17.1 Summary

Chapter 2 is devoted to the background and genesis of Article 1 First Protocol in the late forties/early fifties of last century. The authors of the First Protocol to the ECHR were aware of the tension between taxation and the right to property. Their views on this politically precarious subject are expressed in the second paragraph of Article 1 of the First Protocol, which states that ‘[t]he preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties’. This suggests that tax measures (at least those relating to collection of taxes) fall entirely outside the scope of property protection. However, tax measures that amounted to arbitrary confiscation were considered to be contrary to the fundamental right to property. In recent case law, the ECtHR has given a wider scope to Article 1 First Protocol. The original views on (lack of) access to Article 1 First Protocol in tax matters can therefore now be regarded as outdated. However, what has not changed is that this provision is considered to be breached only in exceptional cases (if tax measures are devoid of reasonable foundation or lead to an individual and excessive burden).

Chapter 3 discusses the assessment scheme developed by the ECtHR to assess alleged violations of the property right. This assessment scheme is also applied by the ECtHR when dealing with complaints about tax measures. The most important key concepts from this scheme are: possessions, lawfulness, legitimate aim and fair balance. The specific tax aspects of these terms are further elaborated in chapters 4 to 7.

Chapter 4 deals with the question of whether a tax measure affects property, which is crucial for access to Article 1 of the First Protocol. The question is whether a citizen or legal entity has a possession that is affected by a tax measure. In principle, the obligation to pay tax inherently affects property rights. Therefore, in tax matters it is almost always a question of whether there is a justification for the infringement of property. In a number of specific circumstances, however, the question of access in tax matters merits further consideration. The case law of the ECtHR contains indications that in disputes concerning a reduction, set-off or refund of tax, it must first be determined whether there is a sufficiently established right under national law to the desired reduction, set-off or refund. The taxpayer should at least have a legitimate expectation of such favourable tax treatment. This may occur in particular if the tax authorities refuse to recognise a tax refund to which taxpayers are entitled under the law or if a law is amended to the detriment of the taxpayer with retroactive effect or without transitional provisions. In principle, there is no possession if, for example, an entitlement to future loss relief is (further) limited in time.

Chapter 5 deals with the first (and, according to the ECtHR, most important) condition to be met if an infringement of property is to be justified: it must be based on a published legal basis of sufficient quality. This is known as the requirement of lawfulness. This means, among other things, that statutory provisions and judicial decisions must be sufficiently foreseeable, accessible and precise, enabling taxpayers to assess the tax consequences of intended courses of action. Absolute certainty is impossible in view of the complexity of society and tax legislation and is by no means required. Vague legal texts, open standards and general anti-abuse concepts, written or otherwise, are permitted, as long as the courts interpret them in a consistent manner. Taxpayers accustomed to dealing with business risks are expected to consult experts if necessary. Case law must also be foreseeable and precise. Here too, absolute certainty as regards the outcome of legal proceedings is not required (this would even be suspicious). The ECtHR accepts that there may be good reasons for a court to reconsider a previous interpretation (to the detriment of a taxpayer). It may, however, be necessary for the court to explain why it departs from its previous interpretation. The condition of lawfulness, more specifically that of foreseeability, may also impose requirements on the reasoning and methods of interpretation of the law. For example, textual interpretation of the law may be appropriate in the absence of a generally accessible Parliamentary history if a legal text is clear. Conversely, if the wording of the Statute is vague, but a clear Parliamentary history is available, then a teleological interpretation of the text may be appropriate. The condition of lawfulness also has a procedural aspect (access to court). Article 1 of the First Protocol requires that any infringement of property, however insignificant, must be accompanied by the possibility to effectively challenge that infringement. Access to an independent court is not always necessary. An administrative procedure may sometimes suffice, as long as a proper review is possible.

Chapter 6 discusses the requirement of a legitimate aim in the public interest. The levying and collection of taxes, as well as the imposition of tax fines, contributes directly or indirectly to the general resources of the State or to the punishment of tax offences and are therefore in principle in the general interest. In principle, the ECtHR will accept the aim stated by the State, but sometimes it shows its doubts as regards political motives. But even if it suspects détournement de pouvoir, the ECtHR prefers to resort to a weighing of interests under the final test, the fair balance test. In this way, the court steers clear from the politically highly sensitive question of whether politically biased (tax) legislation sufficiently serves the general interest.

Chapter 7 discusses the requirement that there must be a reasonable relationship between the general interest that is served by a tax measure and the consequences suffered by individual taxpayers (fair balance). The Court’s judgment in that respect is very restrained where the State measure is imposed in social-economic areas (including taxation). The fair balance in those areas is only considered to be breached if a tax measure imposes an excessive burden on a taxpayer or if the measure is devoid of reasonable foundation. In tax cases, the ECtHR sometimes uses slightly different words than in other property infringement cases. However, no evidence was found that such slightly different framing has any material meaning apart from paying lip service to the sovereignty of the State involved in politically highly sensitive and exposed cases, such as the Russian Yukos cases and the Hungarian civil servant dismissal cases. In principle, the Court looks at the proportionality of an ownership infringement at the level of the individual taxpayer, taking into account all the relevant circumstances of the case. However, sometimes an opinion is sought on a tax measure as such, as appears to be the case in the Hungarian civil service cases N.K.M. c.s. In that case, the ECtHR applies a more abstract assessment, paying less regard to the individual (financial) position of the taxpayer after several initial individual judgments, if it appears that all new cases filed are more or less identical. If the ECtHR finds a breach of Article 1 of the First Protocol in such an initial case, the excessiveness in subsequent similar cases is presupposed because the rule itself is flawed and (thus) is likely to lead to an excessive burden in all similar cases. Nor does the ECtHR take account of individual circumstances in the exceptional case in which a special collective procedure for systemic errors is applied (the so-called ‘pilot judgement procedure’).

In Chapter 8, it is pointed out that the fundamental right to property has also been a general principle of EU law that has been directly applicable for several decades. It was eventually codified in the Charter of Fundamental Rights of the European Union, which entered into force at the end of 2009. The scope of application of the Charter and of those general principles is the same as the scope of EU law as such, which means that whenever EU law is activated, the (Charter of) Fundamental Rights are also activated. For (citizens and businesses of the) Member States of the European Union, therefore, there are two systems of fundamental rights protection in addition to their national law: the ECHR in the context of the Council of Europe and, for situations that fall within the scope of EU law, the Charter of Fundamental Rights of the European Union. The wording of the right to property in Article 17 of the Charter is different to that in Article 1 of the First Protocol, but the substantive scope of the two provisions is comparable. As relying on the Charter should not be less favourable than reliance on the ECHR, it can be assumed that tax measures fall within the scope of Article 17 of the Charter. This is confirmed by the case law of the ECJ. However, as observed, in order for the Charter to be applicable, the national rule at issue must fall within the scope of EU law. This is the case in two situations: (i) where Member States apply an EU regulation, transpose EU directives into national law or apply such implementation law, or implement Commission competition decisions (so-called Wachauf cases), and (ii) where a national authority restricting EU free movement rights invokes a justification, which must conform to the general principles of EU law and the fundamental freedoms (so-called ERT cases). EU-harmonised or even -uniformed indirect taxes (VAT, customs duties, excise duties) are more likely to fall within the scope of the Charter (Wachauf cases) than non-harmonised direct taxes, which in principle, can only produce ERT cases, and only in cross-border situations. It is submitted that a review on the basis of fundamental rights in such a case is unlikely to add much to the review of the cases under the EU’s free movement rights.

Chapter 9 examines the quantitative limits imposed by the right to property on the levying of taxes and tax fines. I have found that on the basis of the case law of the ECtHR, it is not possible to indicate the exact boundary between (admitted) taxation and (prohibited) arbitrary confiscation. The ECtHR has never ruled a tax is in violation of property law solely because of the level of the (effective) rate. However, it can be assumed that an income tax burden of or tending towards 100% is, in fact, an expropriation without compensation and therefore, is prohibited. The ECtHR also seems to identify a violation of the right of property if taxation of capital (income) makes it structurally impossible to achieve a reasonable/ more than minimal profit. Although indications for this can be found in case law on rent legislation, it is not yet clear whether this case law is also relevant to tax matters. For the question of whether taxation is excessive, aspects other than the effective tax burden may also be relevant, such as détournement de pouvoir, tax discrimination, personal hardship, retroactive effect and national constitutional tensions. Tax fines also fall within the scope of Article 1 of the First Protocol. In addition, a tax fine is a ‘criminal charge’, to which Article 6 ECHR (right to a fair trial) refers. However, this provision does not in itself create a threshold against high fines, so that a taxpayer who wants to question the amount of a fine has to rely on Article 1 of the First Protocol. It follows from the case law of the ECtHR that high fines are permitted as long as there is a reasonable relationship between the interest that society has in the punishment and the disadvantage that the individual suffers from a sanction. Circumstances which, in all events, must be taken into account are the behaviour of the person concerned and the rule that is protected by the sanction. In assessing the proportionality of a fine, the ratio to underpaid tax is less significant than in cases of excessive taxation. For example, the result of this assessment may be that a fine that exceeds the underpaid tax (i.e. more than 100% of the tax) is still acceptable.

Chapter 10 discusses the circumstances under which retroactive effect of tax legislation is acceptable. Although retroactivity is clearly at odds with the requirement of lawfulness, the ECtHR always examines whether the interests that a State invokes in levying tax retroactively outweigh the interest that the citizen has in knowing what his or her tax obligations are in good time. This concerns the question of whether legitimate expectations of taxpayers are violated and, if so, whether there is sufficient justification for this. The cases discussed show different types of situations in which taxation with retroactive effect is considered justified by the ECtHR. These are first and foremost cases in which taxpayers could expect that the law would be amended retroactively in order to undo an unjustified advantage. Case law has addressed the following situations: (i) artificially anticipating an announced legislative amendment (M.A.), (ii) obtaining an unintended and unjustified tax advantage as a result of an unforeseen technical defect in the law (Building Societies), and (iii) artificially evading tax by means of aggressive tax planning (A.B.C. and D. and Huitson). A breach of legitimate expectations does not arise if it is announced in good time that a law still to be enacted will have retroactive effect, it is communicated with sufficient precision what that law will contain and that the date of any retroactive effect is not earlier than the date of its announcement, apparently regardless of the precise reasons for that law or its retroactive effect (Arnaud). If a law that is detrimental to the citizen has a retroactive effect beyond the time of announcement of the amendment of the law, or if the announcement is insufficiently precise, the justified expectations of taxpayers will be infringed. The legislature must be able to invoke specific and compelling reasons for this (P. Plaisier B.V. a.o.). To date, the ECtHR has not yet ruled on the question of whether purely budgetary considerations can justify retroactive effect prior to the announcement of an amendment to the law. It can be deduced from the case law that a national legislature which levies tax retroactively will seldom be confronted with intervention from the ECtHR or the Netherlands Supreme Court if the date of the retroactive effect does not precede the date of announcement of the retroactive amendment of the law and reasonable reasons are cited for doing so. In principle, the ECtHR will only intervene if the legislature does go further back and thereby affects taxpayers in good faith, and/or can be suspected of having improper intentions, and/or of violating other fundamental rights, such as the prohibition of discrimination.

Chapter 11 shows that Article 1 First Protocol provides (tax) creditors of the State with an instrument to enforce full and timely compliance with the (refund) obligations of the State. This category of property rights includes, for example, a right to a tax refund and a right to offset input VAT. Furthermore, Article 1 of the First Protocol may impose a positive obligation on the State to compensate damages caused by delays (interest) if there is an inexplicable delay before refunding of the tax that has been paid unduly. Also, in special cases, the State may be obliged to compensate damages related to the tension and frustration that has arisen as a result of the prolonged uncertainty about repayment.

Chapter 12 discusses the case law of the ECtHR on recovery measures. The topics discussed are the exercise of Netherlands substantive tax law vis-à-vis third parties (Gasus), the public sale of property of the taxpayer in order to collect an alleged tax debt (Rousk and Yukos), the holding of directors liable for the company’s tax debts (Khodorkovskiy and Lebedev), and the charging of high amounts that do not correspond to the actual costs for the execution (Yukos). This case law shows that recovery measures are justified if they are exercised in a non-arbitrary way, based on a clear and prior legal provision, and they are proportionate. The charging of high costs is disproportionate if the taxpayer has not first been given sufficient opportunity to prevent those costs by means of voluntary payment prior to the commencement of coercive recovery. It is also important that the continuity of a business should be endangered as little as possible and that the parties involved should have an effective legal remedy at their disposal to enable an independent body to rule on the legality and proportionality of a recovery measure.

This section discusses the relationship between property rights and taxation in three Member States of the Council of Europe: The Netherlands, Germany and the United Kingdom. The protection of fundamental rights is arranged in very different ways in these countries; reason to choose these three. Although the Netherlands has a Constitution, the courts may not review formal legislation – i.e. tax legislation – against the Constitution or against general unwritten legal principles. On the other hand, the courts must assess whether formal legislation is in accordance with treaties which operate directly to which the Netherlands is a party, such as the ECHR. Citizens and legal persons, therefore, can challenge formal (tax) legislation directly before the national courts on the basis of the ECHR, which can exclude the formal law from application in individual cases, but which can also declare the law as such in violation of the ECHR, as it did in the box 3 case. The United Kingdom does not have a Constitution or its own catalogue of fundamental rights. In order for international human rights treaties to be reflected in the United Kingdom, they must first be transposed into national law. For the ECHR, this was done by means of the Human Rights Act. Citizens and legal persons can invoke this Act before the British courts in order to challenge any formal legislation (Acts of Parliament) that violates the ECHR. The courts cannot rule on the invalidity of this law: they must leave structural intervention to Parliament. They can, however, intervene in individual cases. Germany, like the Netherlands, does have a Constitution. Unlike in the Netherlands, it occupies a dominant position in the field of the protection of human rights, because the German courts (ultimately the Bundesverfassungsgericht: ‘BVerfG’) first explicitly test their own Constitution, which means that international human rights treaties have a modest role to play. Citizens and legal persons can raise the issue of the unconstitutionality of formal legislation with their own national courts. However, the German courts do aim to interpret the Constitution in such a way as to prevent conflicts with the ECHR (interpretation in accordance with the treaties) and grant the legislature a reasonable period of time if they consider the (tax) law to be unconstitutional.

Chapter 13 examines how the Netherlands courts deal with taxpayers’ appeals to Article 1 of the First Protocol. The Netherlands courts interpret the Constitution as such, that they cannot offer any more far-reaching protection than that which ensues from the international treaties against which they have to assess. In principle, therefore, the Netherlands courts are just as cautious in their examination as the ECtHR. The literature criticizes this approach, although there are also authors who understand the choices made by the Supreme Court. I have supported the critics. In my opinion, the Supreme Court would still fulfil its obligations under the Constitution if it applied a margin of appreciation appropriate to its position as – according to the ECtHR – a ‘better placed’ national court. Furthermore, an analysis has been conducted into the way in which the Netherlands tax court deals with appeals under Article 1 of the First Protocol, in which it was examined whether the Netherlands court does indeed offer (at least) the same protection as the ECtHR. The case law of the Supreme Court on Article 1 of the First Protocol shows a great deal of similarity with that of the ECtHR. In principle, the Supreme Court follows the same assessment scheme as the ECtHR in order to determine whether (i) Article 1 of the First Protocol can be invoked, and (ii) whether there is justification for an infringement of property. The Supreme Court also regularly refers to Strasbourg case law. Many cases are decided under the proportionality test. This test differs from that of the ECtHR in that the Supreme Court explicitly first applies it at rule level and only thereafter at individual level. In the regulatory review, the Supreme Court seems to attach particular importance to the intentions and assumptions laid down by the legislature in the Parliamentary history. A difference has been observed here with respect to the ECHR, which, in cases with a regulatory review, ignores the intentions expressed by the State and takes account of the actual effects of legislation. Only once it has been established that the fair balance at the regulatory level has not been violated will the Supreme Court assess whether a tax imposes an individual and excessive burden on a taxpayer. According to the Supreme Court, this is only the case if a taxpayer is affected by a measure ‘more than in general’, i.e. more than others. However, this requirement is not contained in the ECHR case law. It is clear from this case law that a disproportionate and excessive burden by no means has to be individual in order to be unlawful, let alone in the sense of ‘more than with other affected parties’. Particular attention has been paid to the case law of the Supreme Court on the capital gains tax in box 3 of the 2001 Income Tax Act. This tax is levied on a notional income from capital that is determined by a stack of fictions and lump sums, as a result of which – contrary to what the legislature stated – reality is hardly ever approached and often even disappears far from sight. In some cases, this has led to effective tax rates that structurally, are far above 100% of the actual return. For savers and risk averse individuals, this levy can justifiably be called an excessive tax. One point of criticism is that the Supreme Court, when assessing whether the capital gains tax leads to an ‘individual and excessive burden’, looks at the whole financial position of the person concerned. A tax that structurally taxes more than 100% of the capital income and thus affects the existing capital could, therefore, still be acceptable as long as the taxpayer has sufficient other capacity to pay the tax. It is doubtful whether this is in accordance with the case law of the ECtHR, which, in cases concerning excessive taxation (N.K.M. c.s.) and excessive rent protection (Hutten-Czapska and Aquilina), did not take into account the possible presence of other income or assets of the parties involved.

Chapter 14 describes the protection of property against taxation by the UK courts. A distinction is made between the periods before and after the entry into force of the Human Rights Act (HRA) on 2 October 2000. Before that date, the relevance of the ECHR in the United Kingdom was limited. Citizens and legal persons could not invoke the Convention in the national courts, but the courts could, when interpreting legislation, strive for an interpretation that did not violate fundamental rights. However, the possibilities for doing so were not unlimited. If the text of the law or the intention of the parliament were clear, there was no scope for interpretation in accordance with the treaties. In the field of taxation, the UK courts do not appear to have needed the fundamental right of ownership in the finding of justice before the entry into force of the HRA. British taxpayers could and did appeal to the ECtHR (individual right of complaint). The tax proceedings initiated there invoking Article 1 of the First Protocol mainly concerned tax legislation introduced retroactively. I have discussed and analysed a number of important rulings by lower and higher UK courts in the period following the entry into force of the HRA. In those rulings, the UK courts have always taken the case law of the ECtHR as a guideline. They examine tax legislation as cautiously as the ECtHR does. This follows directly from Article 2 HRA, which orders the court to take account of relevant Strasbourg case law and, otherwise, to respect Parliamentary sovereignty as much as possible. In addition to similarities, differences have also been observed with regard to the way in which the ECtHR generally assesses reliance on Article 1 of the First Protocol. This relates, in particular, to the inclination of the British courts to pay attention to difficult questions which, strictly speaking, are not necessary in order to settle a dispute and, in particular, to the question of whether there is a possession and therefore, access to Article 1 First Protocol. In the field of taxation, the British courts observe a wide margin of appreciation vis-à-vis the legislature, in line with the ECtHR. As a result, the number of British tax cases in which Article 1 of the First Protocol has been violated is limited. Only in one case has a violation of the fundamental right to property been established, but the court was able to resolve this by interpreting the law in a teleological and ECHR-compliant manner. The individual financial circumstances of taxpayers appear to be of limited importance in the United Kingdom; in almost all of the judgments examined, the court’s review was carried out solely at the level of the rules.

Chapter 15 deals with the relationship between the German constitutional right to property and taxation. The conclusion is that the assessment of taxes in the light of constitutional property law in Germany is primarily a theoretical matter. For the practice of taxation, other provisions of the Constitution – in particular those concerning human dignity, the principle of equality and the prohibition of discrimination – are much more relevant. The limited importance of the property right can be explained historically. On the basis of BVerfG case law, the right to property only protects concrete property rights against government interference. Given that taxes were deemed to be charged not to a specific right but to the assets as such, for many years taxes fell outside the scope of the right to property. An exception was made in cases where the obligation to pay tax placed an excessive burden on the persons concerned and fundamentally affected their financial situation to such an extent that it made the implementation of a taxed transaction de facto impossible. According to German case law, such a tax (Erdrosselungssteuer or ‘stranglehold tax’) is essentially not a tax, but a ban on use or products; therefore, détournement de pouvoir: taxation is considered to generate financial resources for the State. An Erdrosselungssteuer, if indeed it does have a sufficiently prohibitive effect, does not generate any tax revenue and thus essentially pursues a different objective. This poses a problem: the so-called secondary objectives pursued by taxation, such as environmental objectives or income redistribution, are also independent of the bare financing objective of taxation, but the government can hardly be denied the power to pursue general interest objectives by means of taxation. I also refer to a special judgment of the BVerfG in 1995, in which it was decided that the fundamental right to property means that income and capital taxes together may not exceed half of the income (Halbteilungsgrundsatz). The BVerfG reconsidered this judgment in 2006. It also made clear that income and profits acquired are concrete subjective economic interests that fall under the protection of the fundamental right to property. The BVerfG also considers the principle of proportionality to be important and requires that any infringement of property must have a legal basis. As a result, the BVerfG’s case law is more in line with that of the ECtHR. One difference is that taxation that does not serve a financial purpose is clearly prohibited in Germany. Once it is established that a tax has the character of an Erdrosselungssteuer, a weighing up of interests is not necessary. Such a measure would probably pass the legitimate aim test at the ECtHR, after which it would come down to a balance between the public interest and the individual interest, in which the ECtHR would attach less importance to the question of whether the power was given for that purpose, provided that that purpose is valid and the measure to achieve it is not disproportionate for that purpose.

In the 16th and final chapter, the question of how restoration of rights is offered by the ECtHR and the Netherlands, British and German courts in the event of violation of the property right by tax measures is discussed in broad outline. Considerable differences between the courts have been observed. At the ECtHR, restoration of rights, in principle, consists of compensation for material and immaterial damage. In certain circumstances, inflation and interest losses are also taken into account. The national courts of the countries examined are more reluctant to grant restoration of rights. In all three countries, the provision of restoration of rights, in principle, is left to the legislature, with different modalities. This can be explained by the position taken by the courts within their constitutional system in relation to the democratically elected legislature.

Protection of the fundamental right to property against taxation and enforcement is a subject that is difficult to get to grips with. As the case law is often (very) case-by-case, it is difficult to base general conclusions on this. What does clearly emerge is that both the ECtHR and the national courts are very reluctant to assess taxpayers’ reliance on the fundamental right to property. In view of the relationship between the ECtHR and national courts, on the one hand, and the national constitutional relations, on the other, this attitude is certainly understandable. As a subsidiary court, the ECtHR can only grant the national authorities policy freedom to prevent them from becoming a third or fourth national body. The considerations of Advocates General, Langemeijer and Wissink, on the margin of appreciation doctrine in their joint advisory Opinion in the Urgenda case is illustrative in this respect.1 They point out that this margin is a consequence of the principle of subsidiarity in Article 1 of the ECHR, which means that the protection afforded by the ECHR must primarily be provided by the national authorities (including the national courts). According to them, the ECtHR does not act as a ‘fourth instance’ (as if it were the highest court in the country), but assesses complaints on violations of the treaty. The ECtHR requires national courts to assess appeals to human rights with particular rigour and care. According to Langemeijer and Wissink, the margin of appreciation doctrine, therefore, cannot serve – or at most by analogy – as a basis for a cautious attitude on the part of the national courts in human rights issues. In the Netherlands and the United Kingdom, however, the assessment of alleged violations of ECHR rights is just as marginal as in Strasbourg. From the given constitutional relations – in particular, the principle of separation of powers – this attitude of the courts can be explained but here, something seems to fall between the cracks. In this respect, the way in which fundamental rights are protected in Germany, where formal (tax) legislation is strictly tested against fundamental constitutional rights, seems to be preferable. This is not affected by the fact that the fundamental right to property in Germany appears to play a more limited role in tax matters than in Strasbourg, the Netherlands and the United Kingdom, because it is subject to more intensive scrutiny in the light of other fundamental rights, in particular, the prohibition of tax discrimination. Despite the differences that have been pointed out – which are mainly due to internal constitutional relations – there are also similarities between the national courts. What has struck me in particular is the court’s desire to interpret national law in accordance with the ECHR, even if this extends the limits of the constitutional judicial task/ competence (in the United Kingdom, in particular, before the Human Rights Act came into force, or on the basis of extensive application of the common law). This can be compared to the ECJ’s Marleasing case law,2 which means that in order for EU law to be uniformly effective throughout the EU, national courts must interpret their national law in so far as and to the extent possible in accordance with EU law.

Chapter 9 examines the quantitative limits imposed by the right to property on the levying of taxes and tax fines. I have found that on the basis of the case law of the ECtHR, it is not possible to indicate the exact boundary between (admitted) taxation and (prohibited) arbitrary confiscation. The ECtHR has never ruled a tax is in violation of property law solely because of the level of the (effective) rate. However, it can be assumed that an income tax burden of or tending towards 100% is, in fact, an expropriation without compensation and therefore, is prohibited. The ECtHR also seems to identify a violation of the right of property if taxation of capital (income) makes it structurally impossible to achieve a reasonable/ more than minimal profit. Although indications for this can be found in case law on rent legislation, it is not yet clear whether this case law is also relevant to tax matters. For the question of whether taxation is excessive, aspects other than the effective tax burden may also be relevant, such as détournement de pouvoir, tax discrimination, personal hardship, retroactive effect and national constitutional tensions. Tax fines also fall within the scope of Article 1 of the First Protocol. In addition, a tax fine is a ‘criminal charge’, to which Article 6 ECHR (right to a fair trial) refers. However, this provision does not in itself create a threshold against high fines, so that a taxpayer who wants to question the amount of a fine has to rely on Article 1 of the First Protocol. It follows from the case law of the ECtHR that high fines are permitted as long as there is a reasonable relationship between the interest that society has in the punishment and the disadvantage that the individual suffers from a sanction. Circumstances which, in all events, must be taken into account are the behaviour of the person concerned and the rule that is protected by the sanction. In assessing the proportionality of a fine, the ratio to underpaid tax is less significant than in cases of excessive taxation. For example, the result of this assessment may be that a fine that exceeds the underpaid tax (i.e. more than 100% of the tax) is still acceptable.

Chapter 10 discusses the circumstances under which retroactive effect of tax legislation is acceptable. Although retroactivity is clearly at odds with the requirement of lawfulness, the ECtHR always examines whether the interests that a State invokes in levying tax retroactively outweigh the interest that the citizen has in knowing what his or her tax obligations are in good time. This concerns the question of whether legitimate expectations of taxpayers are violated and, if so, whether there is sufficient justification for this. The cases discussed show different types of situations in which taxation with retroactive effect is considered justified by the ECtHR. These are first and foremost cases in which taxpayers could expect that the law would be amended retroactively in order to undo an unjustified advantage. Case law has addressed the following situations: (i) artificially anticipating an announced legislative amendment (M.A.), (ii) obtaining an unintended and unjustified tax advantage as a result of an unforeseen technical defect in the law (Building Societies), and (iii) artificially evading tax by means of aggressive tax planning (A.B.C. and D. and Huitson). A breach of legitimate expectations does not arise if it is announced in good time that a law still to be enacted will have retroactive effect, it is communicated with sufficient precision what that law will contain and that the date of any retroactive effect is not earlier than the date of its announcement, apparently regardless of the precise reasons for that law or its retroactive effect (Arnaud). If a law that is detrimental to the citizen has a retroactive effect beyond the time of announcement of the amendment of the law, or if the announcement is insufficiently precise, the justified expectations of taxpayers will be infringed. The legislature must be able to invoke specific and compelling reasons for this (P. Plaisier B.V. a.o.). To date, the ECtHR has not yet ruled on the question of whether purely budgetary considerations can justify retroactive effect prior to the announcement of an amendment to the law. It can be deduced from the case law that a national legislature which levies tax retroactively will seldom be confronted with intervention from the ECtHR or the Netherlands Supreme Court if the date of the retroactive effect does not precede the date of announcement of the retroactive amendment of the law and reasonable reasons are cited for doing so. In principle, the ECtHR will only intervene if the legislature does go further back and thereby affects taxpayers in good faith, and/or can be suspected of having improper intentions, and/or of violating other fundamental rights, such as the prohibition of discrimination.

Chapter 11 shows that Article 1 First Protocol provides (tax) creditors of the State with an instrument to enforce full and timely compliance with the (refund) obligations of the State. This category of property rights includes, for example, a right to a tax refund and a right to offset input VAT. Furthermore, Article 1 of the First Protocol may impose a positive obligation on the State to compensate damages caused by delays (interest) if there is an inexplicable delay before refunding of the tax that has been paid unduly. Also, in special cases, the State may be obliged to compensate damages related to the tension and frustration that has arisen as a result of the prolonged uncertainty about repayment.

Chapter 12 discusses the case law of the ECtHR on recovery measures. The topics discussed are the exercise of Netherlands substantive tax law vis-à-vis third parties (Gasus), the public sale of property of the taxpayer in order to collect an alleged tax debt (Rousk and Yukos), the holding of directors liable for the company’s tax debts (Khodorkovskiy and Lebedev), and the charging of high amounts that do not correspond to the actual costs for the execution (Yukos). This case law shows that recovery measures are justified if they are exercised in a non-arbitrary way, based on a clear and prior legal provision, and they are proportionate. The charging of high costs is disproportionate if the taxpayer has not first been given sufficient opportunity to prevent those costs by means of voluntary payment prior to the commencement of coercive recovery. It is also important that the continuity of a business should be endangered as little as possible and that the parties involved should have an effective legal remedy at their disposal to enable an independent body to rule on the legality and proportionality of a recovery measure.

This section discusses the relationship between property rights and taxation in three Member States of the Council of Europe: The Netherlands, Germany and the United Kingdom. The protection of fundamental rights is arranged in very different ways in these countries; reason to choose these three. Although the Netherlands has a Constitution, the courts may not review formal legislation – i.e. tax legislation – against the Constitution or against general unwritten legal principles. On the other hand, the courts must assess whether formal legislation is in accordance with treaties which operate directly to which the Netherlands is a party, such as the ECHR. Citizens and legal persons, therefore, can challenge formal (tax) legislation directly before the national courts on the basis of the ECHR, which can exclude the formal law from application in individual cases, but which can also declare the law as such in violation of the ECHR, as it did in the box 3 case. The United Kingdom does not have a Constitution or its own catalogue of fundamental rights. In order for international human rights treaties to be reflected in the United Kingdom, they must first be transposed into national law. For the ECHR, this was done by means of the Human Rights Act. Citizens and legal persons can invoke this Act before the British courts in order to challenge any formal legislation (Acts of Parliament) that violates the ECHR. The courts cannot rule on the invalidity of this law: they must leave structural intervention to Parliament. They can, however, intervene in individual cases. Germany, like the Netherlands, does have a Constitution. Unlike in the Netherlands, it occupies a dominant position in the field of the protection of human rights, because the German courts (ultimately the Bundesverfassungsgericht: ‘BVerfG’) first explicitly test their own Constitution, which means that international human rights treaties have a modest role to play. Citizens and legal persons can raise the issue of the unconstitutionality of formal legislation with their own national courts. However, the German courts do aim to interpret the Constitution in such a way as to prevent conflicts with the ECHR (interpretation in accordance with the treaties) and grant the legislature a reasonable period of time if they consider the (tax) law to be unconstitutional.

Chapter 13 examines how the Netherlands courts deal with taxpayers’ appeals to Article 1 of the First Protocol. The Netherlands courts interpret the Constitution as such, that they cannot offer any more far-reaching protection than that which ensues from the international treaties against which they have to assess. In principle, therefore, the Netherlands courts are just as cautious in their examination as the ECtHR. The literature criticizes this approach, although there are also authors who understand the choices made by the Supreme Court. I have supported the critics. In my opinion, the Supreme Court would still fulfil its obligations under the Constitution if it applied a margin of appreciation appropriate to its position as – according to the ECtHR – a ‘better placed’ national court. Furthermore, an analysis has been conducted into the way in which the Netherlands tax court deals with appeals under Article 1 of the First Protocol, in which it was examined whether the Netherlands court does indeed offer (at least) the same protection as the ECtHR. The case law of the Supreme Court on Article 1 of the First Protocol shows a great deal of similarity with that of the ECtHR. In principle, the Supreme Court follows the same assessment scheme as the ECtHR in order to determine whether (i) Article 1 of the First Protocol can be invoked, and (ii) whether there is justification for an infringement of property. The Supreme Court also regularly refers to Strasbourg case law. Many cases are decided under the proportionality test. This test differs from that of the ECtHR in that the Supreme Court explicitly first applies it at rule level and only thereafter at individual level. In the regulatory review, the Supreme Court seems to attach particular importance to the intentions and assumptions laid down by the legislature in the Parliamentary history. A difference has been observed here with respect to the ECHR, which, in cases with a regulatory review, ignores the intentions expressed by the State and takes account of the actual effects of legislation. Only once it has been established that the fair balance at the regulatory level has not been violated will the Supreme Court assess whether a tax imposes an individual and excessive burden on a taxpayer. According to the Supreme Court, this is only the case if a taxpayer is affected by a measure ‘more than in general’, i.e. more than others. However, this requirement is not contained in the ECHR case law. It is clear from this case law that a disproportionate and excessive burden by no means has to be individual in order to be unlawful, let alone in the sense of ‘more than with other affected parties’. Particular attention has been paid to the case law of the Supreme Court on the capital gains tax in box 3 of the 2001 Income Tax Act. This tax is levied on a notional income from capital that is determined by a stack of fictions and lump sums, as a result of which – contrary to what the legislature stated – reality is hardly ever approached and often even disappears far from sight. In some cases, this has led to effective tax rates that structurally, are far above 100% of the actual return. For savers and risk averse individuals, this levy can justifiably be called an excessive tax. One point of criticism is that the Supreme Court, when assessing whether the capital gains tax leads to an ‘individual and excessive burden’, looks at the whole financial position of the person concerned. A tax that structurally taxes more than 100% of the capital income and thus affects the existing capital could, therefore, still be acceptable as long as the taxpayer has sufficient other capacity to pay the tax. It is doubtful whether this is in accordance with the case law of the ECtHR, which, in cases concerning excessive taxation (N.K.M. c.s.) and excessive rent protection (Hutten-Czapska and Aquilina), did not take into account the possible presence of other income or assets of the parties involved.

Chapter 14 describes the protection of property against taxation by the UK courts. A distinction is made between the periods before and after the entry into force of the Human Rights Act (HRA) on 2 October 2000. Before that date, the relevance of the ECHR in the United Kingdom was limited. Citizens and legal persons could not invoke the Convention in the national courts, but the courts could, when interpreting legislation, strive for an interpretation that did not violate fundamental rights. However, the possibilities for doing so were not unlimited. If the text of the law or the intention of the parliament were clear, there was no scope for interpretation in accordance with the treaties. In the field of taxation, the UK courts do not appear to have needed the fundamental right of ownership in the finding of justice before the entry into force of the HRA. British taxpayers could and did appeal to the ECtHR (individual right of complaint). The tax proceedings initiated there invoking Article 1 of the First Protocol mainly concerned tax legislation introduced retroactively. I have discussed and analysed a number of important rulings by lower and higher UK courts in the period following the entry into force of the HRA. In those rulings, the UK courts have always taken the case law of the ECtHR as a guideline. They examine tax legislation as cautiously as the ECtHR does. This follows directly from Article 2 HRA, which orders the court to take account of relevant Strasbourg case law and, otherwise, to respect Parliamentary sovereignty as much as possible. In addition to similarities, differences have also been observed with regard to the way in which the ECtHR generally assesses reliance on Article 1 of the First Protocol. This relates, in particular, to the inclination of the British courts to pay attention to difficult questions which, strictly speaking, are not necessary in order to settle a dispute and, in particular, to the question of whether there is a possession and therefore, access to Article 1 First Protocol. In the field of taxation, the British courts observe a wide margin of appreciation vis-à-vis the legislature, in line with the ECtHR. As a result, the number of British tax cases in which Article 1 of the First Protocol has been violated is limited. Only in one case has a violation of the fundamental right to property been established, but the court was able to resolve this by interpreting the law in a teleological and ECHR-compliant manner. The individual financial circumstances of taxpayers appear to be of limited importance in the United Kingdom; in almost all of the judgments examined, the court’s review was carried out solely at the level of the rules.

Chapter 15 deals with the relationship between the German constitutional right to property and taxation. The conclusion is that the assessment of taxes in the light of constitutional property law in Germany is primarily a theoretical matter. For the practice of taxation, other provisions of the Constitution – in particular those concerning human dignity, the principle of equality and the prohibition of discrimination – are much more relevant. The limited importance of the property right can be explained historically. On the basis of BVerfG case law, the right to property only protects concrete property rights against government interference. Given that taxes were deemed to be charged not to a specific right but to the assets as such, for many years taxes fell outside the scope of the right to property. An exception was made in cases where the obligation to pay tax placed an excessive burden on the persons concerned and fundamentally affected their financial situation to such an extent that it made the implementation of a taxed transaction de facto impossible. According to German case law, such a tax (Erdrosselungssteuer or ‘stranglehold tax’) is essentially not a tax, but a ban on use or products; therefore, détournement de pouvoir: taxation is considered to generate financial resources for the State. An Erdrosselungssteuer, if indeed it does have a sufficiently prohibitive effect, does not generate any tax revenue and thus essentially pursues a different objective. This poses a problem: the so-called secondary objectives pursued by taxation, such as environmental objectives or income redistribution, are also independent of the bare financing objective of taxation, but the government can hardly be denied the power to pursue general interest objectives by means of taxation. I also refer to a special judgment of the BVerfG in 1995, in which it was decided that the fundamental right to property means that income and capital taxes together may not exceed half of the income (Halbteilungsgrundsatz). The BVerfG reconsidered this judgment in 2006. It also made clear that income and profits acquired are concrete subjective economic interests that fall under the protection of the fundamental right to property. The BVerfG also considers the principle of proportionality to be important and requires that any infringement of property must have a legal basis. As a result, the BVerfG’s case law is more in line with that of the ECtHR. One difference is that taxation that does not serve a financial purpose is clearly prohibited in Germany. Once it is established that a tax has the character of an Erdrosselungssteuer, a weighing up of interests is not necessary. Such a measure would probably pass the legitimate aim test at the ECtHR, after which it would come down to a balance between the public interest and the individual interest, in which the ECtHR would attach less importance to the question of whether the power was given for that purpose, provided that that purpose is valid and the measure to achieve it is not disproportionate for that purpose.

In the 16th and final chapter, the question of how restoration of rights is offered by the ECtHR and the Netherlands, British and German courts in the event of violation of the property right by tax measures is discussed in broad outline. Considerable differences between the courts have been observed. At the ECtHR, restoration of rights, in principle, consists of compensation for material and immaterial damage. In certain circumstances, inflation and interest losses are also taken into account. The national courts of the countries examined are more reluctant to grant restoration of rights. In all three countries, the provision of restoration of rights, in principle, is left to the legislature, with different modalities. This can be explained by the position taken by the courts within their constitutional system in relation to the democratically elected legislature.

Protection of the fundamental right to property against taxation and enforcement is a subject that is difficult to get to grips with. As the case law is often (very) case-by-case, it is difficult to base general conclusions on this. What does clearly emerge is that both the ECtHR and the national courts are very reluctant to assess taxpayers’ reliance on the fundamental right to property. In view of the relationship between the ECtHR and national courts, on the one hand, and the national constitutional relations, on the other, this attitude is certainly understandable. As a subsidiary court, the ECtHR can only grant the national authorities policy freedom to prevent them from becoming a third or fourth national body. The considerations of Advocates General, Langemeijer and Wissink, on the margin of appreciation doctrine in their joint advisory Opinion in the Urgenda case is illustrative in this respect.3 They point out that this margin is a consequence of the principle of subsidiarity in Article 1 of the ECHR, which means that the protection afforded by the ECHR must primarily be provided by the national authorities (including the national courts). According to them, the ECtHR does not act as a ‘fourth instance’ (as if it were the highest court in the country), but assesses complaints on violations of the treaty. The ECtHR requires national courts to assess appeals to human rights with particular rigour and care. According to Langemeijer and Wissink, the margin of appreciation doctrine, therefore, cannot serve – or at most by analogy – as a basis for a cautious attitude on the part of the national courts in human rights issues. In the Netherlands and the United Kingdom, however, the assessment of alleged violations of ECHR rights is just as marginal as in Strasbourg. From the given constitutional relations – in particular, the principle of separation of powers – this attitude of the courts can be explained but here, something seems to fall between the cracks. In this respect, the way in which fundamental rights are protected in Germany, where formal (tax) legislation is strictly tested against fundamental constitutional rights, seems to be preferable. This is not affected by the fact that the fundamental right to property in Germany appears to play a more limited role in tax matters than in Strasbourg, the Netherlands and the United Kingdom, because it is subject to more intensive scrutiny in the light of other fundamental rights, in particular, the prohibition of tax discrimination. Despite the differences that have been pointed out – which are mainly due to internal constitutional relations – there are also similarities between the national courts. What has struck me in particular is the court’s desire to interpret national law in accordance with the ECHR, even if this extends the limits of the constitutional judicial task/ competence (in the United Kingdom, in particular, before the Human Rights Act came into force, or on the basis of extensive application of the common law). This can be compared to the ECJ’s Marleasing case law,4 which means that in order for EU law to be uniformly effective throughout the EU, national courts must interpret their national law in so far as and to the extent possible in accordance with EU law.