Amendments to tax law
Powers of tax authorities
Informing a civil servant’s superior
Electronic treatment of personal data
Protection of privacy
Principle of the fair distribution of the fiscal burden
RULING Nº 442/07
14 of August of 2007
There are sufficient concrete reasons for the requirement that the finance director notify the superior of a public servant (or of any public-service employee) of any decision to assess the latter's taxable income (by indirect methods) in tax situations where the taxpayer, though showing external signs of wealth, has not submitted an income-tax return. To distinguish the situation of such a public servant or public service employee from that of other taxpayers is neither arbitrary nor unreasonably discriminatory. Therefore, the statutory requirement does not conflict with the equality principle.
The basis of banking confidentiality was reinforced by recognition of personality rights and by treating banking confidentiality in terms of protection of privacy and not just as a contractual matter between bank and client. The right to confidentiality is strengthened in that, although the basic right to respect for privacy (Article 26.1 of the Constitution) includes the right to confidentiality of one's personal banking data, the special rules governing rights, freedoms and guarantees become applicable. Three types of right are encompassed by the right to respect for personal and family privacy - the right to be left alone, the right to anonymity and the right to self-determination in information matters. The third one (the right not to make public facts or conduct indicative of one's personality or lifestyle) is the most significant and carries the most weight when the constitutionality of banking confidentiality comes under challenge.
Nonetheless, bringing a bank's financial data on the individual client within the scope of the right to privacy raises issues in that the right to privacy might be thought to encompass only the circumstances of private life, thus excluding, in principle, financial assets. However, in the specific case of data and documents held by banks, and above all as regards debit transactions on accounts, it is neither solely nor particularly the knowledge as such of the financial situation which is a possible invasion of privacy. At a time when bank-account activity, notably by means of credit cards, has grown hugely in volume and become commonplace, such knowledge allows a full and accurate picture to be gained of the account holder's lifestyle.
Thus it is mainly as a guarantee protecting non-financial personal information (which otherwise would be indirectly revealed) that banking confidentiality must be given constitutional protection and brought under the right to respect for privacy established in Article 26.1 of the Constitution. Such inclusion raises problems only with regard to legal persons, mainly commercial companies.
The scope of protection of a fundamental right differs from that of the protection afforded in actual practice. The latter results from weighing interests and values connected with privacy against other interests likewise protected by the Constitution but conflicting with them. Banking confidentiality is a matter that falls within community life, in principle lying outside the strictly private sphere, and even if it is understood as a protected area it is only marginally so. Thus not only is banking confidentiality an aspect of confidentiality open to restriction, breach of it at the behest of the tax authorities is only a slight interference with the protected sphere.
In addition, the principle of fair apportionment of the tax burden entitles the authorities to make tax investigations, the extent of which can on no account be limited by banking confidentiality. Even in a system which (like the Portuguese one) is heavily based on guarantees, there are no constitutional grounds for making data which is, in principle, covered by confidentiality a "safe haven" from the tax authorities. Access to such data is a restriction on a fundamental right. In some circumstances, it is legitimised by the public authorities' obligation to preserve other constitutionally protected rights. The important task for the legislature is to establish mechanisms whereby - to the degree compatible with the main objectives of waiving banking confidentiality - protection continues to be given to those interests that are regarded as coming under the constitutional protection accorded to privacy.
The President of the Republic had sought precautionary review of the constitutionality of provisions in Articles 2 and 3 of the parliamentary decree amending the Tax Act, the code of tax procedure and the general rules governing tax offences.
The first constitutionality issue stemmed from the first rule, last section. This provided that final decisions on taxable income were to be communicated not only to the public prosecutor but also, in cases involving public servants or public-service employees, to the supervising authority, for purposes of investigation within its field of responsibility. The issue arose in the context of situations where a taxpayer showed external signs of wealth but had not submitted a tax return. It was then for the taxpayer to show that income declared corresponded to actual earnings and that, because the external signs of wealth derived from another source, no income tax was payable in respect of them. The question here was whether the tax legislation laid down a set of rules for public servants and public-service employees in their capacity as taxpayers that differed from the rules applying to private citizens in general. The Constitutional Court held that, as far as the actual tax relationship was concerned, there was absolute equality of treatment between such persons and other taxpayers. It could thus be concluded that public servants and public-sector employees had the same rights and the same obligations with regard to the methods of determining income. It was therefore after the tax relationship - once the process of assessing taxable income by indirect methods had been concluded and a final decision, whether administrative or judicial, had been taken on the matter - that the rules now introduced a special feature: in the case of private citizens generally the decision was to be communicated only to the public prosecutor, whereas in the case of a public servant or public-service employee it was also to be communicated to the supervising authority. In the Constitutional Court's view no discrimination against the persons concerned arose from this provision, which did not contravene the equality principle in so far as that principle prohibited arbitrariness and unjustified differentials. Consequently the provision was not unconstitutional.
The second constitutional issue had to do with the rule whereby banking confidentiality could be lifted in the event of an administrative or judicial appeal from the taxpayer, provided there was good reason for it. The request from the President of the Republic was based on the following constitutional principles: the right to respect for privacy (Article 26.1 of the Constitution), the right to a court (one aspect of Article 20 of the Constitution when viewed as a corollary of the rule of law as established in Article 2 of the Constitution), the right of petition (Article 52 of the Constitution), the right of members of the public to appeal against any administrative decision detrimental to them (Article 268.4 of the Constitution), the proportionality principle ( Articles 2 and 18 of the Constitution) and the principle of administrative good faith (Article 266 of the Constitution).
The Constitutional Court held that, quite apart from the vagueness of the overall defence safeguards which it offered, the provision in question allowed the administrative authorities a further waiver of banking confidentiality on grounds which were unduly wide and subject to few conditions.
In addition to interfering with the right to privacy, as was inevitable when confidentiality was lifted without the data subject's consent, this undermined the right of administrative or judicial appeal, and the legislator had not provided for any precautionary or attenuating measure which could be applied without sacrificing the desired objective. In other words, precisely when solid and effective guarantees for the taxpayer were most needed, the necessary measures had been most neglected.
By infringing the principle of a fair hearing, the rules at issue on the lifting of banking confidentiality substantially affected the taxpayer's guarantees of being able to challenge decisions by the tax authorities. Although the right of administrative or judicial challenge was not restricted directly or head on, the inequitable lifting of confidentiality, together with the underlying factors, to a large extent deprived those rights of effect.
The Constitutional Court accordingly held that Article 2 of the Constitution and its corollaries ( Articles 20.1, 20.4 and 268.4 of the Constitution) had been contravened.
In addition, weighing up the various interests led to the conclusion that the lack of a requirement to obtain the taxpayer's explicit consent constituted an especially disproportionate and unjustifiable interference with the interest legally protected by the right to privacy: although the lifting of banking confidentiality could not be said to be an inevitable consequence of appeal (since the authority could always find the appeal to be ill-founded), the fact was that, by his own action, the taxpayer immediately and in one fell swoop forfeited what, ultimately, the right was intended to give him, namely control over disclosure of his personal data. Even if the authority decided not to lift confidentiality, the taxpayer lost all power of decision since the mere fact of his submitting an appeal transferred it entirely to the authority. The view must therefore be taken that there was undue and arbitrary interference with the taxpayer's self-determination regarding information.
The greatest interference with the rules deriving from the proportionality principle as broadly construed arose with regard to proportionality in the strict sense. The arrangements for exercising the power to lift confidentiality were unduly detrimental to the guarantee of a proper hearing and the right to respect for privacy in that they were not confined to what was "necessary to safeguard other rights or interests protected by the Constitution", contrary to Article 18.2 of the Constitution and were disproportionate.
Thus the approach adopted provided neither procedural fairness nor a fair hearing with regard to the lifting of banking confidentiality. That alone would justify a finding of unconstitutionality. But this defect, which was reflected in disregard of the right to detailed and appropriate procedural rules, had even more serious effects in the event of an administrative or judicial appeal, basically because it confronted the taxpayer with a constitutionally unacceptable dilemma: either he risked losing his privacy or he lost an important means of protecting his rights and interests. Instead of striking a harmonious balance between the two alternatives so as to retain the main advantages of both, the amendments "compelled" the taxpayer to choose between the two.
On this second issue the Constitutional Court thus found to be unconstitutional the provisions of the code of tax procedure as amended by the parliamentary decree, on the grounds of infringement of Articles 2, 18.2, 20.1, 20.4, 26.1 and 268.4 of the Constitution.