Blog of the International Journal of Constitutional Law

I-CONnect Symposium on “The Euro-Crisis Ten Years Later: A Constitutional Appraisal”–Part III–Crisis and Tax Reforms in Greece: Towards Judicial Empowerment as a Means to Overcome Administrative Deficiencies

[Editor’s Note: This is the third entry in our symposium on the “The Euro-Crisis Ten Years Later: A Constitutional Appraisal.” The introduction to the symposium is available here, Part I is available here, and Part II is available here.]

Stylianos-Ioannis Koutnatzis, Democritus University of Thrace, Law School; and Georgios Dimitropoulos, HBKU College of Law & Public Policy and Centre for Law, Economics and Society, UCL

Greece’s financial crisis finds its origins in the private sector of a country on the other side of the Atlantic, by crossing the Atlantic, though, it moves from the private to the public sector; it becomes a crisis of public institutions, and eventually constitutional law, and the overall legal order. Among other consequences, in the implementation of the bailout programs, Greek parliamentary procedure was largely confined to rubberstamping the country’s international commitments; the ill-fated referendum of 2015 largely undermined the potential of direct democratic institutions; the pitfalls of social rights guarantees came to the fore.[1] This comment will focus on a distinct feature of the crisis that is usually overlooked: its importance for the constitutional dimension of tax law. 

The crisis has significantly altered the relationship between constitutional law and tax law: previously regarded as two distinct legal domains, since the eruption of the financial crisis, scholars and the courts in Greece increasingly address tax law matters as constitutional issues. Against this backdrop, the increasing constitutionalisation of Greek tax law showcases a differentiated approach in terms of the appropriate judicial scrutiny. After briefly delving into the constitutional foundations of tax law in Greece (I.), this comment highlights elements of the crisis’ constitutional case law in tax-related matters (II.), and outlines some of its potential implications (III.).

I. The Constitutional Foundations of Greek Tax Law

The Greek Constitution of 1975 is fairly comprehensive in the regulation of tax matters in comparison to other constitutions. Apart from the general equality principle, the Constitution explicitly enshrines tax equality, while it also includes specific provisions on tax legality – limiting legislative delegation on tax matters – and the retroactivity of taxes or other financial charges. Moreover, general constitutional guarantees set constrains on the political branches of government. Over the years, constitutional arguments have found their way in tax litigation quite regularly; however, the courts have emphasized the legislature’s broad discretion in organizing the tax system, finding e.g. systems of presumptive taxation to generally pass constitutional muster.[2] Accordingly, the constitutional law’s practical importance for the adjudication of tax disputes was very limited. In effect, it centered on the implementation of technical distinctions, largely on an ad-hoc basis. Even when couched in constitutional terms, the adjudication of tax disputes remained generally free from constitutional limitations.

II. The Development of Tax Case Law during the Crisis

This approach changed after the outbreak of the financial crisis; the limitations enshrined in the Constitution started playing an increasing role in the judicial scrutiny of tax law. However, Greek courts resorted to marginal judicial review.[3] For instance, they upheld a controversial real estate tax raised through electricity bills, merely prohibiting cutting off the electric service in case of non-payment on freedom of contract grounds,[4] an expanded financial contribution for annual incomes exceeding 60.000 euros,[5] and an annual trade tax imposed on self-employed individuals.[6] Substantial differences in the applicable interest rate due by the state vis-à-vis private debtors passed constitutional muster as well.[7] The courts upgraded financial necessities to the level of public interest that could justify the limitation of fundamental rights. To do so, while they formally applied a proportionality test, this was in fact exercised as a reasonableness test. Although the courts continued to emphasize the Parliament’s broad leeway, judicial deference in tax matters became a bone of contention. The prevalence of economic considerations against institutional concerns was severely criticized. The courts however continued to refrain from setting limits on tax policy. More recently, the courts have undertaken a more activist approach vis-à-vis austerity measures included in the Greek government’s bailout agreements, targeting state expenditures, such as additional cuts in the wages of judges, military personnel, university professors and doctors in the public health system as well as further reductions in pensions,[8] rather than measures aiming at increasing state revenues. Arguably, they have thus failed to adequately consider the Constitution’s openness towards different options as to the appropriate mixture of economic policy.

In contrast, Greek courts undertake an increasingly active role in challenging the Greek tax administration’s structural deficiencies. In particular, based on legal certainty grounds, the Council of State – Greece’s Supreme Administrative Court – has foreclosed the Greek legislature’s longstanding practice to extend the statute of limitations for tax audits shortly before its expiration,[9] pointing out that this practice encouraged tax administration’s inertia. Similarly, on proportionality grounds, whereas an extension of the statute of limitations may be constitutionally allowed based on new evidence, information from domestic banks has been interpreted as not counting as such, as it is generally available to the tax administration from the outset.[10] Based on the administrative law remedy of the administration’s unlawful failure to act, the Council of State has also struck down the administration’s failure to update within reasonable time the “objective values” of real-estate property that are used for the calculation of real-estate taxes.[11] While couched in technical terms, these judgments also engage in binding priority-setting for tax authorities. For the Council of State, the administration’s justifications, e.g. the sheer numbers of pending audits or the objective inability of updating real-estate values, as a critical mass of transactions was lacking due to the financial crisis, were rather a pretext. Along similar lines, tax administration cannot dispense with fundamental rights boundaries. Accordingly, the provision of the Tax Procedure Code, allowing the tax administration’s officers to enter the taxpayer’s dwelling merely based on a prosecutorial order, was held to contravene the constitutional prohibition of home search except “in the presence of representatives of the judicial power” (Art. 9 para. 1 Const.).[12] As a result, whereas political branches of government enjoy wide discretion in determining substantive tax policy, constitutional limitations increasingly constrain the procedures resorted to by the tax administration.

At the same time, the Council of State undertakes a more self-restrained posture with a view to overcoming the tax administration’s structural deficiencies. For instance, recent legislative reforms in Greece have taken pains to remove tax administration from political interferences, by establishing an “Independent Authority of Public Revenue”. Despite constitutional objections the Council of State has rejected relevant legal remedies as inadmissible.[13] Arguably, resting on the assumption that Greek tax administration’s ineffectiveness results from political interferences, the judiciary is preoccupied with overcoming this structural deficiency. In this vein, the Council of State feels compelled to dismiss legal remedies against the tax administration’s depoliticization. The Council of State has also upheld other structural reforms including a far-reaching consolidation of tax offices[14] and the indirect determination of tax obligations based on bank deposits,[15] thus implicitly also condoning indirect audit methods. Importantly, it has clarified though that the mere existence of a significant amount in a self-employed individual’s bank account does not prove tax evasion, unless the tax administration takes all necessary measures to determine the deposit’s real source.[16] As a result, judicial endorsement of structural reforms does not amount to a carte blanche merely on convenience grounds.

III. From Fiscal Consolidation to Structural Reforms of Greek Tax Administration

Almost ten years after the outbreak of the financial crisis in Greece, constitutional issues in tax law have become the bread and butter of courts and scholars. The determination of substantive tax policy rests with the legislature with extremely limited options for an effective judicial scrutiny as it directly aims at attaining fiscal consolidation; however, an increasing number of constitutional limitations needs to be taken into account in the tax administration’s implementation of procedural rules. The recent judicial empowerment might be seen as targeting tax administration’s structural deficiencies. On numerous occasions, the Council of State has dismissed on constitutional grounds the tax administration’s steady preference for easy solutions. Accordingly, administrative convenience cannot overrule constitutional principles. At the same time, the Greek judiciary has retained a self-restrained posture with respect to structural reforms aiming at increasing the tax administration’s effectiveness.

All in all, Greek tax law’s recent constitutionalization has resulted in judicial empowerment as a means to modernize the tax administration. As normality gradually resumes, it remains to be seen whether this development will become a more permanent feature of the Greek constitutional system and whether it will extend to other areas of administrative action as well.

Suggested Citation: Stylianos-Ioannis Koutnatzis and Georgios Dimitropoulos, I-CONnect Symposium on “The Euro-Crisis Ten Years Later: A Constitutional Appraisal”–Part III–Crisis and Tax Reforms in Greece: Towards Judicial Empowerment as a Means to Overcome Administrative Deficiencies, Int’l J. Const. L. Blog, Feb. 22, 2019, at:“the-euro-crisis-ten-years-later:-a-constitutional-appraisal”–part-iii–crisis-and-tax-reforms-in-greece:-towards-judicial-empowerment-as-a-means-to-overcome-administrative-deficiencies

[1] See, e.g., X. Contiades & I. Tassopoulos, «The Impact of the Financial Crisis on the Greek Constitution», in X. Contiades (ed.), Constitutions in the Global Financial Crisis, Ashgate 2013, 195-218.

[2] See, e.g., Council of State (CoS) [Full Bench] 4340/1983.

[3] Cf., e.g., CoS [Full Bench] 668/2012.

[4] CoS [Full Bench] 1972/2012.

[5] CoS [Full Bench] 1685/2013.

[6] CoS [Full Bench] 2527/2013.

[7] Supreme Special Court 25/2012.

[8] See, e.g., CoS [Full Bench] 2287/2015.

[9] CoS [Full Bench] 1738/2017.

[10] CoS 2934/2017.

[11] CoS [Full Bench] 4003/2014, 4446/2015.

[12] See Prosecutor to Areios Pagos [Supreme Civil and Criminal Court] Written Opinion 6/2014.

[13] CoS 1097/2018.

[14] CoS 817/2016.

[15] CoS 884/2016.

[16] See, e.g., CoS 1895/2018.


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