DECISION OF THE CONSTITUTIONAL COURT OF THE REPUBLIC OF BELARUS
the 26 of April, 2016 No D-1030/2016
On the Right to Appeal against Decisions of Tax Authorities, Actions (Inaction) of their Officials
The Constitutional Court of the Republic of Belarus comprising the Presiding OfficerChairman P.P. Miklashevich, Deputy Chairwoman O.G. Sergeeva, judges T.V. Voronovich, S.Y. Danilyuk, V.P. Isotko, N.A. Karpovich, L.G. Kozyreva, V.V. Podgrusha, L.M. Ryabtsev, A.G. Tikovenko, S.P. Chigrinov
in open court session considered the case “On the Right to Appeal against Decisions of Tax Authorities, Actions (Inaction) of their Officials”.
The court session was attended by:
V.V. Mitskevich, Deputy Head of the Administration of the President of the Republic of Belarus ‒ the authorised representative of the President of the Republic of Belarus in the Constitutional Court;
L.F. Moroz, Chairwoman of the Standing Committee for Legislation and State Administration of the Council of the Republic ‒ the authorised representative of the Council of the Republic of the National Assembly of the Republic of Belarus in the Constitutional Court;
A.N. Bodak, Deputy Minister of Justice of the Republic of Belarus ‒ the authorised representative of the Council of Ministers of the Republic of Belarus in the Constitutional Court;
the representatives:
of the Supreme Court of the Republic of Belarus ‒ V.N. Demidovich, DeputyChairman of the Supreme Court of the Republic of Belarus;
of the Ministry of Taxes and Duties of the Republic of Belarus – V.V. Mukvich, deputy Minister of Taxes and Duties of the Republic of Belarus;
of the General Prosecutor's Office of the Republic of Belarus ‒ A.V. Maltsev, Head of the Department for Supervision over the Implementation of Laws and Legality of Legal Acts of the General Prosecutor's Office of the Republic of Belarus.
The proceedings were initiated by the Constitutional Court on 14 March 2016 in accordance with Article 116.1 of the Constitution of the Republic of Belarus (hereinafter – the Constitution), Article 22.3.8 of the Code of the Republic of Belarus on Judicial System and Status of Judges, Article 158.1 and Article 158.3 of the Law of the Republic of Belarus “On the Constitutional Proceedings” on the basis of the application submitted by Mr. A.M. Bartashevich on existence of a legal gap concerning the fact that individuals who are not taxpayers (other liable persons) in accordance with the Tax Code of the Republic of Belarus (hereinafter – the TC) do not have the right to appeal against decisions of tax authorities, actions (inaction) of their officials that affect their rights.
The applicant stated in the period from 24 April 2013 to 30 September 2013 he was the director of the private trading unitary enterprise (hereinafter – the private enterprise) in respect of which were initiated proceedings on economic insolvency (bankruptcy) and were opened bankruptcy proceedings. The reason for this was the tax debt of the private enterprise.
According to the decision of the inspection of the Ministry of Taxes and Duties of the Republic of Belarus for the district Frunzenski of Minsk No. 2 of 8 July 2015 (hereinafter – the decision of the tax inspectorate) and the act of an unscheduled field check of 8 June 2015 violations of tax laws by the private enterprise were the result of action (inaction) of the applicant who, in violation of Article 22.1.1 of the TC did not ensure the full payment of taxes and duties, violated the accounting requirements. The applicant became aware of the decision of the tax inspectorate after having received the ruling of the Economic Court of Minsk of 10 November 2015 on initiation of proceedings concerning his subsidiary liability for the obligations of the private enterprise and having become familiar with the case materials. The applicant lodged a complaint against the decision of the tax inspectorate before the court of the district Frunzenski of Minsk. In accordance with the ruling of the court of the district Frunzenski of Minsk of 5 January 2016 the proceedings were terminated due to the fact that in this case the applicant did not have the right to judicial (legal) recourse.
According to the applicant, the absence of a right to appeal against the decision of the tax authority which affect the rights and legitimate interests of the individual (owner of the property of the organisation-debtor, the founder (participant), the former head of the organisation-debtor) brought to subsidiary liability for the obligations of the organisation-debtor violates the constitutional right of this individual to judicial protection.
Having heard the reporting judge L.G. Kozyreva, the representatives, having analysed the provisions of the Constitution, the TC, the Civil Code of the Republic of Belarus (hereinafter – the CC), the Civil Procedure Code of the Republic of Belarus, the Economic Procedural Code of the Republic of Belarus, the Law of the Republic of Belarus “On Economic Insolvency (Bankruptcy)” (hereinafter – the Law on Bankruptcy) and other legislative acts of the Republic of Belarus, having examined the submitted documents and other case materials the Constitutional Court of the Republic of Belarus found the following:
1. According to the Constitution the individual, his rights, freedoms and guarantees to secure them are the supreme value and goal of the society and the State (Article 2.1); safeguarding the rights and freedoms of citizens of the Republic of Belarus shall be the supreme goal of the State; the State shall guarantee the rights and freedoms of citizens of Belarus that are enshrined in the Constitution and laws, and specified by the State's international obligations (Articles 21.1 and 21.3).
Article 22 of the Constitution stipulates that all shall be equal before the law and have the right to equal protection of their rights and legitimate interests without any discrimination.
Article 60.1 of the Constitution guaranteeing to everyone protection of his rights and freedoms by a competent, independent and impartial court within the time limits specified by law establishes the State's obligation to ensure the right of everyone to free access to justice.
In accordance with the Universal Declaration of Human Rights everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him (Article 10). The International Covenant on Civil and Political Rights provides that in the determination of the rights and obligations everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law (Article 14); each State Party to the present Covenant undertakes to develop the possibilities of judicial remedy (Article 2).
The Constitutional Court has repeatedly noted that the right to judicial protection is one of the fundamental human rights that are recognised and guaranteed in accordance with the universally recognised principles and rules of international law, and the Republic of Belarus in accordance with Article 8.1 of the Constitution shall recognise the supremacy of the generally recognised principles of international law and shall ensure the compliance of laws therewith.
It follows from the analysis of the provisions of the Constitution and international legal instruments that the State must establish an appropriate mechanism for the exercise of the individual’s constitutional right to judicial protection which shall be fair, competent and effective.
2. In accordance with Article 39 of the Law “On the Constitutional Proceedings” the Constitutional Court sent requests to the Supreme Court, the General Prosecutor's Office, the Ministry of Taxes and Duties and the Ministry of Justice. In their replies these state bodies expressed their opinions on this case.
The Supreme Court finds that the legislator, given the constitutional obligation of the State to ensure the right to access to justice for individuals and legal nature of taxation, has granted the right to appeal against decisions of tax authorities (actions or inaction of their officials) exclusively to subjects of tax relations. Issue of extending the circle of subjects entitled to appeal against decisions of tax authorities (actions or inaction of their officials) falls within the exclusive competence of the legislator.
The General Prosecutor's Office notes that the current legislation does not contain the legal regulation of the exercise of the right of legal entities and individuals that are not taxpayers to appeal against decisions of tax authorities, actions (inaction) of their officials in case of violation of the rights of legal entities and individuals by these decisions, actions (inaction) of their officials and believes that this gap can be eliminated by amending Article 85 of the TC.
The Ministry of Taxes and Duties notes that in accordance with Articles 1 and 4 of the TC organisations and individuals recognised as taxpayers in accordance with the TC shall be participants of relations that are regulated by the TC and other acts of tax legislation and that may arise in the process of fulfillment of the tax obligations, tax control, appealing against decisions of tax authorities, actions (inaction) of their officials. Relations concerning the audit and its consequences for the taxpayer in the event of identified violations of the legislation shall take place between the tax authority and the taxpayer. The Ministry of Taxes and Duties does not find a gap in the TC concerning the legal regulation of the exercise of the right of individuals that are not taxpayers to appeal against decisions of tax authorities, actions (inaction) of their officials.
The Ministry of Justice points out that the issue of the need to amend the legislation concerning established approaches and granting the right appeal against decisions of tax authorities to any person does not fall within the competence of the Ministry and shall be considered by the authorised state bodies carrying out the state policy in this field, in the first place by the Ministry of Finance of the Republic of Belarus and the Ministry of Taxes and Duties.
3. The Constitution stipulates the citizen shall assume responsibility before the State to discharge unwaveringly the duties imposed upon him by the Constitution (Article 2.2); citizens of the Republic of Belarus shall contribute to funding public expenditure by means of state taxes, duties and other payments (Article 56).
The Constitutional Court believes that the legislator on the basis of these constitutional provisions as well as on the provisions of Articles 97.1.2 and 98.1.1 shall have the right to exercise the legal regulation of relations in the field of taxation on his discretion, including establishment of the procedure of appealing against decisions of tax authorities, actions (inaction) of their officials.
In the Message “On Constitutional Legality in the Republic of Belarus in 2015” the Constitutional Court noted that the Constitution gives rather large discretionary powers to the legislator, that is the possibility of discretion, “the space of choice” in the regulation of certain social relations, determination of features of legal regulation, establishment, modification and restriction of subjective rights, conditions and mechanisms for their realisation. However, in exercising his powers the legislator acts within the framework established by the constitutional principles and rules and he shall take into account the need to maintain balance and proportionality of the constitutionally protected values, goals and interests that are in unity, and not allow the substitution of one value of another one or their depreciation.
According to the TC the tax authorities and their officials shall be obliged to exercise control over respect of the tax legislation, correct calculation, complete and timely payment of taxes, duties (fees), penalties as well as the accuracy of collection, timeliness and completeness of transfer taxes, duties (fees) in the budget (Article 82.1.1.3).
The tax control shall be carried out, inter alia, through inspections (Article 64.1 of the TC). The procedure for organising and conducting inspections is established by the Decree of the President of the Republic of Belarus of 16 October 2009 No. 510 “On Improvement of the Control (Supervision) Activity in the Republic of Belarus” that approved the Regulations on the Procedure for Organising and Conducting Inspections (hereinafter – the Regulations).
In the issue of the audit in the course of which violations of legislative acts were revealed an audit report shall be made. On the basis of this report the head (the deputy head) of the tax authority within its competence shall make a decision (Article 78 of the TC, paragraph 59.1 and paragraph 73.1 of the Regulations).
In accordance with Article 85 of the TC each taxpayer (liable person) shall have the right to appeal against decisions of tax authorities, actions (inaction) of their officials, if he considers that such decisions or actions (inaction) were made or taken in violation of the rules established by the tax legislation or other legislative acts or they violate his rights.
Article 86.1.1 of the TC provides that decisions of tax authorities, actions (inaction) of their officials may be appealed before a superior tax authority or a higher official who is an immediate supervisor for officials whose actions (inaction) are appealed, and (or) before the court. According to Article 86.1.2 filing a complaint to a higher tax authority or to a higher official does not exclude the right to file a complaint before the court; appealing against the decision of the tax authority, actions (inaction) of its officials before the court shall be conducted in accordance with the legislation on civil or economic procedure; at the same time the complaint against the decision of the tax authority, actions (inaction) of its officials may be filed before the economic court within one year from the date of this decision (actions (inaction)).
Similar rules concerning the rights of the audited subject to appeal against the decisions of supervisory bodies on the basis of the audit report, actions (inaction) of inspectors are set out in para 78.1-78.3 of the Regulations.
It follows from the analysis of legislative provisions that the right to appeal against decisions of tax authorities shall belong to tax payers (other liable persons).
According to Article 13.1 of the TC organisations and individuals that are obliged to pay taxes, duties (fees) in accordance with the TC, the custom legislation of the Customs Union, the Law of the Republic of Belarus “On Customs Regulation in the Republic of Belarus” and (or) acts of the President of the Republic of Belarus shall be recognised as payers.
Article 37.2 of the TC provides that the execution of the tax obligation shall be performed directly by the payer, except when in accordance with the TC, the custom legislation of the Customs Union, the Law of the Republic of Belarus “On Customs Regulation in the Republic of Belarus” and (or) acts of the President of the Republic of Belarus or decisions of local Councils of deputies (in respect of local taxes and fees) the execution of the tax obligation is vested to another liable person or another person is granted with the right to pay taxes, duties (fees) for the payer.
According to the meaning of Article 23 of the TC tax agents are listed among other liable persons. Thus, according to this article of the TC a tax agent shall be a legal entity or an individual, a society in participation, an entrusted administrator, a foreign organisation carrying its activity on the territory of the Republic of Belarus through a permanent representation office that were created in accordance with the legislation of the Republic of Belarus and that are the source of revenue for the payer and (or) that are obliged to calculate, withhold from the payer and transfer taxes, duties (fees)to the budget by virtue of the TC and other acts of tax legislation (Article 23.1); a tax agent shall have the same rights as the payer unless otherwise provided by the TC (Article 23.2).
At the same time, according to Article 24.1 of the TC the payer may participate in relations regulated by the tax legislation through his legal or authorised representative, unless otherwise provided by the TC. Individuals that are authorised to represent the organisation-payer on the basis of the legislative acts or constituent documents of the organisation may be recognised as legal representatives of this organisation (Article 25.1 of the TC). By virtue of of Article 27.2 of the TC of the authorised representative of the organisation-payer shall exercise his powers on the basis of the power of attorney issued in accordance with the procedure established by legislative acts. Article 24.4 of the TC stipulates that the rules provided for in Articles 24-27 of the TC shall also be applied to tax agents.
In that way, the analysis of the mentioned provisions of the TC and the Regulations shows that owners of property of an organisation, the founders (participants), the heads, including the former ones, and other individuals whose rights and legitimate interests may be violated by the decision of the tax authority, actions (inaction) of their officials do not have the right to appeal against this decision, actions (inaction) of officials of the tax authority in their own name in their own interests.
4. According to the Constitution the Republic of Belarus shall be bound by the principle of supremacy of law (Article 7.1); the State shall assume responsibility before the citizen to create the conditions for free and dignified development of his personality (Article 2.2); the State shall take all measures at its disposal to establish the domestic and international order necessary for the full exercise of the rights and freedoms of the citizens of the Republic of Belarus that are specified by the Constitution (Article 59.1).
The right of everyone to judicial protection enshrined by the Constitution is universal and acts as a guarantee for implementation of all other constitutional rights and freedom.
In a number of earlier decisions the Constitutional Court has pointed out that the most important components of the principle of the rule of law are prevention of arbitrary actions on the part of state bodies, their officials, the protection of the rights of taxpayers; if the tax authorities and their officials in the exercise of their powers have violated the rights and legitimate interests of individuals, individuals shall be entitled to exercise the constitutional right to address applications to the state bodies (Article 40) and the right to judicial protection (Article 60) by filing the appropriate complaint under Articles 86, 87 of the TC (decisions of 11 October 2010 No. D-494/2010, 26 December 2011 No. D-662/2011, 16 October 2012 No. D-761/2012); the provision of Article 60.1 of the Constitution is an important guarantee for the protection of the rights and freedoms of individuals against any violation of their actions and decisions; the right to judicial protection refers to the rights that may not be limited (decisions of 2 April 2001 No. D-111/2001, 5 April 2007 No. D-199/2007, 19 December 2011 No. D-655/2011, 5 July 2012 No. D-739/2012 etc.).
4.1. Article 52.3.2 of the CC stipulates that if the economic insolvency (bankruptcy) of a legal entity is caused by the owner of its property, the founders (participants) or any other person, including the head of the legal entity, that are entitled to give mandatory instructions for this legal entity or have the opportunity to determine its actions in a different way, such persons in case of insufficiency of the property of a legal entity shall bear subsidiary liability for its obligations. A similar provision is contained in Article 11.2 of the Law on Bankruptcy.
By virtue of Article 11.7 of the Law on Bankruptcy subsidiary liability shall be imposed in cases of termination of the right of ownership of the debtor's property, discontinuation of membership from participants (founders) of the debtor, the termination of the labour relationship with the debtor, as well as the termination of the right to give mandatory instructions to the debtor or to determine its actions in a different way within a specified period according to the said Law.
In accordance with the Law on Bankruptcy manager since his appointment shall be obliged to submit claims to make subsidiary liable the manager of the debtor ­­– legal entity and (or) other persons guilty of economic insolvency (bankruptcy) of the debtor (Article 77.1.18).
From the materials of the case it seems that a claim to the economic court of Minsk to make the individual (the former director of the organisation-debtor) subsidiary liable was filed by the crisis manager who presented the decision and the act of the check carried out by the tax authority – the inspection of the Ministry of Taxes and Duties as evidence of guilt of this individual.
In his turn the individual did not agree with the findings of the tax authority and appealed against the decision of the inspection of the Ministry of Taxes and Duties to the court of the district Frunzenski of Minsk which terminated the civil proceedings due to fact that the applicant does not have the right to appeal against the actions of tax authorities.
In the court’s ruling it was stated that under Article 85 of the TC the right to appeal against decisions of tax authorities, actions (inaction) of their officials shall be granted to the taxpayer (another liable person). Taking into account that a private company is in bankruptcy proceedings, the court referred to Article 86 of the Law on Bankruptcy which provides that since the date of the economic court ruling on bankruptcy proceedings the manager shall be vested with powers of the head and other governing bodies of the legal entity-debtor and with powers of the owner of property of the unitary enterprise-debtor. In this regard, if there are objections concerning the decision on charging additional amounts of taxes (fees) from the part of the head of the debtor who in accordance with the Law on Bankruptcy may bear subsidiary liability for the obligations of the debtor, an appropriate request may be filed to the anti-crisis manager and the latter may submit a complaint under the procedure established by Article 86 of the TC as on the basis of Article 86 of the Law on Bankruptcy the right to appeal against the debtor's decisions can be exercised on behalf of the debtor by the anti-crisis manager.
The Constitutional Court considers that in this situation there is a conflict of interests. On the one hand, the anti-crisis manager is obliged to submit claims concerning the imposition of subsidiary liability on the head of the organization-debtor (Article 77 of the Law on Bankruptcy), including the former one, on the other hand – taking into account the provisions of Article 86 of the Law on Bankruptcy he is proposed to protect the interests of such a head according to the procedure established by Article 86 of the TC.
4.2. The Constitutional Court notes that making persons who caused the economic insolvency (bankruptcy) of the organisation subsidiary liable in most cases is due to violations of the tax legislation by the organisation-debtor revealed as a result of a tax check.
According to paragraph 60 of the Regulations the act of the check by the tax authority shall contain, in particular, the description of the fact of violation of the legislation, the place and time of violation, acts of legislation that have been violated and (or) responsibility provided by legislative acts for such violation; the damage caused (if available) and other consequences of violations; functions, names of the persons whose actions (inaction) have entailed violations by the checked subject of law.
On the basis of the inspection report, with the exception of the inspection report that contains only the fact of commission of an administrative offense and does not impose additional taxes, fees (duties) and (or) penalties, within 30 working days from the date of its delivery (sending) to the taxpayer (another liable person) or his representative, and in the case of objections – from the date of delivery (sending) to the taxpayer (another liable person) or his representative of the opinion on these objections by the head (his deputy) of the tax authority, a decision on the basis of the inspection report within its jurisdiction shall be made and (or) the requirement (prescription) to eliminate the violations revealed during the inspection (Article 78.8 of the TC).
The Constitutional Court draws attention to the fact that the person mentioned in the inspection report of the tax authority as the person who committed violations of the tax legislation by his actions (inaction), but terminated the labour relationship with the organisation-debtor, in accordance with the procedure for appealing against the decision of the tax authority established in the TC actually does not have the right to appeal against such a decision.
Based on the fact that the decision of the tax authority to charge additional amounts of taxes (fees) for the obligations of the organization-debtor may affect the rights and legitimate interests of not only the taxpayers, dues (duties), but others (owner of the property of the organisation-debtor, the founder (participant ), the head of the organisation-debtor, including the former one), which by virtue of the legislation of the Republic of Belarus shall be subject to subsidiary liability, the Constitutional Court finds that these persons in order to ensure timely and effective protection of their rights and legitimate interests in the same way as taxpayers (other liable persons) should have the right to appeal against decisions of the tax authority, actions (inaction) of its officials.
The Constitutional Court considers that the state shall be obliged to ensure the exercise of the constitutional right to address appeals to state bodies (Article 40 of the Constitution) and access to justice for every person (Article 60 of the Constitution), whose rights and legitimate interests are affected by the decisions of the tax authorities, actions (inaction) of their officials.
At the same time the Constitutional Court draws attention to the need to harmonise the tax legislation of the Republic of Belarus with the tax legislation of the Russian Federation in order to establish similar mechanisms of legal regulation in the field of taxation within the framework of the Union State and the Eurasian Economic Union.
Thus, according to the Tax Code of the Russian Federation every person has the right to appeal against the non-normative acts of the tax authorities, actions or inaction of their officials if, according to the opinion of this person, such acts, actions or inaction violate his rights (Article 137.1); non-normative acts of the tax authorities, actions or inaction of their officials may be appealed to a higher tax authority and (or) to the court according to the procedure established by this Code and the relevant procedural legislation of the Russian Federation (Article 138.1.1).
According to the Constitutional Court, the fact that the legislation of the Republic of Belarus does not grant to other persons whose rights and legitimate interests are affected by the decision of the tax authority, as opposed to the individuals specified in Article 85 of the TC the right to appeal against such a decision limits their right to judicial protection, does not ensure the fairness of the court judgment and therefore does not maintain a balance of public-law and private-law interests. The normative and legal regulation that provides for the possibility of initiation of evaluation by the court of the legality of acts of the tax authorities depending on the discretion of other persons, does not ensure the supremacy of the constitutional provisions guaranteeing the right to judicial protection to everyone, does not permit to all interested parties to defend properly their rights and legitimate interests, does not contribute to timely and effective restoration of the violated rights.
In that way, the current legal regulation of appealing against decisions of tax authorities, actions (inaction) of their officials can not be considered sufficient to ensure the full and effective judicial protection of the rights and freedoms as an essential element of the constitutional and legal order based on the principles of the rule of law and the state based on the rule of law. Reducing the level of judicial guarantees for the protection of persons whose rights and legitimate interests, in their view, are violated by the decisions of the tax authorities as compared with persons whose right to challenge such decisions is established by law, can not be considered fair and proportionate to the constitutionally protected interests.
The Constitutional Court on the basis of the constitutional provisions stipulating that the Republic of Belarus shall be bound by the principle of supremacy of law; the State and all the bodies and officials thereof shall operate within the confines of the Constitution and acts of legislation adopted in accordance therewith (Articles 7.1 and 7.2), the State shall take all measures at its disposal to establish the domestic and international order necessary for the full exercise of the rights and freedoms of the citizens of the Republic of Belarus that are specified by the Constitution; state bodies, officials and other persons who have been entrusted to exercise state functions shall, within their competence, take necessary measures to implement and protect personal rights and freedoms (Articles 59.1 and 59.2) considers it necessary to eliminate a gap in the constitutional and legal regulation of the right to appeal against decisions of tax authorities, actions (inaction) of their officials regarding that other persons that are not taxpayers (other liable persons) and whose rights and legitimate interests may be affected by the decisions of the tax authorities, actions (inaction) of their officials do not have such a right.
 
In view of the foregoing, guided by Articles 116.1 and 116.7 of the Constitution, Article 22.3.8 and Article 24 of the Code of the Republic of Belarus on Judicial System and Status of Judges, Articles 74.2, 75, 77, 80, 84, 85.17 and 160 of the Law of the Republic of Belarus “On the Constitutional Proceedings”, the Constitutional Court of the Republic of Belarus
 
RULED:
 
1. In order to ensure the constitutional principles of the rule of law and legality, to implement the constitutional right of everyone to judicial protection the Constitutional Court recognised it necessary to eliminate a gap in the constitutional and legal regulation of the right to appeal against decisions of tax authorities, actions (inaction) of their officials by making alterations and addenda to the Tax Code of the Republic of Belarus providing for the right of everyone to appeal against decisions of tax authorities, actions (inaction) of their officials if, in his opinion, his rights and legitimate interests are affected by such decisions, actions (inaction).
2. To make a proposal to the Council of Ministers of the Republic of Belarus to prepare a draft law on making alterations and addenda to the Tax Code of the Republic of Belarus and submit it to the House of Representatives of the National Assembly of the Republic of Belarus according to the established procedure.
3. The present Decision shall come into force from the date of its adoption.
4. To publish the present Decision in accordance with the legislation.
 
 
Presiding Officer –
Petr P. Miklashevich,
Chairman of the Constitutional Court
of the Republic of Belarus

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