivisions at the regional and municipal levels. The RF Government regulation of 30 September 2004 No. 506 On Federal Tax Service specifies the powers of the tax authorities. Additionally, the Order of the RF Ministry of Finance of 9 August 2005 No. 101-n adopted the Act On territorial subdivisions of the RF Federal Tax Service. It is important to pay attention to the following: The Federal Tax Service is a federal body of state power; its territorial subdivisions are not subordinate to the RF regions (i.e., subjects of the RF) and municipalities. Article 30 (4) provides that the tax authorities perform their functions and interact with the executive bodies of RF regions and municipalities. However, interaction here means only the coordination of activities. The Federal Tax Service may not lay down general rules for taxation (legal normative acts) but is obliged to strictly exercise the established tax rules in accordance with the procedures defined by the RF Tax Code (Articles 4, of RF Tax Code). Only the Federal Tax Service possesses the authority to levy all federal, regional and local (municipal) taxes in the RF (exceptions: the authority of the RF Customs Service to levy VAT and excises on imports and the authority of some state bodies to impose levies of parafiscal character, for example, pension fund contributions). While carrying out its quite broad powers the Federal Tax Service and its territorial subdivisions perform a great number of legally significant actions: inspections of taxpayers, the demanding and obtaining of documents, decisions on the recovery of taxes, interest and tax penalties, suspension of operations relating to accounts of the taxpayer, etc. According to Russian tax law, all these decisions and actions of tax authorities may be appealed in the judicial or (and) administrative system. In principle, both kinds of remedies (judicial and administrative) may be used simultaneously. However, if a taxpayer challenges the decision of a tax authority concerning tax sanctions he must first file an administrative complaint, and only if it was rejected (entirely or partly) he may appeal to the court (Article (5) of the RF Tax Code). This rule has only been in effect since 1 January 2009 and is aimed at decreasing the great number of tax disputes with which Russian courts have to deal. When one considers legal protection under Russian tax law, it is important to take into account the special regime for recovery of taxes for natural persons (without the status of entrepreneur). In this case, a court decision is needed in order to recover unpaid taxes, interest and sanctions. A tax authority has to apply to court within six months since the date its demand to pay a tax voluntarily was not met (Article 48 of the RF Tax Code). 546

19 Russian Federation Thus, a comprehensive judicial control in regard to all decisions on tax recoveries concerning natural persons is exercised (irrespective of the citizenship, residence or domicile of the natural person). This approach is based on the legal position of the RF Constitutional Court laid down, in particular, in its Decision of 17 December 1996 No. 20-P examining the constitutionality of Article 11 (1) (2 and 3) of the RF Law of 24 June 1993 On the Federal bodies of tax police. 1 In paragraph 4 of the Decision the RF Constitutional Court held that preliminary judicial control over the decisions of a tax authority is a necessary guarantee for natural persons from unjustified interference from tax authority control. 2. JUDICIAL PROCEDURE OF APPEAL IN TAX LAW The RF Tax Code provides for the detailed procedure for appealing actions and decisions of the tax authorities. With regard to judicial proceedings, the rules of the RF Civil Procedure Code and the RF State Arbitration Procedure Code have to be additionally applied (depending on the jurisdiction of the court to which the respective tax dispute belongs). Let us look at appeal procedure in more detail Object of Appeal The RF Tax Code defines the possible objects of a taxpayer s appeal quite broadly. Article 137 of the RF Tax Code ( Right to appeal ) provides that each person is entitled to challenge the non-normative acts of tax authorities (i.e., decisions), actions of officials or their failure to act if in his opinion all this infringes his rights. Besides, normative legal acts of the tax authorities may be challenged according to the procedure provided for by federal legislation for other normative legal acts. The latter is a special additional safeguard and in theory is not to be applied. This is explained by the fact that Article 4 (2) of the RF Tax Code in principle forbids the RF Federal Tax Service to lay down normative legal acts on tax matters. However, the violation of this prohibition by tax authorities does not limit the taxpayer s right to challenge such an illegal act in court. Thus, Article 137 of RF Tax Code establishes two main kinds of complaints (depending on the object of appeal): actions of officials or their failure to act; non-normative acts (i.e., decisions) of the tax authorities. The first category includes complaints about any legally significant actions of official character performed by officials of a tax authority. The most important 1. The Russian Federation (RF) Law of 24 Jun On the Federal bodies of tax police was abolished but it is not relevant for the legal significance of the above-mentioned court decision as it was based directly on the interpretation of the RF Constitution. 547

20 Danil V. Vinnitskiy thing is to prove that these actions infringe certain subjective rights of the applicant. The second category includes complaints about the decisions of tax authorities, that is, the acts of implementation of state powers by heads of tax authorities in the established form and concerning the subjective rights of an applicant. If a decision was not approved by the head of a tax authority and (or) it was not made in the correct form, there is a possibility to submit a complaint of the first type, that is, about the actions of officials Requirements for Complaints Articles of the RF Tax Code establish in general the appeal procedure in taxation. Special formal requirements for complaints are few and include the following: (1) submission of the complaint to the competent body which is authorized to handle the complaint; Three variants of submitting a complaint are possible: to a superior tax authority, to a court of general jurisdiction (if an applicant is a natural person) or to the state arbitration court (if an applicant is a company or entrepreneur) Article 138 (1 and 2) of the RF Tax Code. (2) a complaint is submitted in written form; Article 139 (3) of the RF Tax Code provides that a tax complaint has to be submitted in written form. (3) a complaint has to be submitted within the established time limits. Article 139(2) of the RF Tax Code specifies the time limits for appeal: three months to submit a complaint to the superior tax authority (one year if the decision taken on tax sanctions is appealed). Similarly, Article 198 (4) of the RF State Arbitration Procedure Code and Article 256(1) of the RF Civil Procedure Code also establish a three-month time limitation for submitting a judicial complaint. 2 Besides, if a complaint is submitted to the courts special requirements provided for by the RF State Arbitration Procedure Code and the RF Civil Procedure Code respectively must be met. For instance, Articles 125 and 199 of the RF State Arbitration Procedure Code contain detailed requirements on the content and the form of a complaint. In particular, an applicant has to mention: (a) his subjective rights and legal interest which, in the applicant s opinion, are infringed by the decision, administrative action or failure to act being challenged; (b) laws and other normative legal acts which, in the applicant s opinion, were violated, etc. However, these requirements are actually aimed at securing effective judicial protection and from the perspective of the prevailing 2. In the case of a valid excuse the time period for appeal may be extended. 548

21 opinion and practice there are no grounds to treat them as a limitation of the right of appeal Stages of Appeal Russian Federation The procedure of appeal consists of stages within which a case may be reviewed in order to improve the grounds of the final decision on a tax dispute. As the administrative appeal does not lead to handling a tax case by an independent body, taxpayers do not usually consider it as an effective remedy because it does not result, as a rule, in the change of a decision previously taken. According to the available data, the majority of taxpayers prefer to appeal directly to court, taking into account the dynamics of judicial proceedings (trials in all three instances seldom exceed one year) and the number of tax authorities decisions held to be invalid (in some time periods these were more than 50% of all the cases handled). In particular, according to the data of the RF Supreme Arbitration Court, in 2008 state arbitration courts handled 99,681 cases connected with the application of tax legislation. 3 The number of similar cases handled in courts of general jurisdiction was 3,164,685 (taking into account the established judicial procedure for recovering tax debts from natural persons). 4 Let us analyse the stages of appeal in the framework of the system of state arbitration courts which examine tax disputes involving companies and entrepreneurs (i.e., tax disputes except for those involving natural persons without the status of entrepreneur). The current RF State Arbitration Procedure Code provides for the possibility to try a case, as a rule, within the framework of three instances: (1) in a court of the first instance which exists in almost every region of the RF (at present there are eighty-one of them, while there are eighty-three RF regions). 5 At this stage of proceedings a case is tried in all details : all relevant facts and provisions of law to be applied are examined; (2) in a court of the second instance appellate court (at present there are twenty state arbitration appellate courts). If the decision of a court of the first instance is appealed within thirty days it does not have legal effect; and then a court of the second instance has the right to try the case again and examine all previously established facts and legal provisions applied. The decision of the second instance has legal effect as soon as it has been issued; 3. < 4. At present draft amendments to the RF Tax Code on abolishing judicial procedure of recovering tax debts from natural persons have been submitted to the parliament by the RF Supreme Court. See: < 1 /45784> 5. It is necessary to note that though state arbitration courts of the first instance are formed at the regional level they are not integrated in the system of regional authorities and are financed from the federal budget. 549

22 Danil V. Vinnitskiy (3) in a court of the cassation instance there are ten state arbitration courts of Federal districts. Cassation may be submitted within two months of the handing down of the decision being challenged. At this stage of proceedings matters of law are mostly examined; but not the conclusions on the evidence presented. Violation of the law is the ground for abolishing the decisions of inferior courts. A decision of the cassation instance is usually the final one. In exceptional cases when the decisions handed down contradict the wellestablished court practice they may be revised in an extraordinary order of supervision by the RF Supreme Arbitration Court. In addition, any case may be revised on the basis of newly discovered circumstances, that is, in connection with facts that are relevant for the case and which could not be known at the moment the court decision was given (e.g., in connection with the judgment of a criminal court, fabricated evidence) Article 311 of the RF State Arbitration Procedure Code Request to the RF Constitutional Court Sometimes taxpayer protection is complicated by doubts about the constitutionality of a normative legal act to be applied in his case. The Federal constitutional law of 21 July 1994 No1-FKZ (amended 5 February 2007) On the RF Constitutional Court provides that taxpayers may directly address the RF Constitutional Court, as well as ordinary 6 courts (which try a tax case) if they have doubts whether the tax law (federal or regional) which is applied (or is to be applied) in the case is in accordance with the RF Constitution. Such a request may be forwarded by a court of any instance irrespective of the stage of the procedure (Article 101 of the No1-FKZ). In case such a request is made, the procedure in the ordinary court has to be suspended. Article 3 (3) of the above-mentioned law provides that with the purpose of protecting the constitutional order, the fundamental rights and freedoms and providing the supremacy and direct effect of the RF Constitution on the entire territory of the Russian Federation, the RF Constitutional Court, at the request of other courts, controls the constitutionality of a law which is applied or has to be applied in a certain case. But the RF Constitutional Court deals only (exclusively) with legal matters; when carrying out constitutional proceedings the RF Constitutional Court must refrain from establishing and examining the facts of the case if it is the competence of other courts or other authorities. Whereas a request made by an ordinary court is a cause to try a case in the RF Constitutional Court, the justification for such a trial is the uncertainty which has been found in understanding the provisions of the RF Constitution (Article 36 of the Law No. 1-FKZ). 6. By ordinary courts, we mean here courts of general jurisdiction which individuals may address and state arbitration courts which companies and entrepreneurs may address. 550

23 Russian Federation A number of problems that are important in practical terms arise when the procedure under discussion is applied: Firstly, ordinary courts do not often forward requests to the RF Constitutional Court; the number of direct applications from individuals prevails significantly. One of the important recent cases which was tried at a court s request was the RF Constitutional Court Decision of 14 July 2005 No. 9-P On the case of controlling the constitutionality of provisions of Article 113 of the RF Tax Code in connection with the complaint from G.A. Polyakova and the request from the Federal Arbitration Court of Moscow district. In this case the RF Constitutional Court decided to examine two independent cases together the complaint by the individual and the court request, because they both concerned the same tax norm which defines the time limitation for a taxpayer s legal responsibility. Secondly, as Chapter XIII of the Law No1-FKZ does not specify the procedure of dealing with a court request in enough detail, the grounds on which the RF Constitutional Court may find the request not subject to examination are not clear. In particular, the RF Constitutional Court may decide that there is no uncertainty about the interpretation of the RF Constitution and that the tax law being challenged is in accordance with it. Such a decision can be adopted without an open trial where the taxpayer could participate. Thirdly, as the RF Constitutional Court does not evaluate the facts of a case, even its positive decision does not guarantee the real protection of the taxpayers rights: the ordinary court still has to decide the case, taking into account certain facts which may lead to very different legal consequences (not all the legal norms relevant for the case will be checked by the RF Constitutional Court but only those which were mentioned in the ordinary court request). Fourthly, the RF Constitutional Court may disagree with the opinion expressed in the request of an ordinary court and hold the legal norm which is challenged to be in accordance with the RF Constitution, but it can give a new interpretation which will be different from the one expressed in ordinary courts practice. In this situation the ordinary courts will have to follow this new interpretation as it is of a binding character for them. It is worth mentioning one more point. The Decision of the RF Constitutional Court on an ordinary court request will be important not only for this court and the taxpayer whose case is being tried. The legal position (that is, the conclusion and its justification) of the RF Constitutional Court is of universal significance and must be taken into account by all courts in the respective category of cases and even by the legislator. The latter may not override or repudiate the RF Constitutional Court position by adopting a new law with the same content as such a law would be 551

24 Danil V. Vinnitskiy invalid ab initio because of its conflict with the established interpretation of the RF Constitution Challenging Normative Tax Acts A taxpayer or another interested party has a right to challenge a normative tax act; however, the national legislation does not provide for any major specific deviation for tax matters in this regard. On the whole, in the Russian Federation there are three Courts of highest instance: (1) The RF Supreme Arbitration Court is in charge of courts which handle disputes between companies and entrepreneurs including the disputes these may have with the tax authorities. (2) The RF Supreme Court is in charge of courts of general jurisdiction; they handle cases between individuals, including their disputes with tax authorities. (3) The RF Constitutional Court handles cases concerning the conflict of certain legal normative acts with the RF Constitution, including cases on the consistency of federal tax laws, the RF Government rulings on tax matters, the laws of the RF Regions on taxes, with the RF Constitution. All the three courts are independent of each other and have a different jurisdiction. The issues of the consistency of a law with the RF Constitution may only be examined by the RF Constitutional Court. Other courts may, within their jurisdiction, examine the consistency of an inferior legal normative act with the superior one (except where this superior act is the RF Constitution). For example, the RF Supreme Arbitration Court may override an RF Government ruling or an order of the RF Ministry of Finance on tax matters, having found it inconsistent with the RF Tax Code. But it is only the RF Constitutional Court which may evaluate the constitutionality of a normative act; for example, it may rule that some provision of the RF Tax Code is inconsistent with the RF Constitution and hence must be disapplied. 3. ADMINISTRATIVE PROCEDURE OF APPEAL IN TAX LAW According to Article 138(1) of the RF Tax Code, the acts of tax authorities, officials actions or their failure to act may be challenged at the superior tax authority (or the superior official). Submitting a tax complaint to the superior tax authority (or to the superior official) is not an obstacle to simultaneously (or later) submitting a similar complaint to court if Article of the RF Tax Code (cases connected with levying tax sanctions) does not provide otherwise. As was mentioned above the administrative procedure of appeal is not at present considered to be an effective enough remedy of taxpayer protection. 552

25 Russian Federation II. PRINCIPLES OF PROCEDURAL LAW IN TAX MATTERS: CONSTITUTIONAL LAW REQUIREMENTS 1. SEPARATION OF POWERS BETWEEN THE FEDERATION, RF REGIONS AND MUNICIPALITIES IN TAXATION AND PROCEDURES According to Article 72 (1) ( i ) of the RF Constitution, it is the joint competence of the federation and RF regions to establish general principles of taxation (including the procedural aspects of taxation). The meaning of this provision (taking into account its structural links to other provisions of the RF Constitution) was explained in the case law of the RF Constitutional Court, first of all, in its Decision of 21 March 1997 No. 5-P On verifying the constitutionality of Articles 18(2) and 20 of the RF Law On the fundamentals of the RF tax system. The explanation was the following: as far as the general principles of taxation are connected with securing the fundamental rights of individuals, they are within the competence of the federation. This approach also reflects, according to the Court, one of the foundation stones of the RF constitutional system the principle of a unified economic space (Article 8(1)) which means, in particular, that within the limits of the territory of the Russian Federation any customs borders, charges, duties or any other obstacles to the free movement of goods, services or capital are strictly prohibited (Article 74 (1) of the RF Constitution, Article 3 (4) of the RF Tax Code). From a procedural perspective, the unified economic space and, consequently, the unified tax system are secured by the single system of federal tax authorities the Federal Tax Service. The tax authorities as federal bodies under the RF Constitution are subordinate exclusively to the federal government (Articles 71 ( j ), 78 (1)). 2. GENERAL CONSTITUTIONAL REQUIREMENTS FOR THE ACTIVITIES OF TAX AUTHORITIES General constitutional requirements for the activities of tax authorities have been clearly formulated in the Decision of the RF Constitutional Court of 16 July 2004 No. 14-P On verifying the constitutionality of Article 89 (2) of the RF Tax Code in connection with the complaints of A.D.Yegorov and N.V.Chuyev. In this case the provisions of the RF Tax Code on the time limits for tax inspections, including the inspections exercised by the superior tax authority (as a kind of control over the activities of an inferior tax authority which held a previous inspection) were analysed. In the above-mentioned Decision the RF Constitutional Court stressed that in giving the authority to tax administration the legislator must ensure compliance with Articles 55, 8, 17, 34, 35 of the RF Constitution. According to these provisions, restriction of taxpayer constitutional rights is allowed when the following principles are respected and implemented: the principles of justice, adequacy, 553

26 Danil V. Vinnitskiy proportionality and the admissibility of restrictions in favour of the public interest which is of the evident constitutional value. 3. PROCEDURAL PRINCIPLES OF TAXATION DETERMINED BY THE RF CONSTITUTION 3.1. Legality The principle of legality is a key procedural principle which directly follows from the RF Constitution. Any normative legal rules have to be exercised in accordance with the procedures provided for by law, and in particular, by the RF Tax Code. On the basis of Articles 72(1)(i) and 75(3) of the RF Constitution, the system of taxes and the general taxation principles in the RF are established by federal law. In this connection the activities of tax authorities, as the RF Constitutional Court has stressed repeatedly, must be exercised in accordance with general constitutional principles of organization and activities of all state executive bodies, including the principles of rule of law and inadmissibility of arbitrary interference in the economic activities of the company (entrepreneur) being inspected. Court practice follows from the principle of the necessity of taxation and obligation to pay taxes. At the same time, the procedural requirements established by law are obligatory for tax authorities (Articles 15, 18 of the RF Constitution) and may not be ignored under the pretext of the constitutional significance of taxation (e.g., Decision of the RF Constitutional Court of 1 December 1997) Determinacy There are a considerable number of court decisions, including RF Constitutional court decisions, which have held tax normative acts invalid because of violation of the principle of determinacy (certainty) of legal regulation. A good example here is the Decision of the RF Constitutional Court of 15 July 1999 No. 11-P On verifying the constitutionality of the RF Laws On the RF Tax Service, On the fundamentals of the RF tax system and On the federal bodies of tax police. In particular, within the framework of this case, the RF Constitutional Court held that the procedure of imposing sanctions on a taxpayer did not take into account his guilt in violating the law and that the grounds for imposing different sanctions were not clearly identified (see e.g., Article 13(1)(a) of the former RF Law On the fundamentals of the RF tax system ). The RF Constitutional Court pointed out in the above-mentioned Decision that this indeterminacy of the legal content of the provisions under discussion conflicts with the basic principles of procedural law in regard to imposing public law sanctions (Earlier the criterion of determinacy of a legal norm as a constitutional 554

27 requirement for the legislator was formulated in the Decision of the RF Constitutional Court of 25 April 1995 on a non-tax case On verifying the constitutionality of Article 54 of the RF Housing Code.) The fundamental legal criteria of the determinacy, clarity, non-ambiguity of a legal norm follows from the constitutional principle of equality (Article 19(1) of the RF Constitution), as equality can only be implemented in the case of a uniform understanding and interpretation of a norm by all courts and executive bodies. Indeterminacy of the content of a legal norm, in contrast, leads to an unlimited discretion in its application and, consequently to the violation of the principles of equality and supremacy of law Principle of Equality and Proportionality Russian Federation Paragraph 3 of the Decision of 16 July 2004 No. 14-P of the RF Constitutional Court stresses the importance of principle of equality when procedural rules are applied in tax matters; however, this principle does not exclude differences in the legal treatment of taxpayers taking into account the objective differences in their actual circumstances. In particular, the RF Constitutional Court points out that the RF Tax Code provides for both a unified and differentiated approach to establishing time limits within which a tax inspection may be carried out in regard to a certain taxpayer. This dualistic approach, on the one hand, is aimed at equal treatment and equal legal protection for all taxpayers; on the other hand, it is able to take into account specific circumstances demonstrating differences in taxpayers situations (Article 19 of the RF Constitution). Thus, the Court held that it is in accordance with the RF Constitution to differentiate between the time limits of tax inspections based on such criteria as the peculiarities of the tax regime to be applied, the scope of economic activity, etc. However, the differentiation must be justified and the criteria used to make it must be established in accordance with the principles of certainty, determinacy, clarity and non-ambiguity of a legal norm Presumption of Bona Fide and the Burden of Proof An important constitutional guarantee for procedures in tax matters is that according to the Russian legal doctrine a taxpayer, as rule, is not obliged to prove the lawfulness of his activities (operations); they are presumed to be lawful and his intentions are considered bone fide until proven otherwise. This principle influences the distribution of the burden of proof in tax cases: the burden of proof lies mostly imposed on the tax authorities (At the same time, in accordance with the judicial procedural rules, a taxpayer is obliged to provide proof supporting the arguments which he uses for his position.) One of the important court decisions on this issue is the RF Constitutional Court Decision of 25 July 2005 No.138-O, taken at the request of the RF tax 555