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ECtHR / Application no. 41838/11 / Judgment

R.Sz. v Hungary
Deciding body type
European Court of Human Rights
Deciding body
European Court of Human Rights
Type
Decision
Decision date
02/07/2013

Charta základných práv Európskej únie

Title IV: Solidarity

Article 34 - Social security and social assistance

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  • ECtHR / Application no. 41838/11 / Judgment
    Key facts of the case:
    1. The applicant was born in 1973 and lives in Budapest.
    2. The applicant had been employed by a State-owned limited company for about eleven years. On 1 July 2010 his employment was terminated by mutual agreement, with effect from 5 October 2010.
    3. According to his labour contract, the applicant became entitled, amongst other benefits, to severance pay in the amount of four months’ salary – which was in excess by one month’s salary of that provided by the Labour Code – and to salary for the three months of his notice period. The benefits were reduced by taxes payable at that time[1] and paid to the applicant on 2 July 2010.

    The applicant’s benefits were subsequently taxed at 98% in their part exceeding 3,500,000 Hungarian forints (HUF)[2]. The exceeding part was HUF 8,130,939[3], the tax thus amounting to HUF 7,968,320[4]. The amount payable was HUF 4,054,085[5], regard being had to the fact that the benefits had already been taxed HUF 3,914,235[6] on payment, on 2 July 2010.

    The tax, whose due date was apparently 10 May 2011, was paid on 23 February 2011, that is, according to the rules of the second version (of 30 December 2010 – see paragraph 12) of the legislation outlined below; however, the third version (of 14 May 2011 – see paragraphs 16-17) did not change the applicant’s situation.
     
    Results (sanctions) and key consequences of the case:
     
    The Court unanimously
    1. Declares the application admissible;
    2. Holds that there has been a violation of Article 1 of Protocol No. 1;
    3. Holds that there is no need to examine separately the complaint under Article 1 of Protocol No. 1 read in conjunction with Article 13 of the Convention;
    4. Holds that there is no need to examine separately the complaint under Article 1 of Protocol No. 1 read in conjunction with Article 14 of the Convention;
    5. Holds
    (a)  that the respondent State is to pay the applicant, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
     
    (i)  EUR 25,000 (twenty-five thousand euros), plus any tax that may be chargeable, in respect of pecuniary and non-pecuniary damage;
     
    (ii)  EUR 3,400 (three thousand four hundred euros), plus any tax that may be chargeable to the applicant, in respect of costs and expenses;
     
    (b)  that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
    1. Dismisses the remainder of the applicant’s claim for just satisfaction.
    Done in English, and notified in writing on 2 July 2013, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
  • Paragraphs referring to EU Charter

     

    18. The Charter of Fundamental Rights of the European Union provides as follows:

    Article 34 - Social security and social assistance: “1. The Union recognises and respects the entitlement to social security benefits and social services providing protection in cases such as maternity, illness, industrial accidents, dependency or old age, and in the case of loss of employment, in accordance with the rules laid down by Community law and national laws and practices.”

    The European Court of Justice held in Case C-499/08 Andersen v Region Syddanmark, [2010] ECR I-09343 as follows: “29. The aim pursued by the severance allowance of protecting workers with many years of service in an undertaking and helping them to find new employment falls within the category of legitimate employment policy and labour market objectives provided for in Article 6(1) of Directive 2000/78.”

    European Commission Recommendation of 30 April 2009 on remuneration policies in the financial services sector (2009/384/EC) provides as follows: 

    “1. Excessive risk-taking in the financial services industry and in particular in banks and investment firms has contributed to the failure of financial undertakings and to systemic problems in the Member States and globally....

    5. Creating appropriate incentives within the remuneration system itself should reduce the burden on risk management and increase the likelihood that these systems become effective. Therefore, there is a need to establish principles on sound remuneration policies.”

    In the case Michel Bourgès-Maunoury, Marie-Louise Heintz v Direction des services fiscaux d’Eure-et-Loir concerning the compatibility with European Union primary law of a national provision on the procedure for calculating a wealth tax, Advocate General Cruz Villalón reiterated that the principle that rules governing tax law and the exercise of fiscal power must not have confiscatory effects is a “well-known and widely-recognised idea” (Case C‑558/10, Michel Bourgès-Maunoury, Marie-Louise Heintz v Direction des services fiscaux d’Eure-et-Loir 12 Dec 2011, OJ C-46, 12, Opinion of AG Villalón).

    ...

    25. The Government did not dispute that the contested deprivation of revenue had amounted to an interference with the applicant’s right to property. However, in their view, this interference was prescribed by law and pursued the legitimate aims of satisfying society’s sense of justice and of protecting the public purse. These aims of general interest were also recognised by the European Union which had initiated legislative steps (see paragraph 18 above) against excessive severance payments, as their amount often per se violated society’s sense of justice and the remuneration policy applied in the financial sector to executive officers had contributed to the international financial crisis of the past years.

    ...

    59. As regards the personal burden which the applicant sustained on account of the impugned measure, the Court notes that he had to suffer a substantial deprivation of income in a period of presumable considerable personal difficulty, namely subsequent to the loss of employment. The Court would observe in this context that Article 34 of the Charter of Fundamental Rights of the European Union (see paragraph 18 above) endorses benefits providing protection in the case of loss of employment, and that according to the European Court of Justice, the aim pursued by severance pay – that is, helping dismissed employees find new employment – belongs within legitimate employment policy goals (see paragraph 18 above).
    Moreover, the Court cannot overlook the fact that the applicant received the benefits in question, reduced by the then applicable taxes, several months before the change in the revenue rules, and might have disposed of it already, unaware that subsequently he would have to surrender this money, almost in its entirety, in the levying of an additional tax. For the Court, this element – that is, the absence of a transitional period within which to adjust himself to the new scheme – is likely to have exposed the applicant to substantial personal hardships. In this connection the Court recalls that taxation at a considerably higher tax rate than that in force when the revenue in question was generated could arguably be regarded as an unreasonable interference with expectations protected by Article 1 of Protocol No. 1 (see M.A. and 34 Others, cited above). The tax complained of was not intended to remedy technical deficiencies of the pre-existing law, nor had the applicant enjoyed the benefit of a windfall in a changeover to a new tax-payment regime (compare and contrast, National etc., cited above, §§ 75 to 83).