CEDH · CASELAW;JUDGMENTS;CHAMBER;ENG — 2 juillet 2013

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HUNGARY   (Application no. 41838/11)           JUDGMENT         STRASBOURG   2 July 2013   FINAL   04/11/2013   This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision.   In the case of R.Sz. v. Hungary, The European Court of Human Rights (Second Section), sitting as a Chamber composed of:   Guido Raimondi, President,   Danutė Jočienė,   Peer Lorenzen,   András Sajó,   Işıl Karakaş,   Nebojša Vučinić,   Helen Keller, judges, and Stanley Naismith, Section Registrar, Having deliberated in private on 11 June 2013, Delivers the following judgment, which was adopted on that date: PROCEDURE 1.     The case originated in an application (no. 41838/11) against the Republic of Hungary lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Hungarian national, Mr R.Sz. (“the applicant”), on 5 July 2011. The President of the Section acceded to the applicant’s request not to have his name disclosed (Rule 47 § 3 of the Rules of Court). 2.     The applicant was represented by Mr A. Grád, a lawyer practising in Budapest. The Hungarian Government (“the Government”) were represented by Mr Z. Tallódi, Agent, Ministry of Public Administration and Justice. 3.     The applicant complained under Article 1 of Protocol No. 1 – read alone and in conjunction with Article 13 of the Convention – that the imposition of a 98% tax on part of his severance pay constituted an unjustified deprivation of property, with no remedy available. He also invoked Article   14 of the Convention read in conjunction with Article 1 of Protocol No. 1. 4.     On 21 February 2012 the application was communicated to the Government. It was also decided to rule on the admissibility and merits of the application at the same time (Article 29 § 1). THE FACTS I.     THE CIRCUMSTANCES OF THE CASE 5.     The applicant was born in 1973 and lives in Budapest. 6.     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. 7.     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. II.     RELEVANT DOMESTIC LAW 8.     On 22 July 2010 Parliament adopted Act no. XC of 2010 on the Adoption and Modification of Certain Economic and Financial Laws (“the Act”). The Act, which was published in the Official Gazette on 13 August 2010, introduced inter alia a new tax on certain payments for employees of the public sector – including those of State-owned enterprises such as the applicant’s employer – whose employment was terminated. Consequently, severance pay and other payments related to the termination of employment (such as salary for the notice period) exceeding HUF 2 million became subject to a 98% tax. However, income tax and social security contributions already paid could be deducted from the tax. Notwithstanding the limit of HUF 2 million, the statutory provisions on the sum of severance pay were not modified. The bill preceding the Act justified the tax with reference to public morals and the unfavourable budgetary situation of the country. 9.     The Act entered into force on 1 October 2010; however, the tax was to be applied to the relevant revenues as from 1 January 2010. Simultaneously, the Constitution was also amended establishing retroactive tax liability in respect of the given tax year concerning “any remuneration against good morals” paid in the public sector. 10.     The Act was challenged before the Constitutional Court within the framework of an abstract ex post facto control. This court found the relevant provisions unconstitutional in decision no.   184/2010. (X.28.) AB on 26   October 2010. According to the Constitutional Court, revenues earned solely on the basis of relevant statutory provisions (that is, the overwhelming majority of the revenues concerned by the disputed legislation) could not be regarded as being against good morals, and therefore not even the constitutional amendment justified a retroactive 98% tax. The Constitutional Court pointed out that it reviewed the rate or amount of taxes only exceptionally; however, it held that a pecuniary burden was unconstitutional if it was of a confiscatory nature or its extent was clearly exaggerated, i.e. was disproportionate and unjustified. Considering also the “fifty-percent rule” ( Halbteilungsgrundsatz ) set out by the German Federal Constitutional Court – according to which the overall tax load on assets must be limited to 50-60% of the yield on those assets – the court found that the 98% tax was excessive and punitive, yet it equally applied to severance pay earned in a fully untainted manner. The tax was levied on or deducted from the revenues concerned even if their morally doubtful origin could not be established. The Constitutional Court annulled the relevant provisions retroactively, that is, from the day of the Act’s entry into force. It relied on the above arguments, rather than on considerations about the protection of property, to which its scrutiny did not extend in the case. 11.     The Constitutional Court’s decision contained in particular the following considerations: “5.2. ... [The Act] applies to ... payments originating in unconditional statutory entitlements and defined by objective criteria, that is, to those ... received from any source specified in the Act and exceeding the [relevant] amount .... The Act does not apply only to budgetary institutions but to other, State-owned employers as well. The use of private resources depends on the citizens’ relatively free choices and autonomous decisions. However, decisions concerning public funds are different. [The impugned legislation] relates to public funds, and determines – at least indirectly – the use of public resources. 5.3. ... Depending on the circumstances, [the] 98% tax may apply to payments which derive from the obligatory application of cogent legal provisions. ... In these cases, the special tax does not function as a regulatory instrument, given its inescapable factual basis. Nor does it aim to prevent abusive payments; its purpose is rather to levy almost the entire income [in question] for the central budget. ... The volume of public duties is considered unconstitutional if they have a confiscatory nature or amount to an evidently excessive rate of the kind which can be regarded as disproportionate and unjustified. ... The material case concerns a substantial punitive tax which also applies to payments which are received, by virtue of law and within the limits of the proper exercise of rights, upon the termination of employment in the public sector. The Act would be applied also in cases where no infringement of law can be established in connection with the payments concerning the termination of a legal relation. It would deprive the taxable persons of incomes originating in unconditional statutory entitlements. ... To increase budgetary revenues and secure a general and proportionate distribution of public burden is only the secondary and eventual purpose of the legislator when introducing such a tax. The direct purpose of the legislator in this case is to set a certain barrier on incomes by using the means of tax law. However, imposing a tax or other similar duty is no constitutional means to achieve such purpose. Several constitutional instruments are at the disposal of the legislator to accomplish its objective. It may reduce or even abolish some State allowances falling under the scope of the Act for the future, or transform the allocation system so that in the future it should not be possible to acquire further entitlements to allowances above a certain limit. Nonetheless, the discretion of the legislator only prevails in the framework of international and European community law.” 12.     Upon a new bill introduced on the same day as the date of the Constitutional Court’s decision, on 16 November 2010 Parliament re-enacted the 98% tax with certain modifications, according to which this tax applied from 1 January 2005; however, for the majority of those affected (excluding some senior officials) it only applied to revenues above HUF   3.5   million. The new legislation was published in the Official Gazette of 16   November and entered into force on 30 December 2010. 13.     At the same time, Parliament again amended the Constitution, allowing retroactive taxation going back five years. Furthermore, the Constitutional Court’s powers were limited: the amended articles of the Constitution contained a restriction on the Constitutional Court’s right to review legislation on budgetary and tax issues. This restriction – which has also been maintained in the new Basic Law in force from 1 January 2012 – allows for constitutional review only in respect of violations of the right to life and human dignity, the protection of personal data, freedom of thought, conscience and religion, and the rights related to Hungarian citizenship. 14.     Upon a petition for an abstract ex post facto control, on 6 May 2011 the Constitutional Court annulled – notwithstanding its limited powers – the five-year retroactive application of the 98% tax in decision no.   37/2011 (V.10.) AB, relying on the right to human dignity. However, the reasoning of the decision underlined that only the taxation of revenues gathered before the 2010 tax year constituted a violation of the right to human dignity. The Constitutional Court did not find unconstitutional as such the Act’s presumption that the relevant revenues infringed good morals; however, it ruled that this presumption should be susceptible to a legal challenge. In view of its limited jurisdiction, it did not consider the substantive aspects of the tax. 15.     The Constitutional Court’s decision contained in particular the following considerations: “1. ... The Constitutional Court has held that the retroactive effect of the Act does not only apply to incomes earned contra bonos mores , but also to incomes originating in unconditional statutory entitlements. Payments of statutory amounts [which have not been abolished] cannot be regarded as being contra bonos mores . As regards the prospective provisions of the Act, the Constitutional Court has pointed out that the tax in issue is also applicable to payments received legally and within the limits of proper exercise of rights upon termination of employment in the public sector, and that it deprives the persons concerned of incomes originating in unconditional statutory entitlements. However, in this case the legislator interpreted the “special rate” as an entire withdrawal of the income, by which it overstepped its constitutional mandate and breached the amended constitutional rule of distributing public burden. 2. In pursuit of decision [no. 184/2010 (X.28.)AB], Parliament amended the rules on the Constitutional Court’s competence as well as the provision of the Basic Law determining the distribution of public burden, and re-enacted the special tax. ... 2.2. ... [The new legislation] contains no reference to the notion “ contra bonos mores ”, and allows for retroactive law-making with regard to the fifth tax year in arrears as well as for [any] imposition falling short of [the total] deprivation of income. ... 4.1.1. ... The legal relations falling under the scope of the special tax are typically regulated by the so-called “legal status” Acts [i.e. the Acts concerning the legal status of civil servants]. [In this context, the] salary is specified by the so-called “pay scale”, which is independent from the parties and obligatory for them. [Moreover,] the personal scope of the special tax also includes employers and employees, mainly those who belong under the Labour Code, who can significantly influence the amount of the allowance received upon the termination of employment. ... In this respect, the special tax is a tax whose purpose is not to generate [State] revenue. It is, in this connection, a regulatory instrument. ... Certain taxes may serve not only the purpose of increasing State revenue, but also function as regulatory instruments. Secondarily, but not insignificantly, [this] taxation can be also seen as part of the State’s economic policy. In this regard the legislature is afforded an exceptionally broad constitutional margin of discretion. ... 4.1.4. ... The special tax is not a general income tax applicable to all types of income, but rather a particular tax levied on non-repetitive, non-regular payments which relate to certain factual circumstances (i.e. the termination of a legal relation) and which exceed a certain limit. ... Such a tax with ex nunc effect cannot be considered to violate the right to protection of human dignity or to constitute an improper interference by the State with individual autonomy. Taking into account its base, the incomes not belonging in that base and their amounts, the special tax cannot be considered as completely dispossessing the tax subjects. ... The individual’s acquisition of the income subject to the special tax is restricted by a public-law limitation originating in that tax ... 4.2.4. ... In case of misuse of public resources, the limitation on payments might even have retroactive effect, [under] section 70/I (2) of the Constitution. The Constitutional Court has already emphasised in its decision [no. 184/2010 (X.28.)AB] that a retroactive special tax may be imposed on unfairly high payments, on certain types of severance pay or on compensation for significant periods of unused vacation time accumulated over years; the Act aiming at preventing abuses and endorsing society’s sense of justice is not unconstitutional in itself, but must remain within the framework of the amended Constitution. 4.2.5. However, to impose tax on incomes [lawfully] acquired during the tax year ... cannot be considered as the implementation of the new paragraph (2) of section 70/I of the Constitution, but rather interference by a public authority with individual autonomy going to such lengths that cannot have constitutional justification, and therefore violates the taxpayers’ human dignity. ... The special tax does not provide for a fair and just assessment of individual circumstances; its retroactive rules apply to everyone [with two exceptions mentioned above] without differentiation. Nor does it take into account objective circumstances concerning a wide range of taxpayers, such as the economic crisis or emergency situations, which may disadvantageously influence the individuals’ circumstances. ...” 16.     On 9 May 2011 Parliament again re-enacted the retroactive application of the 98% tax. The amendment to Act no. XC of 2010 was published in the Official Gazette on 13 May and entered into force on 14   May 2011. It provided that only relevant revenues earned after 1   January   2010 should be subject to the tax. The amended legislation did not contain any remedy available to those affected. 17.     The Act, as in force as of 14 May 2011, provides (in sections 8-12/B) that the special tax rules are applicable to incomes received on 1   January 2010 or after. Incomes shall be subject to a 98% special tax where the private individual has worked at an economic operator or an organisation operating from public money, the payment is effected on account of the termination of the private individual’s work relationship, and the amount of the income exceeds HUF 3,5 (in certain cases 2) million. Incomes received between 1 January 2010 and 29 December 2010 were declared by private individuals by means of self-assessment, in tax returns submitted until 25   February or 10 May 2011 (depending on the taxpayer group). The tax was payable by the same dates. Members of Parliament, vice mayors and Members of the European Parliament declared their income earned in 2010 and subject to the special tax in a different manner, in a separate tax return submitted by 31 July 2011. They paid the special tax by the same date. Those who retired immediately on dismissal were exempted from the tax. Persons subjected to the payment of the special tax declared their taxable incomes earned between 1   January 2011 and 13 May 2011 by way of tax returns submitted by 25   February or 20 May 2012 (depending on the taxpayer group), and paid the tax by the same dates. In all other cases, the special tax is deducted by the payment issuer as withholding tax, and the deduction is indicated in the private individual’s tax return for the given revenue year. Any charges paid by or deducted from the private individual including, in particular, personal income tax or individual contributions shall be regarded as tax advances paid on the special tax. III.     RELEVANT LAW OF THE EUROPEAN UNION 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). IV.     COMPARATIVE LAW Germany – Federal Constitutional Court 19.     In a judgment of 22 June 1995, the Federal Constitutional Court held that, according to Article 14 of the Basic Law, the use of property served the purpose of private gain and the public good. In that sense, property tax, combined with other taxes, might take no more than 50% of the income from property ( Halbteilungsgrundsatz ). The overall tax burden should moreover not run counter to the principle of equality demanding the division of burden depending on the contributing capacity (BVerfG, 2   BvL   37/91, 22.6.1995). In its subsequent decision of 18 January 2006 (BVerfG, 2 BvR 2194/99, 18.01.2006), the Federal Constitutional Court found that even though tax load fell within the ambit of Article 14 of the Basic Law, that is, the protection of property, the overall burden through business and personal income tax, in the particular circumstances, did not infringe the complainant’s right to property. In the instant case the overall tax burden in business and personal income tax combined amounted to 57.58%. The Federal Constitutional Court noted in this regard that it was permissible to charge high income with higher tax burden, as long as the taxable person, after deduction of the relevant tax, disposed of a remaining income representing his private performance. France – Conseil constitutionnel 20.     In decision no. 2007-555 DC (16 August 2007; Act pertaining to work, employment and purchasing power), the Conseil constitutionnel held as follows [7] : “24 o The requirement deriving from Article 13 of the declaration of 1789 would not be complied with if taxation were to be of a confiscatory nature or subjected a certain category of taxpayers to an excessive burden in comparison with their ability to pay taxes. The principle of the capping of the proportion of a tax household’s income allocated to paying direct taxes, far from infringing the principle of equality before public burden sharing, is intended to avoid a patent infringement of this same principle;” Switzerland – Federal Supreme Court 21.     The Federal Supreme Court held that a taxation scheme that is confiscatory in its effects and not limited in time would infringe the essence of the right to property (Decisions of the Federal Supreme Court, BGE 106 Ia 342, 349; BGE 128 II 112, 126). To date, the Federal Supreme Court has not found that any taxation scheme was confiscatory. Decision no. BGE 128 II 112, 126 contains the following passage: “10 bb) ... In taxation matters, however, it [the guarantee of property, as set out in Article 26 of the Federal Constitution] does not go beyond the prohibition of confiscatory taxation. Therefore, a tax to be levied may not damage the very essence of private property. It is the task of the legislative branch to preserve the substance of the taxpayer’s assets and to allow him the chance to create new ones. In fact, a tax rate expressed in percentages is not the only decisive criterion in order to determine whether a taxation scheme has a confiscatory effect. It is necessary to examine the burden of the imposition for a rather long period and by not taking into account extraordinary circumstances. In order to accomplish this, all specific facts must be taken into consideration: the length and the gravity of the interference as well as the accumulation with other taxes or charges and the possibility to shift the tax to another person ...”. Decision of the Federal Supreme Court no. 2P.139/2004 contains the following passage: “4.2 The Federal Supreme Court has held that it is not compatible with Article 26 of the Federal Constitution if an annuity for life, inherited by bequest, of initially CHF   2200 per month is – regardless of the ability to pay other taxes of the person in receipt of the pension –taxed at 55 % in total, in terms of inheritance and income taxes as well as other expenses, which (taking into account of the tax sum due for over CHF   200,000) were necessary for their financing (Decision P.1704/1984, published in: ASA 56 p. 439 et seq.). In that specific case the specific circumstances were relevant because the heir could not secure her own existence after paying the taxes for the annuity for life.” United States – Supreme Court 22.     In United States v. Lovett, 328 U.S. 303, 315 (1946) the Supreme Court dealt with the following problem: According to the provisions of the Urgent Deficiency Appropriation Act, after 15 November 1943 no salary or compensation was to be paid to certain individuals, who were then government employees, out of any moneys then or thereafter appropriated, except for services as jurors or members of armed forces unless they were prior to that date again appointed to jobs by the President with advice and consent of the Senate. In the background of the statute challenged lay the House of Representatives’ feeling that in the late 1930s many ‘subversives’ were occupying influential positions in the Government and elsewhere and that their influence must not remained unchallenged. In 1943 the respondents, Lovett, Watson and Dodd, were and had been for several years working for the Government. The Government agencies which had lawfully employed them were fully satisfied with the quality of their work and wished to keep them employed in their jobs. The Supreme Court held that the purpose of the provision challenged was not merely to cut off the plaintiffs’ compensation through regular disbursing channels, but permanently to bar them from government service and it was designed to force the employing agencies to discharge respondents and to bar their being hired by any other governmental agency. The Supreme Court reiterated that the Constitution barred such legislative acts by providing that “no Bill of Attainder or ex post facto Law shall be passed”. It found that the relevant provision was designed to apply to particular individuals and operated as a legislative decree of perpetual exclusion from a chosen vocation. It ruled that this permanent proscription from any opportunity to serve the Government was punishment of those individuals without a judicial trial and thus carried the usual characteristics of bills of attainder. The Supreme Court found that “legislative acts, no matter what their form, that apply either to named individuals or to easily ascertainable members of a group in such a way as to inflict punishment on them without a judicial trial, are ‘bills of attainder’ prohibited by the Constitution”. The subject matter of the case Armstrong v. United States, 364 U.S. 40, 49 (1960) was as follows: The plaintiffs (Armstrong and al.) furnished various materials to Rice for use in construction of boats. Upon Rice’s default, the Government exercised its option as to ten of the boat hulls still under construction and removed these properties to out-of-state naval shipyards for use in the completion of the boats. When the transfer occurred, the plaintiffs had not been paid for their materials and they were not paid afterwards, either. Petitioners therefore contended that they had liens. The Supreme Court held “that there was a taking of these liens for which just compensation is due under the Fifth Amendment. It is true that not every destruction or injury to property by governmental action has been held to be a ‘taking’ in the constitutional sense. This case and many others reveal the difficulty of trying to draw the line between what destructions of property by lawful governmental actions are compensable ‘takings’ and what destructions are ‘consequential’ and therefore not compensable... The Fifth Amendment’s guarantee that private property shall not be taken for a public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole. A fair interpretation of this constitutional protection entitles these lienholders to just compensation here.” In Eastern Enterprises v. Apfel, 524 U.S. 498 (1998) the Supreme Court held that the Coal Industry Retiree Health Benefit Act 1992 amounted to an unconstitutional regulatory taking of property. It held that the economic impact of the Act was substantial as to Petitioner, in that it required Eastern Enterprises to contribute large sums of money to a pension fund for employees employed in the 1950s and 1960s solely because those payments could not be allocated to other coal companies that were currently operating in the coal industry. The retroactive effect of the Act imposed a substantial economic injury on Eastern Enterprises that could not have been anticipated. Moreover, the challenged statute interfered with Eastern Enterprises’ expectations in that in 1987 the company sold off its remaining holdings in coal operations and completely quit this industry. The statute’s requirement for Eastern Enterprises to undertake the obligation at issue clearly interfered with the expectations of Eastern when it sold off its interest in coal operations. Lastly, the nature of the government action was unusual because it retroactively applied a substantial economic burden on Eastern Enterprises. For the Supreme Court, the character of the government action was substantial and invasive. The balance of the factors resulted in the finding of an unconstitutional taking requiring just compensation. THE LAW I.     ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1 OF THE CONVENTION 23.     The applicant complained that the levying of tax at a rate of 98% on part of his severance pay had amounted to a deprivation of property which was unjustified. He relied on Article 1 of Protocol No. 1, which provides as follows: “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.” The Government contested that argument. A.     Admissibility 24.     The Court notes that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible. B.     Merits 1.     The parties’ submissions a.     The Government 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. 26.     The Government were further of the opinion that, in order to achieve the above aims of general interest, taxation can, in a democratic society, be regarded as the most suitable regulatory means. In so far as the impugned tax could be seen as modifying the contents of the applicant’s existing employment contract, they submitted that respect for contracts already concluded required that their modification or cancellation take place according to the laws, even if they contained seemingly lawful commitments at the expense of the State budget violating the society’s sense of justice. 27.     The Government pointed out that by introducing the special tax the lawmaker had intended to strike a fair balance between the aim pursued and the limitation on the individual’s rights – by paying, at the same time, due attention to the circumstance that, in the midst of a deep world-wide economic crisis, additional burdens should be borne not only by the State but also by other market participants including senior civil servants and senior managers of State-owned enterprises, capable of influencing their own benefits. In the Government’s view, a wide margin of appreciation should be left to the national authorities in this respect. Significantly high tax rates were not unknown under the various tax regimes. The Government also emphasised that severance not exceeding HUF   3.5   million did not fall under the impugned Act (in this part, it was subject to the general personal income tax rate of 16%); therefore the sharing of burdens should be regarded as fair and just. In this connection the Government submitted that this sum was approximately equivalent to sixteen months’ average salary in Hungary in 2010. 28.     The deprivation of revenue had not imposed an excessive individual burden on the applicant, either. He had not been deprived of an existing possession or income, therefore the payment of the tax had not entailed unbearable hardships for him. The rate of the tax had not been excessive and – having regard to average Hungarian revenues, the social and economic situation and the amount of benefits received by the applicant – had not imposed a disproportionate burden on the applicant or endangered his subsistence. b.     The applicant 29.     The applicant submitted that he had received the severance pay lawfully – under the work agreement with his employer – but had had to pay back virtually the entire amount half a year later, retroactively, pursuant to the newly enacted Act. In his view, society itself had no “sense of social justice”; therefore such an aim could not be justified as one of public interest. Nor could the economic crisis serve as a basis for deprivation of private property in a democracy. The purpose of the impugned tax was furthermore questionable bearing in mind that a more favourable deadline was applicable for Members of Parliament and others. A 98% tax burden was so disproportionate that it should be considered as a disguised deprivation of property in violation of the Convention. Consequently, the intervention could not be considered either as “prescribed by the law” or “pursuing a general interest”. 30.     Moreover, the applicant argued that he had received the severance pay significantly earlier than the end of his employment. By the time his employment had terminated he had already spent most of the money, unaware that he would have to retroactively pay back 98% thereof. Therefore the measure in question constituted a disproportionate and excessive burden for him. 2.     The Court’s assessment a.     Whether there was an interference with the applicant’s “possessions” within the meaning of Article 1 of Protocol No. 1 31.     In its judgment of 23 September 1982 in the case of Sporrong and Lönnroth v. Sweden , the Court analysed Article 1 as comprising “three distinct rules”: the first rule, set out in the first sentence of the first paragraph, is of a general nature and enunciates the principle of the peaceful enjoyment of property; the second rule, contained in the second sentence of the first paragraph, covers deprivation of possessions and subjects it to certain conditions; the third rule, stated in the second paragraph, recognises that the Contracting States are entitled, amongst other things, to control the use of property in accordance with the general interest (Series A no. 52, §   61). The Court further observed that, before inquiring whether the first general rule has been complied with, it must determine whether the last two are applicable (ibid.). The three rules are not, however, “distinct” in the sense of being unconnected. The second and third rules are concerned with particular instances of interference with the right to peaceful enjoyment of property and should therefore be construed in the light of the general principle enunciated in the first rule (see, among many other authorities, James and Others v. the United Kingdom , 21 February 1986, § 37, Series A no. 98). Moreover, an interference, including one resulting from a measure to secure payment of taxes, must strike a “fair balance” between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights. The concern to achieve this balance is reflected in the structure of Article 1 as a whole, including the second paragraph: there must be a reasonable relationship of proportionality between the means employed and the aims pursued. The question to be answered is whether, in the applicant’s specific circumstances, the application of the tax law imposed an unreasonable burden on him or fundamentally undermined his financial situation – and thereby failed to strike a fair balance between the various interests involved (see M.A. and 34 Others v. Finland (dec.), no. 27793/95, 10 June 2003; Imbert de Trémiolles v. France (dec.), nos. 25834/05 and 27815/05 (joined), 4 January 2008; Spampinato v. Italy (dec.), no. 69872/01, 29 March 2007; and Wasa Liv Ömsesidigt, Försäkringsbolaget Valands Pensionsstiftelse v.   Sweden , no. 13013/87, Commission decision of 14 December 1988, Decisions and Reports 58, p. 186). 32.     The Court recalls that in certain circumstances loss of ownership of property resulting from a legislative measure or from an order of a court will not be equated with a “deprivation” of possessions: in the cases of AGOSI v. the United Kingdom (24 October 1986, Series A no. 108) and Air   Canada v. the United Kingdom (5 May 1995, Series A no. 316-A), the forfeiture or other loss of ownership was treated as a “control of use” of property within the meaning of the second paragraph of Article   1   Protocol   No. 1. In Gasus Dosier- und Fördertechnik GmbH v.   the   Netherlands (23 February 1995, Series A no. 306-B), impoundment was considered as a measure securing the payment of taxes within the meaning of the second paragraph of Article 1 in fine , while in Beyeler   v.   Italy ([GC], no.   33202/96, ECHR 2000 ‑ I), the interference with the applicant’s property rights was examined under the first sentence of that Article. The Court does not consider it necessary to rule on whether the second sentence of the first paragraph of Article 1 applies in this case. The complexity of the factual and legal position prevents the impugned measure from being classified in a precise category. The Court recalls that the situation envisaged in the second sentence of the first paragraph of Article 1 is only a particular instance of interference with the right to peaceful enjoyment of property as guaranteed by the general rule set forth in the first sentence (see, for example, Lithgow and Others v. the United Kingdom , 8   July 1986, § 106, Series A no. 102). The Court therefore considers that it should examine the situation complained of in the light of that general rule (cf. Beyeler , cited above, § 106). 33.     In the Court’s view, the classification of a general measure taken in furtherance of a social policy of redistribution as a “control of use” of property rather than a “deprivation” of possessions is not decisive in so far as the principles governing the question of justification are substantially the same, requiring both a legitimate aim and the preservation of a fair balance between the aim served and the individual property rights in question. Furthermore, a legislative amendment which removes a legitimate expectation may amount in its own right to an interference with “possessions” (see, mutatis mutandis , Maurice v. France [GC], no.   11810/03, §§ 67-71 and 79, ECHR 2005–IX; Draon v. France [GC], no.   1513/03, §§ 70-72, 6 October 2005; and Hasani v. Croatia (dec.), no.   20844/09, 30 September 2010). 34.     In the present case, the Court notes that the parties agree that the impugned taxation represents an interference with the applicant’s right to peaceful enjoyment of possessions. The Court will examine the issue under the first paragraph of Article   1   of   Protocol No. 1, subject to the specific rule concerning the payment of taxes contained in Article 1 in fine . b.     Lawfulness of the interference i.     General principles 35.     The Court reiterates that Article 1 of Protocol No. 1 requires that any interference by a public authority with the peaceful enjoyment of possessions should be lawful: indeed, the second sentence of the first paragraph of that Article authorises the deprivation of possessions “subject to the conditions provided for by law”. Moreover, the rule of law, one of the fundamental principles of a democratic society, is a notion inherent in all the Articles of the Convention (see Former King of Greece and Others v.   Greece [GC] (merits), no. 25701/94, § 79, ECHR 2000–XII, and Broniowski v. Poland [GC], no. 31443/96, § 147, ECHR 2004 ‑ V). 36.     However, the existence of a legal basi