Tax and Fiscal Law – witness evidence regime
Outward displays of wealth;
RULING No. 759/13
30 of October of 2013
The Court declared a norm contained in the Code of Tax Proceedings and Procedures, when applicable under the provisions of the General Tax Law, to be unconstitutional with generally binding force. The norm in question absolutely excluded the submission of evidence in the form of witness testimony in cases in which such evidence is generally admissible. However, there are constitutional norms that preclude the ordinary legislator from creating obstacles which make it difficult, or arbitrarily or disproportionately prejudice the ability, to exercise the right to gain access to the courts and to effective jurisdictional protection.
A norm that provides for an absolute prohibition of this kind, thereby abstractly precluding evidence which may prove appropriate or even necessary to the clarification of facts in concrete cases, contains an excessive restriction and results in injury to the right to submit evidence, which is in turn included in the guarantee of access to the courts.
The norm before the Court in this case formed part of the Code of Tax Proceedings and Procedures (CPPT) and absolutely excluded the possibility of submitting testimonial evidence in cases in which it is generally admissible.
The Court decided to reaffirm its existing jurisprudence on the concrete review level, confirming its earlier finding of the norm’s unconstitutionality, which it now declared with generally binding force.
The General Tax Law (LGT) says that taxable income can be indirectly assessed when a taxpayer does not submit a tax return, but displays the “manifestations” or outward signs of wealth listed in a table attached to the Law, or when he/she declares income that is more than 50% below the level which the table considers to be standard for those manifestations. If the existence of situations that lead to such an indirect assessment of taxable income is verified, it is up to the taxpayer to prove that the income he/she has declared matches the reality and that there is some other source of his/her display of wealth – e.g. inheritances, gifts, income that is not subject to declaration, existing capital, or loans. The decision to indirectly assess taxable income can be appealed to the tax courts, whereupon the decision is suspended, but the court must treat the proceedings as urgent.
One CPPT norm said that in appeals against indirect assessments of taxable income, taxpayers could only submit documentary evidence. This meant that although the burden of proof that either his/her income tax return was accurate, or the “manifestations of wealth” were derived from another source, fell on the taxpayer, he/she was prevented from providing witness-based evidence to prove the facts which he/she called upon and which, in his/her opinion, were capable of refuting the data underlying the indirect assessment.
The question of constitutionality here was whether this limitation could be seen as conflicting with the Constitution in cases regarding the exclusion of testimonial evidence that would generally be admissible as a form of proof.
The Court said that in deciding to limit the evidence taxpayers could submit in order to contradict the presumption arrived at on the basis of outward signs of wealth to that of a documentary nature, one could suppose that the legislator took the view that the latter would appear to be more effective and reliable than other kinds of evidence. Income tax declarations take the shape of and are underlain by documents, so the legislator thought that the latter should also be used to prove that outward signs of wealth indicating the receipt of higher income, do not in fact do so. In addition, the urgent status of the proceedings was thought incompatible with the use of other forms of evidence – namely witness testimonies.
The Court accepted that in situations in which it is possible to use documents to sufficiently prove that outward signs of wealth are not linked to the receipt of more income than that which has been declared, the legislator’s intention was not unreasonable.
Legislators – and namely fiscal legislators – enjoy a degree of discretion in establishing both the preconditions for invoking certain facts that are subject to taxation or the causes of reductions in or deductions from taxable income on the one hand, and the forms of proof of the circumstances that support the correctness and plausibility of tax returns on the other.
The right of access to justice includes a right to provide evidence, but the latter subjective right does not mean that every type of evidence permitted by law must be admitted in every type of proceedings and with regard to every object of dispute; nor does it mean that there cannot be quantitative limitations on the submission of certain kinds of evidence (e.g. restricting the number of witnesses that each party can call to a given maximum). In many cases the reason for a legal restriction on the admissibility of evidence is the legislator’s view that false testimony can have serious consequences. However, such cases of inadmissibility must be exceptional and possess a rational justification.
The Court considered that it was necessary to weigh up whether, in the case of this norm, the legislator proportionately and rationally respected the right to submit evidence, in a way that did not put the interested party in a situation in which it was impossible to mount a real defence of his/her rights or interests.
Determining the relationship between a given measure (or its alternatives) and the extent to which a given objective is achieved is sometimes complex, but may be necessary in order to answer the question of whether the measure is appropriate to the goal. When one considers the outcome of the taking of a particular measure, one must acknowledge that the legislator possesses a prerogative to assess. For the jurisdictional entity to find that an unconstitutionality exists because a given norm is in breach of the principle of proportionality, it must be able to identify a manifest error in the legislator’s assessment of the relationship between the measure and its effects. One can imagine situations in which, in the light of the “manifestations of wealth” displayed by the taxpayer, one cannot use documentary evidence to answer questions about the truth of his/her income tax declaration, but one needs witness testimony instead or as well (obviously in cases in which testimonial evidence is admissible under the general rules of law). In such situations, the norm before the Court confronted the interested party with a clear and perhaps insuperable difficulty in proving his/her case exclusively with documentary evidence. He/she could be prevented from demonstrating facts that support his/her rights or interests. The Court therefore declared the norm unconstitutional.
This case involved the generalisation of existing jurisprudence and was requested by the Public Prosecutors’ Office under the terms of the Law governing the Organisation, Modus Operandi and Proceedings of the Constitutional Court. This procedure applies to situations in which a given norm has been found unconstitutional (or illegal, in the event of breaches of a law with superior force) in three concrete cases. In such circumstances, any Constitutional Court Justice or representative of the Public Prosecutors’ Office at the Court can take the initiative to ask the latter to initiate proceedings under the rules applicable to ex post hoc reviews of constitutionality. The generalisation of concrete judgements of unconstitutionality does not happen automatically. The existence of three concrete findings of unconstitutionality is a simple precondition for bringing an autonomous action for the abstract review of a norm’s constitutionality. Each occasion is subject to the normal procedure in such cases, which particularly includes consulting the norm’s author – a step that would not have been included in the earlier concrete review proceedings. The case is heard by the Court in Plenary, which can confirm or overturn the findings of unconstitutionality that had previously been handed down by individual Chambers. The ratio for this possibility includes the fact that the earlier decisions may even have been taken by the same Chamber, but at the limit by a three-to-two majority of the latter’s five Justices, for example. It would thus not make sense for the Plenary made up of all thirteen of the Court’s Justices to be restricted by the preceding decisions.
The present Ruling was the object of a dissenting opinion. Its author did not believe that the requirement for evidence to be in the form of documents was unreasonable, a) because he considered that this format is more effective and reliable, b) because taxpayers are in any case under a duty to back up tax declarations in general with documents, and c) because there is a need for simplicity and speed in tax-related proceedings. In addition, he argued that this requirement for documentary proof has both a pedagogical effect and serves as a general means of preventing irregularities in the documentation of fiscally significant situations.
Rulings nos. 86/88 (13-04-1988); 187/01 (2-05-2001); 489/02 (26-11-2002); 646/06 (28-11-2006); 681/06 (12-12-2006); 24/08 (22-01-2008); and 22/13 (10-01-2013),