EHRM, 14-11-2017, nr. 46184/16

In 2012 the Netherlands, like other European countries, was faced with its most serious financial difficulties for decades as a result of the worldwide economic crisis obtaining at the time. The economic and social problems to be faced included a drop in trade, production and consumer spending and a rise in unemployment, resulting in higher public spending while tax revenue declined.

On 26 April 2012 five political parties constituting a parliamentary majority reached an agreement on a set of measures intended to meet financial setbacks besetting public finances. The net effect of these measures would be to increase Government revenue by 12.4 billion euros (EUR) in 2013. They would seriously affect purchasing power; but these effects would be spread in a balanced way with a view to sparing low-income households.

The measures included structural reforms of the social-security system, including accelerating the raising of the State pension age from 65 to 67; freezing public sector wages; reform of the health care system; structural tax increases, including raising the taxes on fossil fuel and drinking water as well as on alcohol and tobacco and raising the value-added tax high rate from 19% to 21% (some of this increase going towards financing a reduction of the income tax for low-income households); doubling the tax payable by banks on unsecured debt; and as a temporary measure, the introduction of a ‘crisis levy’ (crisisheffing) on wages higher than 150,000 euros (EUR) per annum and on especially generous ‘golden handshakes’.

The ‘crisis levy’, in issue in the present cases, was expected to raise EUR 500 million in 2013.

This agreement became known as the ‘Budget Agreement for 2013’ (Begrotingsakkoord 2013). On 27 April 2012 the Minister of Finance (Minister van Financiën) forwarded an outline of it, entitled ‘Stability programme for the Netherlands (updated in April 2012’ (Stabiliteitsprogramma Nederland (april 2012 actualisatie)), to the European Commission.

On 25 May 2012 the Government presented a financial memorandum (Voorjaarsnota 2012, ‘Spring Memorandum 2012’) to Parliament.

This memorandum noted that the economy of the Netherlands was in a recession which had begun in the second half of 2011. It set out the effects of financial setbacks on the implementation of the State budget for 2012 and proposed budgetary measures to meet them.

On the spending side, the setbacks included unexpectedly high expenditure on unemployment and public health care. In terms of income, the main setbacks were drops in tax revenue from company tax (vennootschapsbelasting) and taxes on wages and income (loon- en inkomensheffing) caused by reduced profits and mounting unemployment. In addition, reductions in private spending and investment in housing had caused a drop in revenue from value-added tax and property transfer tax (overdrachtsbelasting).

The Government debt had been increased by, among other things, the contribution made by the Netherlands to the second bailout of Greece within the framework of the European Financial Stability Facility, which was booked as part of the Netherlands public debt.

If nothing was done, then in 2012 the ratio of the government deficit to gross domestic product would rise from 2.9% to 4.2%; the ratio of government debt to gross domestic product would rise from 65.3% to 69.7%. Thereafter the ratio of the government deficit to gross domestic product could be expected to rise to 4.4% in 2013 and the ratio of government debt to gross domestic product would level out at 76% in 2015. These were values in excess of those prescribed by European Monetary Union rules, to wit, 3% and 60% respectively (see paragraphs 53 and 55 below).

Further measures envisaged included modernising the labour market, raising the State pension age more quickly than originally planned, reforming the housing market and improving the efficiency of health care.

Attached to this memorandum was an elaborated version of the Budget Agreement for 2013, set out in a document bearing the title ‘Taking responsibility in a time of crisis’ (Verantwoordelijkheid nemen in crisistijd). It set out the detail of the various measures proposed. Their aggregate effect was expected to be a EUR 12.4 billion reduction of the budget deficit.

The various measures agreed in the Budget Agreement (see paragraph 7) were presented to Parliament on 4 June 2012 in the form of the Budget Agreement 2013 (Tax Measures Elaboration) Bill (wetsvoorstel Wet uitwerking fiscale maatregelen begrotingsakkoord 2013).

The Budget Agreement 2013 (Tax Measures Elaboration) Bill was adopted as an Act which entered into force on 18 July 2012. This Act amended a number of tax laws.

Provision for the ‘crisis levy’ was made by amending the Wages (Tax Deduction) Act 1964 (Wet op de loonbelasting 1964) to introduce a high wages tax surcharge (pseudo-eindheffing hoog loon) on wages in excess of EUR 150,000 paid in 2012, this surcharge being levied from the employer not the employee (section 32bd of the Wages (Tax Deduction) Act 1964; see paragraph 56 below). The following is taken from the Explanatory Memorandum (Memorie van Toelichting) to the Bill that later became the Budget Agreement 2013 (Tax Measures Elaboration) Act (Parliamentary Documents, Lower House of Parliament (Kamerstukken II) 2011–12, 33 287, no. 3, page 9):

Although the high wages tax surcharge was intended to be a once-only measure, it was prolonged for the year 2014. It was discontinued thereafter.

The Government budget was presented to Parliament on 18 September 2012. It included the measures announced in the Budget Agreement for 2013. Tax revenue was intended to be EUR 139,378,000,000 in 2013 (EUR 235,427,000,000 of social-security contributions (premies volksverzekeringen) were included), up from EUR 131,940,000,000 and EUR 223,054,000,000 respectively in 2012.

The applicant companies state that 2.1% of all employers in the Netherlands paid wages surpassing EUR 150,000 to one or more employees. They calculate that the high wages tax surcharge contributed 0.2124% to the 2013 budget (including social-security contributions) and reduced the budget deficit by 0.08%.

P. Plaisier B.V. is a financial holding company. It employs one person who is also its sole shareholder.

In 2012 P. Plaisier B.V. paid its employee taxable wages totalling EUR 293,000, from which wage tax (loonbelasting) was withheld. In 2013 the applicant paid a high wages tax surcharge of EUR 22,969.

On 22 May 2013 P. Plaisier B.V. lodged an objection (bezwaar) against the high wages tax surcharge with the Tax Inspector, who dismissed it on 1 April 2014.

On 8 May 2014 P. Plaisier B.V. lodged an appeal (beroep) with the Regional Court (rechtbank) of The Hague. As relevant to the case before the Court, it argued that the high wages tax surcharge violated Article 1 of Protocol No. 1 and Article 26 of the International Covenant on Civil and Political Rights in that, firstly, it had not been foreseeable; secondly, it was not justified by a proper assessment of how to distribute the financial burden among taxpayers; and thirdly, it discriminated against employers who paid employees more than EUR 150,000 as compared to employers who paid their employees lesser sums and categories of taxpayers other than employers of natural persons.

The Regional Court gave judgment on 5 January 2015. It considered that the need to reduce the budget deficit constituted a ‘general interest’ for purposes of Article 1 of Protocol No. 1 and the choice of measures to effect this reduction fell within the legislature's wide margin of appreciation. The high wages tax surcharge was not without reasonable foundation, despite the elements of retrospectivity resulting from its imposition on wages paid in 2012. There was no discrimination contrary to Article 14 of the Convention or Article 26 of the International Covenant on Civil and Political Rights, since the distinction was not made on innate characteristics such as gender, race or ethnicity and in any case was not manifestly without reasonable foundation.

The Tax Inspector and P. Plaisier B.V. agreed to lodge a direct ‘leapfrog’ appeal on points of law (sprongcassatie) with the Supreme Court (Hoge Raad), bypassing the ordinary appeal stage.

As relevant to the case before the Court, P. Plaisier B.V. alleged a violation of Article 1 of Protocol Nol. 1 in that the high wages tax surcharge had been given retroactive effect beyond the date on which it had become foreseeable — in its contention, 18 July 2012, the date of the entry into force of the Budget Agreement 2013 (Tax Measures Elaboration) Act (see paragraph 18 above). It also argued, relying on Article 1 of Protocol No. 1 taken together with Article 14 of the Convention, on Articles 17 and 21 of the Charter of Fundamental Rights of the European Union and on Article 26 of the International Covenant on Civil and Political Rights, that the levy discriminated against employers who paid employees more than EUR 150,000 as compared to employers who paid their employees lesser sums and to categories of taxpayers other than employers of natural persons, such as the self-employed, those who derived income from investments and incorporated bodies, even if they enjoyed an annual income of more than EUR 150,000.

The Supreme Court gave judgment on 25 March 2016. It dismissed P. Plaisier B.V.'s appeal on points of law on summary reasoning, referring to its judgments of 29 January 2016 (ECLI:NL:HR:2016:121 and ECLI:NL:HR:2016:124, see paragraphs 57 and 58 below).

D.E.M. Management Services B.V. is a financial holding company. It employs one person who is also its sole shareholder.

In January 2012 D.E.M. Management Services B.V. paid its employee a bonus of EUR 612,155, which was subject to income tax, in addition to taxable wages totalling EUR 416,315 (of which EUR 239,298 was regular wages paid before 18 July 2012 and EUR 177,017 was regular wages paid after 17 July 2012), from which sums wage tax was withheld. In 2013 the applicant paid a high wages tax surcharge in a total amount of EUR 140,555.

On 22 May 2013 D.E.M. Management Services B.V. lodged an objection against the high wages tax surcharge with the Tax Inspector, who dismissed it on 1 April 2014.

On 8 May 2014 D.E.M. Management Services B.V. lodged an appeal with the North Holland Regional Court. As relevant to the case before the Court, it argued that the high wages tax surcharge violated Article 1 of Protocol No. 1 and Article 26 of the International Covenant on Civil and Political Rights in that, firstly, it had not been foreseeable; secondly, it was not justified by a proper assessment of how to distribute the financial burden among taxpayers; and thirdly, it discriminated against employers who paid employees more than EUR 150,000 as compared to employers who paid their employees lesser sums and categories of taxpayers other than employers of natural persons.

The Regional Court gave judgment in D.E.M. Management Services B.V.'s case on 4 December 2014. It held that in enacting the legislation in issue the legislature had not overstepped its margin of appreciation. However, the bonus had been paid in January 2012, i.e. before the date on which the Budget Agreement for 2013 was reached (26 April 2012 — see paragraph 6 above); this meant that in respect of the bonus the high wages tax surcharge had not been foreseeable. The Regional Court ordered the repayment of the corresponding amount of tax paid (EUR 97,155).

Both D.E.M. Management Services B.V. and the Tax Inspector appealed to the Court of Appeal of Amsterdam.

The Court of Appeal gave judgment on 28 May 2015. As relevant to the case before the Court, it held that the measure in issue was in accordance with domestic law and served a legitimate aim. Taking the view that the introduction of the high wages tax surcharge could not be viewed in isolation, divorced from the other budgetary measures announced in the Budget Agreement for 2013, it held that it had been the conscious decision of the legislature to introduce the levy in the form chosen and that alternative possibilities had been considered but rejected for practical reasons. The high wages tax surcharge was therefore not devoid of reasonable foundation and came within the legislature's margin of appreciation. Although the measure amounted to retroactive taxation, this also was a conscious choice made in order to levy the tax already in 2013; this, too, was justified by the serious budgetary problems existing at the time and accordingly not disproportionate. Responding to a discrimination complaint, it found that in terms of Netherlands tax law the situations were not comparable; that moreover the measure had been designed so as not to render the Netherlands unattractive for foreign investors, which constituted objective and reasonable justification; and that there was accordingly no discrimination contrary to Article 14 of the Convention or Article 26 of the International Covenant on Civil and Political Rights. It accordingly quashed the Regional Court's judgment and dismissed the applicant company's appeal.

D.E.M. Management Services B.V. lodged an appeal on points of law (cassatie) to the Supreme Court. As relevant to the case before the Court, the applicant company alleged a violation of Article 1 of Protocol No. 1 in that the high wages tax surcharge had been given retroactive effect beyond the date on which it had become foreseeable — in its contention, 18 July 2012, the date of the entry into force of the Budget Agreement 2013 (Tax Measures Elaboration) Act (see paragraph 18 above). It also argued, relying on Article 1 of Protocol No. 1 taken together with Article 14 of the Convention, on Articles 17 and 21 of the Charter of Fundamental Rights of the European Union and on Article 26 of the International Covenant on Civil and Political Rights, that the levy discriminated against employers who paid employees more than EUR 150,000 as compared to employers who paid their employees lesser sums and to categories of taxpayers other than employers of natural persons, such as the self-employed, those who derived income from investments and incorporated bodies, even if they enjoyed an annual income of more than EUR 150,000.

The Supreme Court gave judgment on 25 March 2016. It dismissed D.E.M. Management Services B.V.'s appeal on points of law on summary reasoning, referring to its judgments of 29 January 2016 (ECLI:NL:HR:2016:121 and ECLI:NL:HR:2016:124, see paragraphs 57 and 58 below).

Feyenoord Rotterdam N.V. is a professional club football employer. In 2012 it employed a number of persons including professional football players to whom it paid wages in excess of EUR 150,000.

Feyenoord Rotterdam N.V.'s accounting year ran from 1 July to 30 June. Its net worth (eigen vermogen) was EUR 21,057,000 negative in 2010–2011; EUR 9,515,000 negative in 2011–2012; EUR 6,200,000 negative in 2012–2013; and EUR 3,000,000 positive in 2013–2014.

In accordance with the financial rating system of the Royal Dutch Football Association (Koninklijke Nederlandse Voetbalbond, ‘KNVB’), the KNVB licensing committee relegated Feyenoord Rotterdam N.V. to the lowest financial category in 2010–2011. This endangered Feyenoord Rotterdam N.V.'s licence to take part in professional football competitions. Feyenoord Rotterdam N.V. was promoted to a higher category in 2011–2012 after injections of outside capital and an issue of new shares.

In 2012 Feyenoord Rotterdam N.V. paid wages exceeding EUR 150,000 to twenty-five employees. In 2013 it paid a high wages tax surcharge of EUR 593,472.

On 8 May 2013 Feyenoord Rotterdam N.V. lodged an objection against the high wages tax surcharge with the Tax Inspector, who dismissed it on 3 April 2014.

On 22 April 2014 Feyenoord Rotterdam N.V. lodged an appeal with the Regional Court of The Hague. As relevant to the case before the Court, it argued that the high wages tax surcharge violated Article 1 of Protocol No. 1 in that, firstly, it had not been foreseeable; secondly, it was not justified by a proper assessment of how to distribute the financial burden among taxpayers; and thirdly, it imposed an ‘unreasonable and excessive burden’ on the company itself given the state of its finances. It also argued, relying on Article 14 of the Convention and Article 26 of the International Covenant on Civil and Political Rights, that the surcharge discriminated against employers who paid employees more than EUR 150,000 as compared to employers who paid their employees lesser sums and categories of taxpayers other than employers of natural persons.

The Regional Court gave judgment on 19 January 2015. It held that in enacting the legislation in issue the legislature had not overstepped its margin of appreciation. Feyenoord Rotterdam N.V. had not borne an ‘individual and excessive burden’, given that its financial situation had improved considerably despite the high wages tax surcharge.

Feyenoord Rotterdam N.V. appealed to the Court of Appeal of The Hague. In addition to restating the arguments made before the Regional Court, in particular those under Articles 14 of the Convention and 26 of the International Covenant on Civil and Political Rights, it submitted that the improvement of its financial situation (pointed out by the Regional Court) had been due to injections of capital by outside investors and transfers of players rather than increased profits.

The Court of Appeal of the Hague gave judgment on 22 December 2015. As relevant to the case before the Court, it held that the measure in issue was in accordance with domestic law and served a legitimate aim. Taking the view that the introduction of the high wages tax surcharge could not be viewed in isolation, divorced from the other budgetary measures announced in the Budget Agreement for 2013, it held that it had been the conscious decision of the legislature to introduce the levy in the form chosen and that alternative possibilities had been considered but rejected for practical reasons. The high wages tax surcharge was therefore not devoid of reasonable foundation and came within the legislature's margin of appreciation. Although the measure amounted to retroactive taxation, this also was a conscious choice made in order to levy the tax already in 2013; this, too, was justified by the serious budgetary problems existing at the time and by the need to forestall preemptive measures aimed at evasion by taxpayers and accordingly not disproportionate. It was reflected in the Court's case-law, in particular M.A. and 34 Others v. Finland (dec.), no. 27793/95, 10 June 2003, and Huitson v. the United Kingdom (dec.), no. 50131/12, 13 January 2015, that Article 1 of Protocol No. 1 did not as such prohibit retrospective legislation; although this case-law specifically concerned legislation intended to close technical loopholes in tax legislation to abusers, it did not follow that retroactive taxation was limited to such cases. The Cour of Appeal of The Hague continued its assessment, considering that at an individual level, admittedly the applicant company had been faced with a considerable financial burden as a result of the measure in issue. However, the question whether the improvement of the applicant company's financial situation was due to improved profits or to increases from other sources was irrelevant to the question whether the applicant company had had to bear an ‘individual and excessive burden’ within the meaning of Article 1 of Protocol No. 1. What mattered was not whether the surcharge was high in an absolute sense, or higher than average, but whether as a result the applicant company was faced with a burden that should count as excessive in the light of the particular facts and circumstances affecting it. The applicant company's total financial situation was defined by its assets as much as by its profits, and should be considered not only with reference to the tax year in issue but also in light of the situation obtaining in subsequent years. Given that between 2011 and 2014 the applicant company's financial situation had improved to the point where it fully satisfied the requirements of the Royal Dutch Football Association, the burden imposed on the applicant company individually did not constitute an unjustified interference with its property rights any more than the general measure did.

Responding to Feyenoord Rotterdam N.V.'s arguments under Articles 14 of the Convention and 26 of the International Covenant on Civil and Political Rights, the Court of Appeal found that in terms of Netherlands tax law the situations were not comparable; that moreover the measure had been designed so as not to render the Netherlands unattractive for foreign investors, which constituted objective and reasonable justification; and that consequently there was no discrimination contrary to Article 14 of the Convention or Article 26 of the International Covenant on Civil and Political Rights. It accordingly confirmed the Regional Court's judgment.

Feyenoord Rotterdam N.V. lodged an appeal on points of law with the Supreme Court. As relevant to the case before the Court, it relied on Article 1 of Protocol No. 1, both taken alone and taken together with Article 14 of the Convention, and Article 26 of the International Covenant on Civil and Political Rights. As relevant to the case before the Court, it argued that the levy was unlawful in that it imposed a tax on employers and employees simultaneously, contrary to the system of the Wages (Tax Deduction) Act; that imposing a higher income tax on high-income wage-earners would have been a better alternative; that budgetary interests alone could not justify retrospective tax legislation; that the legislation in issue imposed an ‘individual and excessive burden’ on employers in the applicant company's position because, unable to foresee the imposition of the levy, they had had no opportunity to make prior provision for it; and that the levy discriminated against the small minority of employers who paid employees more than EUR 150,000 as compared to employers who paid their employees lesser sums and to categories of taxpayers other than employers of natural persons, such as the self-employed, those who derived income from investments and companies, even if they enjoyed an annual income of more than EUR 150,000. In the alternative, Feyenoord Rotterdam N.V. suggested that the levy should be calculated only from the date on which it became foreseeable — in its contention, 25 May 2012, the date of the Spring Memorandum (see paragraph 10 above).

The Supreme Court gave judgment on 25 March 2016. It dismissed the applicant company's appeal on points of law on summary reasoning, referring to its judgments of 29 January 2016 (ECLI:NL:HR:2016:121 and ECLI:NL:HR:2016:124, see paragraphs 57 and 58 below).

At the relevant time, the Wages (Tax Deduction) Act 1964, in its relevant parts, provided as follows:

Section 1

Section 20

Section 26

Section 32bd

In its judgment of 29 January 2016, ECLI:NL:HR:2016:121, the Supreme Court held, inter alia:

In a second judgment of the same date, ECLI:NL:HR:2016:124, the Supreme Court restated the above reasoning and approved a prolongation of the measure applicable to the tax year 2013.

As the Court has often held, Article 1 of Protocol No. 1 guarantees in substance the right of property. It comprises three distinct rules. The first, which is expressed in the first sentence of the first paragraph and is of a general nature, lays down the principle of peaceful enjoyment of property. The second, in the second sentence of the same paragraph, covers deprivation of possessions and makes it subject to certain conditions. The third, contained in the second paragraph, recognises that the Contracting States are entitled to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. However, the three rules are not ‘distinct’ in the sense of being unconnected: the second and third rules are concerned with particular instances of interference with the right to peaceful enjoyment of property and should therefore be construed in the light of the general principle enunciated in the first rule (see, among many other authorities, Sporrong and Lönnroth v. Sweden, 23 September 1982, § 61, Series A no. 52; Gasus Dosier- und Fördertechnik GmbH v. the Netherlands, 23 February 1995, § 55, Series A no. 306-B; National & Provincial Building Society, Leeds Permanent Building Society and Yorkshire Building Society v. the United Kingdom, 23 October 1997, § 78, Reports of Judgments and Decisions 1997-VII; M.A. and 34 Others v. Finland (dec.), no. 27793/95, 10 June 2003; and as a recent example, Béláné Nagy v. Hungary [GC], no. 53080/13, § 72, ECHR 2016).

The most natural approach, in the Court's opinion, is to examine the applicant companies' complaints under the head of ‘securing the payment of taxes’, which comes under the rule in the second paragraph of Article 1 of Protocol No. 1. That paragraph explicitly reserves the right of Contracting States to pass such laws as they may deem necessary to secure the payment of taxes. The importance which the drafters of the Convention attached to this aspect of the second paragraph of the Article may be gauged from the fact that at a stage when the proposed text did not contain such explicit reference to taxes, it was already understood to reserve the States' power to pass whatever fiscal laws they considered desirable, provided always that measures in this field did not amount to arbitrary confiscation (see Gasus Dosier- und Fördertechnik, cited above, § 59; N.K.M. v. Hungary, no. 66529/11, § 45, 14 May 2013; Gáll v. Hungary, no. 49570/11, § 44, 25 June 2013; R.Sz. v. Hungary, no. 41838/11, § 34, 2 July 2013; and Arnaud and Others v. France, nos. 36918/11 and 5 others, § 23, 15 January 2015).

The applicant companies did not dispute that the high wages tax surcharge was ‘lawful’ in the sense that it had a statutory basis and that it served the ‘general interest’. Their complaints focused on the proportionality of the measure.