By Patrick PHILIP

Lawyer, Doctor of Law

Cabinet PHILIP, Law Firm

Public authority is the shield that protects freedom. Without democracy, public authority becomes an instrument of dictatorship. Without public authority, democracy may descend into chaos. In this context, having regard to the principle of consent to taxation, the tax liability payable could be set off against the compensation expected.

The establishment of democracy in France stems from the Revolution of 1789. To a large extent, it was the consequence of financial disorder and inequalities in the levying of taxes that characterised the late eighteenth century. Under the influence of Jean-Jacques Rousseau’s ideas, as set out in The Social Contract, the Estates-General and subsequently the revolutionaries sought to transfer power, hitherto vested in the King, to the people, who would henceforth be responsible for expressing the general will.

In a country where the social contract is breaking down, and where conflicting sentiments of inequality on the one hand and financial disorder on the other are becoming increasingly entrenched, it is legitimate to question the State’s financial liability and its role in society.

I – THE ROLE OF THE STATE IN SOCIETY

The convergence of the political right and left has been accompanied by an impoverishment of political thought, both socialist and liberal, giving the impression that political leaders no longer have any genuine ideological bearings. Furthermore, the two political extremes are moving away from the traditional political mainstream and further deepening the divide.

This could lead to a reassessment of the balance between a State focused on its sovereign functions and an interventionist welfare State.

1.1 – The need for a State focused on its sovereign functions

A State focused on its sovereign functions is one that exercises the essential powers inherent in its sovereignty and authority, primarily:

• National defence and the armed forces;
• The administration of justice;
• Diplomacy;
• Currency issuance and the levying of taxes.

The State must also ensure a minimum level of social justice within society.

In any event, the business sector and economic enterprise should require little or no State intervention.

1.2 – The risks of an interventionist welfare State

A welfare State is one that intervenes more extensively to protect citizens against economic and social risks, with a view to reducing inequalities.

In particular, it provides:

• Health insurance and reimbursement of healthcare costs;
• Pensions;
• Family and unemployment benefits;
• Social assistance;
• Access to education and public services.

These measures, which are necessary and legitimate, are, of course, financed through taxation and social security contributions.

As a general rule, however, they do not extend to the business sector and economic enterprise.

Such measures must be tailored to, and proportionate to, budgetary constraints.

Pursuant to Article 2 of the 1789 Declaration of the Rights of Man and of the Citizen (hereinafter the “1789 Declaration”) :

“The purpose of every political association is the preservation of the natural and imprescriptible rights of Man. These rights are liberty, property, security and resistance to oppression.“

Where public order is no longer maintained, commercial premises are no longer guaranteed security, and public debt has spiralled out of control, the question of State liability arises in very serious terms.

II – THE STATE’S LIABILITY IN ECONOMIC AND TAX MATTERS

Not only has political discourse become markedly impoverished, but it is also routinely parodied and ridiculed on social media platforms reaching millions of people, where false information is disseminated, thereby fuelling divisions and base instincts.

In this climate of extreme opposition between order and change, and of uncontrolled disorder, the State has responsibilities towards citizens and businesses which it must assume.

2.1 – State liability

Any failure, whether arising from a single act or a series of acts, which demonstrates the inability of a public service to fulfil the duties entrusted to it constitutes misconduct capable of giving rise to State liability (French Court of Cassation, Full Court, 23 February 2001, No. 99-16165; French Court of Cassation, 18 November 2020, No. 711 FS-P+B).

Pursuant to Article 12 of the 1789 Declaration:

“The guarantee of the rights of Man and of the Citizen requires a public force: this force is therefore established for the benefit of all.”

Where the State is at fault, it is under an obligation to compensate for damage caused by the defective operation of a public service.

Furthermore, Article 1 of Protocol No. 1 to the European Convention on Human Rights of 4 November 1950 protects not only existing possessions, but also certain claims and pecuniary interests, provided that they have a sufficiently established basis in domestic law (ECtHR, 6 October 2005, No. 11810/06, Maurice v. France; ECtHR, 9 January 2007, No. 31501/03, Aubert and Others v. France).

Given that the French Directorate General of Public Finances (Direction générale des finances publiques – DGFiP) has no separate legal personality from the State, and insofar as a legitimate and sufficiently substantiated expectation of a potential claim constitutes a possession, such a claim should be capable of being set off against any tax liability owed to the State.

It has also been held that the fact that a tax assessment is lawful does not render inadmissible a claim for damages brought by a taxpayer seeking compensation on a different basis, such as loss of profits or compensation for commercial and financial loss attributable to wrongful conduct on the part of the State (French Council of State, 5 July 1996, No. 150398, SCI Saint-Michel: Dr. Fisc. 1996, No. 52, Commentary 1574).

2.2 – Economic and tax constraints

It should be recalled that:

“Liberty consists in the freedom to do everything which does not harm others: accordingly, the exercise of the natural rights of each individual has no limits other than those which ensure that the other members of society enjoy those same rights.“

(Article 4 of the 1789 Declaration).

And:

“The law has the right to prohibit only actions which are harmful to society. Nothing which is not prohibited by law may be prevented, and no one may be compelled to do anything which the law does not require.“

(Article 5 of the 1789 Declaration).

It is well established that:

“For the maintenance of the public force and for administrative expenditure, a common contribution is indispensable. It must be equally apportioned among all citizens, in proportion to their means.“

(Article 13 of the 1789 Declaration).

And:

“All citizens have the right, either personally or through their representatives, to ascertain the necessity of public taxation, to consent to it freely, to monitor the use of public funds, and to determine its amount, basis, method of collection and duration.“

(Article 14 of the 1789 Declaration).

“Society has the right to hold every public official accountable for his or her administration.“

(Article 15 of the 1789 Declaration).

Finally, it should be recalled that:

“Property is an inviolable and sacred right. No one may be deprived thereof except where public necessity, lawfully established, clearly requires it, and subject to the payment of fair and prior compensation.“

(Article 17 of the 1789 Declaration).

Contrary to what is often asserted, the right to strike, recognised in the Preamble to the 1946 Constitution, is not an unrestricted constitutional right, since it must be exercised within the framework of the laws governing its exercise, which must ensure compliance with principles having constitutional status.

Although the relevant legislation was not enacted by the public authorities, the fact remains that this right continues to be constitutionally governed by law, which must ensure compliance with other constitutional principles, particularly the principle of continuity of public services.

Similarly, the freedom of assembly and demonstration, derived from Article 11 of the 1789 Declaration, must be reconciled with the protection of public order.

A State which seeks to administer everything and intervenes excessively risks failing to discharge its sovereign functions.

French businesses, which are the driving force behind the country’s economy, are, for their part, subject to a particularly significant tax and social security burden, extensive reporting obligations and particularly onerous formalities. They also face increasing pressure from administrative authorities and judicial bodies, which are increasingly encroaching upon the sphere of business decisions and freedom of management.

If businesses also suffer damage infringing fundamental constitutional guarantees, they should be entitled to seek compensation from the State and to suspend payment of taxes and levies of any kind, up to the amount of the estimated loss and for as long as that loss remains uncompensated.

* * *

Such action would entail challenging public-sector claims, which would not contribute to restoring the country’s public finances and would not, in principle, be desirable. Nevertheless, it could prove to be one of the few available alternatives where a business has sustained serious material and economic damage as a result of clearly established failures on the part of the public authorities.

In the current circumstances, it would also be desirable for the State to ease some of the administrative formalities and reporting requirements imposed on businesses, particularly small and medium-sized enterprises (SMEs).