9.  The first applicant, Mr Jón Ásgeir Jóhannesson, was born in 1968 and lives in London. The second applicant, Mr Tryggvi Jónsson, was born in 1955 and lives in Reykjavík. At the time of lodging its application, the third applicant, Fjárfestingafélagið Gaumur, was a private limited liability company registered in Iceland.
10.  On 17 November 2003 the Directorate of Tax Investigations (Skattrannsóknarstjóri ríkisins) initiated an audit of the applicants’ tax returns and bookkeeping. The investigation concerning the first applicant was concluded with a report issued on 27 October 2004. On the basis of the report the Directorate of Internal Revenue (Ríkisskattstjóri), ruling on 30 December 2004, found that the first applicant had failed to declare a significant payment that he had received in August 1998. Therefore, it revised upwards the amount declared as capital income in his tax return for 1999 and, consequently, re-assessed his taxes and imposed a 25% tax surcharge. Ruling on 30 December 2005, it also found, among other things, that he had failed to declare significant payments received from 1999 to 2002, car allowances for the years 2000 to 2002, further allowances (payment of life insurance) and profits from the sale of shares in the Baugur Group company. It re-assessed his taxes for the years 1999 to 2002 and imposed a 25% surcharge.
11.  The investigation concerning the second applicant was concluded with a report of 24 November 2005. On the basis of that report the Directorate of Internal Revenue, ruling on 29 December 2005, found, in particular, that he had failed to declare significant payments received from 1999 to 2002. It also found that the Baugur Group company had paid his life insurance in the years 1999 to 2002 and that he had failed to declare these amounts as taxable allowances. It re‑assessed his taxes for the mentioned years and imposed a 25% surcharge.
12.  The investigation concerning the third applicant was concluded with a report of 29 July 2004. On the basis of that report the Directorate of Internal Revenue, ruling on 30 December 2004, re‑assessed the third applicant’s taxes for the years 1998 to 2002. In particular, it found that the third applicant had failed to account for and declare allowances (such as cars and housing) enjoyed by the first applicant and other employees, and failed to withhold public levies on these allowances and pay them to the state treasury. It further considered that profits and losses from the sale of shares in the Baugur Group company had not been declared correctly and that expenditure from 2000 to 2002 had been overdeclared. Consequently, it re-assessed the third applicant’s taxes for the years 1998 to 2002, imposing a 25% surcharge and a further 10% surcharge because of its failure to withhold levies at source and pay them to the state treasury.
13.  Following the applicants’ appeal, the Internal Revenue Board (Yfirskattanefnd), in its decisions of 29 August 2007 (in respect of the second applicant) and 26 September 2007 (in respect of the first and third applicants), upheld the imposition of tax surcharges for the most part.
14.  The applicants did not seek judicial review of these decisions, which thus acquired legal force six months later, in February and March 2008, respectively, when the time-limit for appeals had expired.
15.  On 12 November 2004 the Director of Tax Investigations reported the matter to the National Police Commissioner (Ríkislögreglustjóri) and its unit for investigation and prosecution of economic and environmental crimes, and forwarded its reports concerning the applicants and the documents collected during the investigation were forwarded to the police. In August 2006 the applicants and other witnesses were interviewed by the police for the first time. According to the respondent Government, the applicants were, at the same time, informed of their status as suspects in the criminal investigation. On 18 December 2008 the National Police Commissioner indicted the applicants for aggravated tax offences. The first applicant was indicted, among other things, for having underdeclared his income in his tax returns in 1999 to 2003. This included the failure to declare significant payments received in 1998 to 2002, car allowances for the years 2000 to 2002, further allowances (life insurance payments) and profits from the sale of shares in the Baugur Group company. The second applicant was indicted for having underdeclared his income in his tax returns in 1999 to 2003 by failing to declare significant payments he had received from 1998 to 2002 and the Baugur Group’s payment of his life insurance. The third applicant and its representative, KJ, were indicted for having failed, from 1999 to 2002, to declare salaries and car allowances enjoyed by the first applicant and other employees, for not having withheld public levies on these allowances and pay them to the state treasury, for having neglected to declare correctly the profits and losses from the sale of shares in Baugur Group and for having overdeclared expenditure and losses.
16.  In a ruling of 1 June 2010 the Reykjavik District Court (Héraðsdómur Reykjavíkur) found that the offences for which the applicants were personally indicted were based on the same facts as the above-mentioned decisions of the tax authorities. It further found that the proceedings concerning the tax surcharges had involved a determination of a “criminal charge” within the meaning of Article 4 of Protocol No. 7 to the Convention. Relying mainly on that provision and the Court’s judgment in Sergey Zolotukhin v. Russia ([GC], no. 14939/03, ECHR 2009), the District Court therefore dismissed those parts of the indictment on the ground that they referred to offences for which the applicants had already been tried and punished by the decisions of the Directorate of Internal Revenue of 30 December 2004 and 29 December 2005, as upheld by the Internal Revenue Board in its decisions of 29 August and 26 September 2007.
17.  The Acting National Commissioner of Police lodged an appeal with the Supreme Court (Hæstiréttur Íslands) which, by a judgment of 22 September 2010, overturned the District Court’s ruling and ordered it to examine the merits of the case. It referred to section 2 of the Act on the European Convention on Human Rights (Lög um mannréttindasáttmála Evrópu, no. 62/1994), in which the legislature had reiterated the validity of the principle of dualism of national law and international law in respect of the decisions of the institutions established under the Convention. It stated that the courts should look to the judgments of the European Court when interpreting the Convention, but that the principle of dualism required that the necessary amendments to national law to honour the State’s obligations under the Convention would have to be made by the legislature. Domestic law provided for the current system where tax offences could be dealt with in two separate sets of proceedings, one deciding on surcharges and the other on criminal punishment, even in circumstances where the proceedings were based on the same or substantially the same facts. According to the Supreme Court, the case-law of the European Court had not been clear on this issue and, consequently, there was uncertainty as to the scope and content of Article 4 of Protocol No. 7. In the light of this, the Supreme Court found that the domestic courts could not decide that the current system of tax surcharges and subsequent criminal proceedings was in violation of the Convention.
18.  By a judgment of 9 December 2011 the District Court found that the first and second applicants had acted with gross negligence, which was sufficient for criminal liability under the relevant provisions of the tax law, and all three applicants were convicted in respect of some of the charges against them. However, the District Court, referring to the excessive length of the proceedings and to the fact that the tax authorities had imposed a 25% tax surcharge on the applicants, decided to suspend the determination of penalty for one year.
19.  The first and second applicants, as well as KJ and the public prosecutor, lodged an appeal against the District Court’s judgment. No appeal was lodged on behalf of the third applicant.
20.  On 7 February 2013 the Supreme Court upheld the first and second applicants’ convictions for the most part. Moreover, the Supreme Court convicted the first applicant on two further charges for which he had been acquitted by the District Court. It revoked earlier suspended sentences (three months’ imprisonment in respect of the first applicant and twelve months’ imprisonment in respect of the second applicant, both suspended for two years by a Supreme Court judgment of 5 June 2008) and included them in their sentencing in the present case. The first applicant was sentenced to twelve months’ imprisonment, suspended for two years, and the payment of a fine of 62,000,000 Icelandic krónur (ISK; corresponding to approximately 360,000 euros (EUR) at the exchange rate applicable in February 2013). The second applicant was sentenced to eighteen months’ imprisonment, suspended for two years, and the payment of a fine of ISK 32,000,000 (approximately EUR 186,000). In determining the applicants’ prison sentences, the Supreme Court took into consideration the excessive length of the proceedings, noting that the delay had not been the applicants’ fault, and therefore decided that the sentences should be suspended. In fixing the fine that the applicants were ordered to pay, the court had regard to the tax surcharges imposed, without describing any calculation made in this respect, and the excessive length of the proceedings.