Decision No. 11 of 26 November 2013 on Constitutional Case No. 20/2013
A three-member Supreme Administrative Court (SAC) panel discontinued its administrative proceedings and approached the Constitutional Court with a challenge of the constitutionality of Art. 10, para 1 of the Local Taxes and Fees Act (LTFA) (DV, No. 117/1997, last amendment, DV, No. 61/2013) read in combination with Art. 13 and Art. 24 of the LTFA and with the provision of Art. 60, para 1 of the Constitution in the context of Art. 1 of the Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms (CPHRFF).
The suspended proceedings concerned landed property that a legal entity acquired in 2008 and that was designated for housing development in a densely built-up area. Sofia’s new masterplan that was approved in yearend 2009 left the property that was brought to the Supreme Administrative Court in an area that was planned for neighborhood gardens and landscaping. Under the Sofia Municipality Planning and Development Act (SMPDA) the new comprehensive development plan shall not be revised to change the designation of land that was intended for gardens, parks and forest parks. However, expropriation procedure for this type of property should open within 15 years reckoned from the Act’s entry into force.
The movants insisted that the revised status of the property under consideration precludes its treatment in the sense of Art. 60, para 1 of the Constitution owing to Art. 1 of the CPHRFF Protocol reading that “Every natural or legal person is entitled to the peaceful enjoyment of his possessions.
The SAC panel stated definitively that the designation of the property under consideration for the needs of the capital city’s green system was conformant with a law and in the public interest – viz. for the sake of public needs that cannot be otherwise met, and after fair compensation has been ensured in advance. The SAC judges emphasized that the status that the SMPDA created for the property in question invites a specific hypothesis where there will be the enjoyment of the right to a prior and just compensation in the meaning of Art. 17, para 5 of the Constitution and the hypothesis affects the peaceful enjoyment of possessions. The property that is put down for expropriation, the protracted expropriation schedule start-up date as per Art. 17 of the SMPDA, the public-municipal ownership status of the property after its expropriation, the lock of construction on the land and the unavailability of judicial recourse to control the masterplan plus the retrenched revision options for the masterplan take the property out of the civil turnover over a period of up to 15 years, in the opinion of the movants.
The movants referred to the track record of the European Court of Human Rights (ECHR) (Sporrong and Lonnroth v. Sweden, Jacobsson v. Sweden, Matos e Silva v. Portugal, Phokas v. France), to outline the scope and the substance of the notion “entitlement to the peaceful enjoyment of possessions” that the States are bound to ensure to every natural or legal person.
The SAC panel asked thus: given the apparent legal restrictions on the legal person’s entitlement to the peaceful enjoyment of possessions that are the subject of the proceedings, does Art. 10, para 1 of the LTFA read in combination with Art. 13 of the LTFA adequately reflect the taxable asset in terms of the Constitution and does it conform to the Constitution-defined proportionate modality?
The movants held the view that the law-established constraints on entitlement to possessions impact the owner’s obligation to pay taxes. The SAC judges emphasized that the non-use of the land is not what the owner wished for and is the outcome of a law and a Council of Ministers act. The judges claimed that in fact the Legislature and the Government had impinged on the entitlement to enjoy possessions to an extent to make the exercise practically impossible while it levied a tax as burdensome as it is for other owners who are free of such constraints.
The Constitutional Court dismissed the motion for the following reasons:
The movants challenged Art. 10, para 1 of the LTFA read in combination with Art. 13 and Art. 24 of the LTFA and read in combination with Art. 13 and Art. 24 of the LTFA and with the provision of Art. 60, para 1 of the Constitution in the context of Art. 1 of the CPHRFF Protocol. Though the references as made give prominence to the movants’ rationale, as a matter of fact the focus is Art. 10, para 1 of the LTFA that the Constitutional Court is to check for compliance with the Constitution. The outcome of constitutional control shall not be the pronouncement of a legal text unconstitutional only if it is interpreted in the context of other specific texts of the same piece of legislation. This is the reason for which the Constitutional Court issued the case on its merits by a formulation of a definition of admissibility which was to focus on the compliance of Art. 10, para 1 of the LTFA with the Constitution. The opposite approach would in fact extend the law by writing a new differentiated taxation regulation to be applied to a definite category of immovables and would make the Constitutional Court a positive legislator.
The challenged Art. 10, para 1 of the LTFA establishes a new general principle of taxation of immovable property. This principle makes it binding to levy a tax on immovable property – on the buildings and lots located within the territory of Bulgaria, which are situated within the development limits of the nucleated settlements and the dispersed settlements as well as the lots outside such development limits, which, according to a detailed plan, have the intended purpose under Item 1 of Article 8 of the Spatial Development Act, as well as after the intended purpose of the land is changed, where required by the procedure of a special law.
This regulation establishes a principle that is consistent with Art. 60, para 1 of the Constitution where it is explicitly stated that citizens shall pay taxes and duties established by a law proportionately to their income and property. The text does not provide for different tax treatment for the individual tax payers nor does it allow any tax exemption. The legal differentiation in the assessment of tax dues on each category of property and the tax exemptions are subject to LFTA provisions.
The Constitutional Court has an agreed practice that “it is up to the will of the Legislature to subject groups of taxpayers to different tax treatment inasmuch as such tax treatment is subject only and exclusively to law” (Constitutional Court’s Decision No. 12/1994 on Constitutional Case No. 12/1994). Also the Court agreed that the “law-established tax rules are not unconstitutional” and that “tax exemptions and tax dues shall be subject to a legislative act of the National Assembly” (Constitutional Court’s Decision No. 3/1996 on Constitutional Case No. 2/1996 г.). Regarding local taxes, the Court upholds the view that “the amount of the tax due shall be assessed on the basis of the price which is not sensitive to the needs that the property meets” and that “the way of usage is not an element of the cost” (Constitutional Court’s Decision No. 9/1996 on Constitutional Case No. 9/1996).
Art. 1 of the CPHRFF Protocol proclaims that “Every natural or legal person is entitled to the peaceful enjoyment of his possessions”. While the text protects the right to property, it stipulates that the quoted provision 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. Nothing in this provision discourages the State from enforcing laws to levy taxes on certain immovables as part of the citizens’ property and income.
The assigned use of lots to meet the demands of Sofia’s green system, the impossibility to develop it and the long expropriation procedure as per Art. 17 of the SMPDA leave owners with fewer options to make a full use of their property. The differentiation of tax dues in Annex 2 to the LTFA cannot fully satisfy the demands of justice in all possible hypotheses of complications in the legal status of individual assets. These restrictions and the insufficient differentiation in taxation are not of a nature to take the respective assets out of the civil turnover, as the movants claim, or to make the assets unfit to be taxable. In a limited number of cases it is possible to make a lucrative use of such assets which may be treated as non-taxable only and exclusively by virtue of law. The expropriation of such assets entitles to fair compensation.
The Court found that the movants’ motive cannot make the challenged text of Art. 10, para 1 of the LTFA unconstitutional. The inexistence of legal differentiation to attain more justice in the taxation of such taxable assets and assets for which such legal restrictions don’t exist cannot be remedied if Art. 10, para 1 of the LTFA is declared unconstitutional. It is up to the Legislature to do it by the passage of amendments to the LTFA since it is only the National Assembly that is competent to judge on the appropriateness of a tax reduction or a tax exemption. This is to be inferred from the imperative of Art. 60, para 2 of the Constitution.
Given the inexistence of an explicitly stated request to check Art. 10, para 1 of the LTFA for compliance with Art. 1 of the CPHRFF Protocol, as evident from the wording that was chosen by the movants, the Constitutional Court concluded that this part of the action should be dismissed.