Constitutional Court re-writes Tax Law, ‘taxpayers must be granted presumption of innocence’

Malta's Tax Law is set to face unprecedented upheaval, as three judges, presiding over the Constitutional Court of Appeal have adopted Article 6 of the European Convention of Human Rights, to shun the long-standing procedure on the island, that the onus of proof to contest any tax penalty lays with the taxpayer.

In their judgment on an appeal filed by the Director General of Inland Revenue against the heirs of John Geranzi Limited - who last May were awarded €30,000 in compensation for being left in a 31-year legal limbo, after objecting to a 1977 ex-officio tax assessment - Chief Justice Silvio Camilleri and Judges Giannino Caruana Demajo and Noel Cuschieri ruled that tax penalties are - for the purposes of the European Convention - a punitive measure, therefore, proceedings over tax penalties, must - regardless of the way the Maltese State denominates such penalties - respect the right to a fair hearing in terms of Article 6 of the European Convention of Human Rights.

The judgement by Constitutional Court of Appeal implies that in tax penalty proceedings, taxpayers should be granted the right to presumption of innocence. A right, which at present is not granted to taxpayers when facing procedures, who are burdened with the onus of proof to counter the charge by the Inland Revenue Department.

In its judgment, the Constitutional Court of Appeal confirmed the breach in human rights, however it overturned the remedy of €30,000 awarded to John Geranzi Limited. The judgment has now cancelled the ex-officio assessment made on John Geranzi Limited in 1977.

The case

The heirs of John Geranzi Limited, who owned retail outlets in Sliema and Valletta had contested an Lm7,912 in tax surcharge, through an ex-officio assessment issued by the Inland Revenue Department in 1977.

In handing judgement last May, the First Hall of the Civil Court, under the Constitutional jurisdiction and presided by Mr Justice Gino Camilleri, had claimed that it was "unheard of that an ex officio assessment took decades to be decided."

The judgment had flung open the floodgates to a series of other similar pending cases before the courts, reminiscent of an era when hundreds of politically motivated ex officio assessments or tax surcharges were issued, mostly during the 1970s and the early 1980s, against numerous business owners: many of whom were forced out of business as a result.

Significantly, the Court placed the onus on the Commissioner of Inland Revenue as the sole person responsible for the injustice, who immediately appealed the judgment in a bid to avoid the imminent backlash from the decision.

The case goes back almost four decades, to a time when John Geranzi Limited, were slapped with an additional tax bill of Lm7,912 covering 1977 as the year of assessment.

The company immediately filed an objection to the Commissioner of Inland Revenue's assessment, but never issued a formal refusal, which would subsequently give the complainant the legal right to seek recourse before the Income Tax Board.

John Geranzi Limited remained in a legal limbo until 2007, when a successive Commissioner of Inland Revenue decided to issue the refusal, leaving the company heirs to dig up receipts and tax returns that went back decades.

Lawyer Robert Attard, who appeared for John Geranzi Limited, argued that his client had been denied the right to a fair hearing to his objection, practically stripping him from the very principle of justice within a reasonable time.

The plaintiff was practically faced with a situation where the Income Tax Board, summoned to decide his case after 31 years, expected him to remember matters related to the case, and which accounts were held by a director who had since passed away, and so did the tax assessors.

Godfrey Gialanze, who appeared as the business heir to the company, repeatedly argued that he was denied every right to contest the inherited ex officio assessment he had inherited from his father who passed away in 1998.

Gialanze was left alone with the "excessive burden" of having to produce documents dating back three decades in a bid to defend his case, as the Commissioner of Inland Revenue had not bothered to issue a refusal to the initial objection and give the right to the assessed person to file a submission before the Income Tax Board.

The Court agreed that the lengthy time-lapse to consider such a case was "unheard of" while also describing it as a blot on the public service record.