Ukraine is one of the three countries in respect of which the most applications have been submitted to the ECHR.
VB PARTNERS analyzes the key decisions of the ECHR against Ukraine. We bring to your attention a series of systematic analytical reviews.
The subject of attention is the right to peaceful enjoyment of property and to an effective means of protection. We will show which actions of state bodies violate the rights of legal entities and how to get decent compensation.
The case of Intersplav vs. Ukraine: how systemic illegal actions of public authorities lead to a violation of property rights.
On January 9, 2007, the European Court of Human Rights delivered its judgment in the case of Intersplav vs. Ukraine (№ 803/02), concerning the State’s delay in paying VAT reimbursement and compensation for late payment.
The circumstances of the case:
The applicant was engaged in the production of goods using scrap metal purchased in Ukraine at a 20% VAT rate. Most of the products are exported with a 0% VAT rate. Thus, the applicant was entitled to VAT reimbursement.
Such reimbursement shall be made by the State Treasury Service. The deadline for payments is 1 month from the date of submission of calculations to the tax authority and confirmation of these amounts. In addition, the law guarantees the payment of compensation for delayed reimbursement.
At the same time, the reimbursement and compensation to a person depends on the timeliness of the actions of the tax authority, which must confirm the calculations provided by the applicant.
In practice, there were cases of systematic abuse by the tax authority, which consisted of ignoring the calculations submitted by the applicant, which led to a systematic delay in VAT reimbursement.
The applicant complained unsuccessfully to the higher tax authority and the prosecutor’s office. The latter acknowledged the existence of debt, but found no violations in the actions of the tax authority. The applicant also initiated more than 140 tax proceedings against him, which ended in his favor. However, court decisions were not enforced for a long time.
The total amount owed by the State to the applicant is over 26 million UAH.
Legal assessment of the ECHR:
According to the results of the review, the ECHR found a violation of Art. 1 of Protocol No. 1 to the Convention, which guarantees everyone the right to peaceful enjoyment of property.
The right to a VAT reimbursement is a property right protected by the Convention. The applicant had legitimate property expectations for timely VAT reimbursement and compensation.
The ECHR provided the following assessment on the actions of the tax authority:
- The actions of the tax authority, which did not deny the applicant’s right to a VAT reimbursement but did not confirm the amounts, effectively blocked such a refund.
This created a situation of constant uncertainty. The applicant was forced to constantly apply to the court with identical statements of claim. However, even the court decisions in favor of the applicant did not prevent the tax authority from pursuing its unlawful actions – delaying the payment of VAT reimbursement.
- The interference with the applicant’s property rights violated the principle of proportionality.
The constant delays in reimbursement, combined with the lack of effective remedies, as well as the state of uncertainty about the timing of return of funds, are not in line with the “fair balance” between the public interest and the right to peaceful enjoyment of property.
In the Court’s view, the State’s actions had placed an excessive burden on the applicant.
The ECHR awarded the applicant 25,000 EUR in compensation.
Public authorities must act in accordance with the law, without abusing their rights or evading their duties. In all cases, respect of the rights of individuals and legal entities should be the State’s priority.
The commission of similar actions by State bodies, despite the existence of a court decision, which assessed such actions as illegal, violates the right to property.
Author: Victoria Khilinichenko, lawyer of VB PARTNERS