Effective court protection for overpayment or wrong payment of tax
04.09.2022
Protection of property is a right
guaranteed with the Constitution of the Republic of North Macedonia, and with
the European Convention on Human Rights, especially when it comes to the
State’s interference in the property of physical persons and legal entities in
the Republic of North Macedonia.
Property shall be guaranteed by using effective legal remedy in a court proceeding, pursuant to the right to fair trial.
This analysis focuses on the Judgment Rev2. No. 259/2019 of the Supreme Court of the Republic of North Macedonia, brought on 23.01.2020, according to which the Supreme Court of RNM gives its legal opinion on the reimbursement of overpayment or wrong payment of tax, when it comes to the substantive jurisdiction in the regular courts against the administrative courts where there is an administrative dispute for tax-administrative proceeding, statute of limitation of the reimbursement of withdrawn funds and payment of interest rate based on overpayment or wrong payment of tax.
Facts of the case
The Public Revenue Office Regional Directorate Skopje (hereinafter, PRO RD Skopje) with the Decision Str.dov.no. 21-3/5 dated 23.04.2007, has established personal income tax in the amount of 4.369.049,00 MKD for each of the plaintiffs separately. The plaintiffs have filed a complaint against the Decision Str.dov.no. 21-3/5 dated 23.04.2007, that was rejected by the PRO RD Skopje with the Decision no. 21-7300-3/6 dated 28.05.2007. The plaintiffs filed a complaint to the Minister of Finance against this Decision. The Minister of Finance adopted the Decision U.no. 17-3287/1 dated 01.11.2007 whereby the complaint was rejected as ill-founded.
Against the decision in second instance, the plaintiffs filed a lawsuit for administrative dispute with the Administrative Court. The Administrative Court on 13.11.2008 adopted the Judgment U. no. 4596/2007 according to which the plaintiffs’ lawsuit was accepted and the challenged decision was annulled. After receiving the judgment, the Minister of Finance adopted new Decision U. no. 17-3287/2 dated 15.12.2008 – and again rejected the plaintiffs’ complaint as ill-founded. The plaintiffs again filed a lawsuit for administrative dispute against the second decision of the Minister of Finance, following which the Administrative Court on 20.10.2009 adopted Judgment U. no. 295/09 whereby the plaintiffs’ lawsuit was accepted, and the challenged decision was annulled. With this judgment, the Court unanimously declared that the Minister of Finance and the PRO RD Skopje have acted against the laws and have incurred debt on the plaintiffs to pay personal income tax without any grounds for it.
Acting upon Judgment U. no. 295/09 dated 20.10.2009, the Minister of Finance adopted new Decision U. no. 17-3287/3 dated 02.03.2010, by which the plaintiffs’ complaint was accepted and the decision following the complaint of the PRO RD Skopje was annulled. The case was reinstated to proceedings and in the repeated proceedings the Decision Str.dov.no. 24-149/34/2 dated 27.05.2013 was adopted and the plaintiffs’ complaint against the Decision Str.dov.no. 21-3/5 dated 23.04.2007 was partially adopted, and personal income tax in the amount of 3.121.259,00 MKD was established for each of them individually based on unreported and untaxed income.
The plaintiffs have filed a complaint against the Decision Str.dov.no. 24-149/34/2 dated 27.05.2013 to the Minister of Finance, who has accordingly adopted the Decision U.no.15-1554/1 dated 10.09.2013 whereby the complaint was rejected as ill-founded.
Against the decision of the Minister of Finance the plaintiffs have filed new lawsuit for administrative dispute, that was followed by a judgment from the Administrative Court, U.no. 1343/2013 dated 15.10.2015. According to this Judgment the lawsuit was accepted and the challenged decision of the Minister of Finance U.no. 15-1554/1 dated 10.09.2013 was overturn, whereas it accepted the plaintiffs’ complaint against the Decision of PRO – RD Skopje, Str.dov.no. 24-149/34/2 dated 27.05.2013 in the part where the complaint was rejected, and annulled the part of the Decision Str.dov.no. 24-149/34/2 dated 27.05.2013 according to which the complaint was not accepted and the case was reinstated in proceedings. According to the instructions from the Administrative Court given in the Judgment U.no. 1343/2013 dated 15.10.2015, the PRO RD-Skopje has adopted the Conclusion Str.dov.no. 26-1586/4 according to which the tax proceeding against the plaintiffs was suspended.
By suspending the proceedings, the grounds for the completed payment of personal tax was dismissed. The plaintiffs completed the payment on 15.05.2007, after which based on the Decision Str.dov.no. 24-149/34/2 dated 27.05.2013 funds were partially reimbursed while still the amount of 3.121.259,00 MKD remained. On 25.10.2017 the plaintiffs filed a request for reimbursement of this amount to the PRO – RD Skopje, but still they have not been reimbursed.
Therefore, the plaintiffs have filed a lawsuit for acquiring without legal grounds in accordance with the Law on Obligations, to the Basic Court Skopje II Skopje, that has adopted the Judgment P4-143/18 dated 13.06.2018 according to which the lawsuit was partially adopted and the defendant was ordered to pay the plaintiffs, on the account of acquiring without legal grounds, 3.121.259,00 MKD each including simple interest rate calculated as of 27.05.2013 until its payment. The lawsuit was partially dismissed as ill-founded in the part where the plaintiffs requested the defendant to be ordered to pay simple interest rate calculated as of 15.05.2007 until 31.01.2010, and penalty interest rate from 01.02.2010 until 26.05.2013.
The plaintiffs and the defendant have appealed the Judgment from the Basic Court Skopje II Skopje P4 143/18 dated 13.06.2018 and filed an appeal to the Court of Appeal Skopje. The Court of Appeal Skopje adopted the Judgment GZh-4598/18 dated 26.02.2019 whereby the complaint of the defendant was dismissed as ill-founded and the complaint of the plaintiffs was partially accepted and it confirmed the part where the defendant is obliged to pay due to acquiring without legal grounds to each of the plaintiffs the amount of 3.121.259,00 MKD. While the Judgment of the Basic Court Skopje II Skopje, P4 143/18 dated 13.06.2018 was overturn in the part where the defendant is obliged to pay the plaintiffs penalty interest rate to the amount, by obliging the defendant to pay to the plaintiffs, simple interest rate now calculated as of 20.10.2009 until 31.01.2010 in line with the Law on the amount of the simple interest rate, and penalty interest rate from 01.02.2010 until the payment.
Against the Judgment GZh.no.4598/18 dated 26.02.2019 of the Court of Appeal Skopje, the defendant PRO has stated revision due to substantial violation of the provisions of the Law on the Administrative Procedure and misapplication of the material law, by proposing to adopt the revision, to annul the challenged judgment and to reinstate the case in proceedings and in decision-making in the second instance court, or the said judgment to be altered whereas the complaint of the plaintiffs will be dismissed as ill-founded as a whole and they will be ordered to compensate the defendant for the incurred costs in the course of the proceedings. The Supreme Court on 23.01.2020 adopted the Judgment Rev2.no.259/2019 whereby the revision was rejected as ill-founded.
Analysis of the Judgment of the Supreme Court of RNM
The Supreme Court of RNM in the explanation of the Judgment Rev.2.no.259/2019 dated 23.01.2020 stated that the revision’s allegation that there is a lack of substantive jurisdiction in the particular case as it is not a civil-legal relation is ill-founded. This is since, according to the Supreme Court the lower instance courts have accepted correctly that this is a civil-legal relation due to acquiring without legal grounds in line with Article 199 of the Law on Obligations, referring to the case-law based on the legal opinion stated in the Decision GZZ.no. 98/88 dated 07.10.1989 (Collection of Decisions of the Supreme Court of RM no. VIII/10).
The Supreme Court of RNM with reference to the revision’s allegation for complaint on the statute of limitation of the plaintiffs’ claim, has stated that it is ill-founded since in this particular case the plaintiffs have complained against the decision that obliges them to pay taxes as they have considered it illegal, and immediately after the suspension of the tax procedure on 29.09.2017 they have requested reimbursement of the funds pointing to the unlawfulness of the adopted decision. Hence, the Supreme Court of RNM pointed out that the statute of limitation may commence solely on the day when the tax procedure was suspended and when the plaintiffs acquired the right to request reimbursement of the funds.
The Supreme Court of RNM in the explanation related to the revision’s allegation of misapplication of the material law, meaning that in this particular case the Law on Tax Procedure shall apply instead of the Law on Obligations, has stated that by suspending the procedure the grounds for the completed payment of the personal income tax was also terminated. The plaintiffs completed the payment on 15.05.2007 and the amount of 3.121.259,00 MKD for each plaintiff individually remained as unreimbursed overpayment of tax, which is subject of protection of the Law on Obligations through the institute acquiring without legal grounds.
Finally, the Supreme Court of RNM in the explanation related to the revision’s allegations pertaining to the decision to pay interest rate for the amount that the defendant is obliged to reimburse to the plaintiffs due to the suspended tax procedure, i.e. the dismissal of the legal grounds according to which the defendant has received the referred amount, stated that it considers the revision’s allegation as ill-founded. This is due to the fact that the Supreme Court of RNM has established that when adopting a decision in the part of the lawsuit for payment of interest rate, the lower instance courts have ruled right – meaning that when reinstating what has been acquired without legal grounds the fruits must be returned too, i.e. penalty interest rate must be paid as of the day of the acquiring, if the acquiring party was unscrupulous.
The unscrupulousness of the defendant is pointed out by the Supreme Court through the decisions of the lower instance courts that have established the defendant becoming unscrupulous. The first instance court established that the defendant has become unscrupulous by adopting the Decision Str.dov.no. 24-149/34/2 dated 27.05.2013 since when adopting this decision the defendant did not act in accordance with the instructions from the Judgment of the Administrative Court, U.no.295/2009 dated 20.10.2009. Therefore, the second instance court deciding upon the plaintiffs’ complaint has altered the first instance judgment in the part referring to the interest rate, by indebting the defendant to pay the plaintiffs a simple interest rate for the amount of 3.121.259,00 MKD, calculated from 20.10.2009 until 31.01.2010 and penalty interest rate calculated as of 01.02.2010 until the payment of the penalty interest rate since it considered that the defendant was unscrupulous as of 20.10.2009 when the Administrative Court adopted the Judgment U.no. 295/09 whereby the Decision of the Minister of Finance U.no. 17-3287/2 dated 15.12.2008 was annulled.
Importance and effect of the decision
With the Judgment Rev2.no. 259/2019 dated 23.01.2020, the Supreme Court of RNM in clear and unambiguous way prevents illegal intervention in the right to property when it comes to reimbursement of overpayment or wrong payment of tax. Namely, the Supreme Court of RNM in its legal opinion confirms the jurisdiction of the civil courts if the tax authorities fail to reimburse paid tax for which the tax procedure is suspended i.e. which is paid with no legal grounds. Thus, this legal opinion clearly establishes the substantive jurisdiction of the regular (civil) courts when the jurisdiction of the administrative courts ends, which does not prevent vacuum in the provision of efficient and effective legal remedy for property protection in this particular case.
The Supreme Court also gives a standing on the moment from the commencement of the initiation of the statute of limitation since it states its opinion that the statute of limitation of a claim commences as soon as the tax procedure is suspended, whereas the deadlines from the Law on Obligations apply.
Finally, the Supreme Court also pronounces on the moment when the interest rate commences on the grounds of overpayment or wrong payment of tax for a suspended procedure without reimbursement of the paid funds. Namely, the Supreme Court considers the tax authorities to become unscrupulous as of the moment when they fail to act upon a judgment of the Administrative Court that annuls the decision determining obligation to pay less or determining wrong payment of tax. This opinion is in compliance with the with the case-law of the European Court of Human Rights stated in the Judgment EKO-ELDA AVEE v. GREECE (Application no. 10162/02), paragraph 29, …”In such a case the Court will mainly have regard to whether the authorities have paid late-payment interest to offset the depreciation of the amount due on account of the time that has elapsed (see, among other authorities, Akkuş v. Turkey, 9 July 1997, § 29, Reports of Judgments and Decisions 1997‑IV). In short, under Article 1 of Protocol No. 1 the payment of interest is intrinsically linked to the State’s obligation to make good the difference between the amount owed and the amount ultimately received by the creditor.”
Hence, this Judgment of the Supreme Court of RNM introduces the practice that shall not only be followed by the courts, but also by the public authorities implementing procedures for collecting money from the citizens or the legal entities.
Property shall be guaranteed by using effective legal remedy in a court proceeding, pursuant to the right to fair trial.
This analysis focuses on the Judgment Rev2. No. 259/2019 of the Supreme Court of the Republic of North Macedonia, brought on 23.01.2020, according to which the Supreme Court of RNM gives its legal opinion on the reimbursement of overpayment or wrong payment of tax, when it comes to the substantive jurisdiction in the regular courts against the administrative courts where there is an administrative dispute for tax-administrative proceeding, statute of limitation of the reimbursement of withdrawn funds and payment of interest rate based on overpayment or wrong payment of tax.
Facts of the case
The Public Revenue Office Regional Directorate Skopje (hereinafter, PRO RD Skopje) with the Decision Str.dov.no. 21-3/5 dated 23.04.2007, has established personal income tax in the amount of 4.369.049,00 MKD for each of the plaintiffs separately. The plaintiffs have filed a complaint against the Decision Str.dov.no. 21-3/5 dated 23.04.2007, that was rejected by the PRO RD Skopje with the Decision no. 21-7300-3/6 dated 28.05.2007. The plaintiffs filed a complaint to the Minister of Finance against this Decision. The Minister of Finance adopted the Decision U.no. 17-3287/1 dated 01.11.2007 whereby the complaint was rejected as ill-founded.
Against the decision in second instance, the plaintiffs filed a lawsuit for administrative dispute with the Administrative Court. The Administrative Court on 13.11.2008 adopted the Judgment U. no. 4596/2007 according to which the plaintiffs’ lawsuit was accepted and the challenged decision was annulled. After receiving the judgment, the Minister of Finance adopted new Decision U. no. 17-3287/2 dated 15.12.2008 – and again rejected the plaintiffs’ complaint as ill-founded. The plaintiffs again filed a lawsuit for administrative dispute against the second decision of the Minister of Finance, following which the Administrative Court on 20.10.2009 adopted Judgment U. no. 295/09 whereby the plaintiffs’ lawsuit was accepted, and the challenged decision was annulled. With this judgment, the Court unanimously declared that the Minister of Finance and the PRO RD Skopje have acted against the laws and have incurred debt on the plaintiffs to pay personal income tax without any grounds for it.
Acting upon Judgment U. no. 295/09 dated 20.10.2009, the Minister of Finance adopted new Decision U. no. 17-3287/3 dated 02.03.2010, by which the plaintiffs’ complaint was accepted and the decision following the complaint of the PRO RD Skopje was annulled. The case was reinstated to proceedings and in the repeated proceedings the Decision Str.dov.no. 24-149/34/2 dated 27.05.2013 was adopted and the plaintiffs’ complaint against the Decision Str.dov.no. 21-3/5 dated 23.04.2007 was partially adopted, and personal income tax in the amount of 3.121.259,00 MKD was established for each of them individually based on unreported and untaxed income.
The plaintiffs have filed a complaint against the Decision Str.dov.no. 24-149/34/2 dated 27.05.2013 to the Minister of Finance, who has accordingly adopted the Decision U.no.15-1554/1 dated 10.09.2013 whereby the complaint was rejected as ill-founded.
Against the decision of the Minister of Finance the plaintiffs have filed new lawsuit for administrative dispute, that was followed by a judgment from the Administrative Court, U.no. 1343/2013 dated 15.10.2015. According to this Judgment the lawsuit was accepted and the challenged decision of the Minister of Finance U.no. 15-1554/1 dated 10.09.2013 was overturn, whereas it accepted the plaintiffs’ complaint against the Decision of PRO – RD Skopje, Str.dov.no. 24-149/34/2 dated 27.05.2013 in the part where the complaint was rejected, and annulled the part of the Decision Str.dov.no. 24-149/34/2 dated 27.05.2013 according to which the complaint was not accepted and the case was reinstated in proceedings. According to the instructions from the Administrative Court given in the Judgment U.no. 1343/2013 dated 15.10.2015, the PRO RD-Skopje has adopted the Conclusion Str.dov.no. 26-1586/4 according to which the tax proceeding against the plaintiffs was suspended.
By suspending the proceedings, the grounds for the completed payment of personal tax was dismissed. The plaintiffs completed the payment on 15.05.2007, after which based on the Decision Str.dov.no. 24-149/34/2 dated 27.05.2013 funds were partially reimbursed while still the amount of 3.121.259,00 MKD remained. On 25.10.2017 the plaintiffs filed a request for reimbursement of this amount to the PRO – RD Skopje, but still they have not been reimbursed.
Therefore, the plaintiffs have filed a lawsuit for acquiring without legal grounds in accordance with the Law on Obligations, to the Basic Court Skopje II Skopje, that has adopted the Judgment P4-143/18 dated 13.06.2018 according to which the lawsuit was partially adopted and the defendant was ordered to pay the plaintiffs, on the account of acquiring without legal grounds, 3.121.259,00 MKD each including simple interest rate calculated as of 27.05.2013 until its payment. The lawsuit was partially dismissed as ill-founded in the part where the plaintiffs requested the defendant to be ordered to pay simple interest rate calculated as of 15.05.2007 until 31.01.2010, and penalty interest rate from 01.02.2010 until 26.05.2013.
The plaintiffs and the defendant have appealed the Judgment from the Basic Court Skopje II Skopje P4 143/18 dated 13.06.2018 and filed an appeal to the Court of Appeal Skopje. The Court of Appeal Skopje adopted the Judgment GZh-4598/18 dated 26.02.2019 whereby the complaint of the defendant was dismissed as ill-founded and the complaint of the plaintiffs was partially accepted and it confirmed the part where the defendant is obliged to pay due to acquiring without legal grounds to each of the plaintiffs the amount of 3.121.259,00 MKD. While the Judgment of the Basic Court Skopje II Skopje, P4 143/18 dated 13.06.2018 was overturn in the part where the defendant is obliged to pay the plaintiffs penalty interest rate to the amount, by obliging the defendant to pay to the plaintiffs, simple interest rate now calculated as of 20.10.2009 until 31.01.2010 in line with the Law on the amount of the simple interest rate, and penalty interest rate from 01.02.2010 until the payment.
Against the Judgment GZh.no.4598/18 dated 26.02.2019 of the Court of Appeal Skopje, the defendant PRO has stated revision due to substantial violation of the provisions of the Law on the Administrative Procedure and misapplication of the material law, by proposing to adopt the revision, to annul the challenged judgment and to reinstate the case in proceedings and in decision-making in the second instance court, or the said judgment to be altered whereas the complaint of the plaintiffs will be dismissed as ill-founded as a whole and they will be ordered to compensate the defendant for the incurred costs in the course of the proceedings. The Supreme Court on 23.01.2020 adopted the Judgment Rev2.no.259/2019 whereby the revision was rejected as ill-founded.
Analysis of the Judgment of the Supreme Court of RNM
The Supreme Court of RNM in the explanation of the Judgment Rev.2.no.259/2019 dated 23.01.2020 stated that the revision’s allegation that there is a lack of substantive jurisdiction in the particular case as it is not a civil-legal relation is ill-founded. This is since, according to the Supreme Court the lower instance courts have accepted correctly that this is a civil-legal relation due to acquiring without legal grounds in line with Article 199 of the Law on Obligations, referring to the case-law based on the legal opinion stated in the Decision GZZ.no. 98/88 dated 07.10.1989 (Collection of Decisions of the Supreme Court of RM no. VIII/10).
The Supreme Court of RNM with reference to the revision’s allegation for complaint on the statute of limitation of the plaintiffs’ claim, has stated that it is ill-founded since in this particular case the plaintiffs have complained against the decision that obliges them to pay taxes as they have considered it illegal, and immediately after the suspension of the tax procedure on 29.09.2017 they have requested reimbursement of the funds pointing to the unlawfulness of the adopted decision. Hence, the Supreme Court of RNM pointed out that the statute of limitation may commence solely on the day when the tax procedure was suspended and when the plaintiffs acquired the right to request reimbursement of the funds.
The Supreme Court of RNM in the explanation related to the revision’s allegation of misapplication of the material law, meaning that in this particular case the Law on Tax Procedure shall apply instead of the Law on Obligations, has stated that by suspending the procedure the grounds for the completed payment of the personal income tax was also terminated. The plaintiffs completed the payment on 15.05.2007 and the amount of 3.121.259,00 MKD for each plaintiff individually remained as unreimbursed overpayment of tax, which is subject of protection of the Law on Obligations through the institute acquiring without legal grounds.
Finally, the Supreme Court of RNM in the explanation related to the revision’s allegations pertaining to the decision to pay interest rate for the amount that the defendant is obliged to reimburse to the plaintiffs due to the suspended tax procedure, i.e. the dismissal of the legal grounds according to which the defendant has received the referred amount, stated that it considers the revision’s allegation as ill-founded. This is due to the fact that the Supreme Court of RNM has established that when adopting a decision in the part of the lawsuit for payment of interest rate, the lower instance courts have ruled right – meaning that when reinstating what has been acquired without legal grounds the fruits must be returned too, i.e. penalty interest rate must be paid as of the day of the acquiring, if the acquiring party was unscrupulous.
The unscrupulousness of the defendant is pointed out by the Supreme Court through the decisions of the lower instance courts that have established the defendant becoming unscrupulous. The first instance court established that the defendant has become unscrupulous by adopting the Decision Str.dov.no. 24-149/34/2 dated 27.05.2013 since when adopting this decision the defendant did not act in accordance with the instructions from the Judgment of the Administrative Court, U.no.295/2009 dated 20.10.2009. Therefore, the second instance court deciding upon the plaintiffs’ complaint has altered the first instance judgment in the part referring to the interest rate, by indebting the defendant to pay the plaintiffs a simple interest rate for the amount of 3.121.259,00 MKD, calculated from 20.10.2009 until 31.01.2010 and penalty interest rate calculated as of 01.02.2010 until the payment of the penalty interest rate since it considered that the defendant was unscrupulous as of 20.10.2009 when the Administrative Court adopted the Judgment U.no. 295/09 whereby the Decision of the Minister of Finance U.no. 17-3287/2 dated 15.12.2008 was annulled.
Importance and effect of the decision
With the Judgment Rev2.no. 259/2019 dated 23.01.2020, the Supreme Court of RNM in clear and unambiguous way prevents illegal intervention in the right to property when it comes to reimbursement of overpayment or wrong payment of tax. Namely, the Supreme Court of RNM in its legal opinion confirms the jurisdiction of the civil courts if the tax authorities fail to reimburse paid tax for which the tax procedure is suspended i.e. which is paid with no legal grounds. Thus, this legal opinion clearly establishes the substantive jurisdiction of the regular (civil) courts when the jurisdiction of the administrative courts ends, which does not prevent vacuum in the provision of efficient and effective legal remedy for property protection in this particular case.
The Supreme Court also gives a standing on the moment from the commencement of the initiation of the statute of limitation since it states its opinion that the statute of limitation of a claim commences as soon as the tax procedure is suspended, whereas the deadlines from the Law on Obligations apply.
Finally, the Supreme Court also pronounces on the moment when the interest rate commences on the grounds of overpayment or wrong payment of tax for a suspended procedure without reimbursement of the paid funds. Namely, the Supreme Court considers the tax authorities to become unscrupulous as of the moment when they fail to act upon a judgment of the Administrative Court that annuls the decision determining obligation to pay less or determining wrong payment of tax. This opinion is in compliance with the with the case-law of the European Court of Human Rights stated in the Judgment EKO-ELDA AVEE v. GREECE (Application no. 10162/02), paragraph 29, …”In such a case the Court will mainly have regard to whether the authorities have paid late-payment interest to offset the depreciation of the amount due on account of the time that has elapsed (see, among other authorities, Akkuş v. Turkey, 9 July 1997, § 29, Reports of Judgments and Decisions 1997‑IV). In short, under Article 1 of Protocol No. 1 the payment of interest is intrinsically linked to the State’s obligation to make good the difference between the amount owed and the amount ultimately received by the creditor.”
Hence, this Judgment of the Supreme Court of RNM introduces the practice that shall not only be followed by the courts, but also by the public authorities implementing procedures for collecting money from the citizens or the legal entities.