In the course of a tax inspection, data or facts may come to light that reveal the possible existence of a tax offence, i.e. circumstances that, a priori, could be considered indications of criminality. The most common is that the amount defrauded by the taxpayer exceeds €120,000. This amount acts as an objective condition of punishability, insofar as if it is not reached, the tax offence would be completely ruled out even if there are other indications. Other circumstances that in practice are assessed by the tax authorities as possible indications of a crime are the existence of complex business networks with intermediary companies or front companies, or the existence of false invoices.
The Courts generally reject that it is sufficient evidence of criminality that the person who has carried out the potentially punishable conduct holds the position of administrator or legal representative, a circumstance which, nevertheless, has traditionally carried great weight as an indication of criminality. Nowadays, it is customary that, before proceeding to the indictment, a process of “purification of liability” is carried out, to determine who had “control of the act” beyond the corporate position held. Unfortunately, this way of proceeding has not been transferred to the administrative sphere, where the desire to collect money is more evident and, consequently, the easiest thing to do is to directly target the persons identified thanks to the Commercial Register.
Other elements that are not decisive for inferring the existence of a tax offence are those relating to the economic-financial situation of the taxpayer, whether an individual or a legal entity. The insolvency of assets is less and less linked to tax crime, while in the opposite direction, inspections of solvent taxpayers who have defrauded the public treasury are on the increase.
Supreme Court Ruling no. 1246/2019, of 25 September, of the Administrative Chamber III, has forced the Tax Administration to change its way of proceeding with regard to the existence of indications of criminality, which, in turn, has had an impact on criminal cases for tax offences. Before explaining why, it is worth examining how the issue has evolved in recent years.
Before the entry into force of the 2015 reform of the General Tax Law (Law 34/2015, of 21 September, partially amending Law 58/2003, of 17 December, General Tax Law), when there was evidence of a criminal offence in an inspection, the tax administration had to suspend the proceedings and immediately pass the blame to the criminal courts. This was established in Article 180 of the General Tax Law in force at the time:
if the tax administration considers that the offence could constitute a crime against the Public Treasury, it shall pass the blame to the competent jurisdiction, or refer the case to the Public Prosecutor’s Office, and shall refrain from pursuing the administrative procedure”,
The amendment made by Law 34/2015 entailed the elimination of the aforementioned Article 180, and in its place, a new Article 250 was introduced which established precisely the opposite rule (as a general rule, with exceptions in Article 251):
‘When the tax administration appreciates indications of an offence against the Public Treasury, the procedure shall be continued in accordance with the general rules that are applicable’.
This system is currently in force and leads to the fact that, when there are indications of an offence, the administration must issue two separate assessments: one for the elements not linked to the possible offence against the Treasury and another for the elements linked to the possible offence. Only with regard to the latter is it not possible to continue the administrative penalty procedure. After the liquidation, the blame is passed on to the criminal jurisdiction to investigate these facts.
On this normative basis, an administrative practice was generated that created legal uncertainty. The Administration induced the investigated party to sign tax assessments in conformity (i.e. the termination of the inspection procedure through an agreement between the taxpayer and the Administration by virtue of which the former acknowledged the tax offences attributed to him) with what these had the effect of “self-incrimination” on the part of the taxpayer who trusted that, with the signature, the reproach for his conduct had come to an end. However, after the taxpayer’s acknowledgement of the facts, he could unexpectedly receive a notification that his file had been found to contain indications of a crime and that the blame was being passed on to the criminal jurisdiction.
The extension of this practice was followed by an attempt to give it legal coverage through Royal Decree 1070/2017, of 29 December, whose art. 197 bis established in its paragraph 2 that.
“the appreciation of such indications of a crime against the Public Treasury may take place at any time, regardless of whether an administrative settlement has been issued or even a sanction imposed”.
In their dissenting opinion, two judges of the Chamber held that an assessment derived from a voluntary acknowledgement by the taxpayer should not have the same limiting effects on the duty to report as an assessment that is not signed in conformity, insofar as in the latter case the voluntary regularisation is undermined as a negative element of the tax offence to the detriment of the legal right protected by this type of criminal offence.
In spite of this, the Supreme Court declared that
it was never in the legislator’s mind to have a power such as that which – now – is recognised by the Administration in article 197.bis of Royal Decree 1076/2007 after the modification made in December 2017″;
“The law does not envisage passing on the blame or referring verification proceedings to the Public Prosecutor after an administrative settlement has been issued, much less after the infringing conduct has been sanctioned” (FJ 4º sections 4.2 and 4.6).
Moreover, – it adds – the issue goes far beyond the lack of sufficient legal authorisation (as alleged by the appellants), insofar as Art. 197bis
“is radically opposed to the legal precepts which regulate the way in which the Tax Administration must conduct itself when it considers that a taxpayer may have committed an offence against the Public Treasury” (FJ 4º section 4.6).
In effect, through this article, it would be possible to review a final tax assessment outside the channels provided for by the General Tax Law, which are limited means of review (art. 213 et seq.).
Finally, the Supreme Court affirms that this administrative practice, protected by the aforementioned art. 197bis.2, seriously compromises the principles of legitimate expectations and the prohibition of bis in idem. In effect, on the one hand, it allows the same conduct to be judged in a criminal court after having been firmly judged in an administrative court. On the other hand, as already mentioned, in practice, taxpayers saw how the tax administration processed an inspection procedure, settled the debt and perhaps even imposed a penalty, without ever being reproached in the tax courts for allegedly criminal conduct. And despite this, it was possible that he would be notified of the initiation of criminal proceedings five or even ten years later (until the statute of limitations for the basic or aggravated type of offence had elapsed, respectively). The insecurity that this situation generates for the taxpayer is intolerable, and as the Supreme Court states, “the principle of legitimate expectations does not fare well in such a case” (FJ 4º section 4.8).
In short, the possibility for the tax administration to refer a case to the criminal courts “at any time”, regardless of whether an administrative settlement has been issued or even a penalty imposed on the taxpayer, is contrary to the law and article 197.bis.2 of Royal Decree 1065/2007, of 27 July, in the wording derived from Royal Decree 1070/207, of 29 December, is null and void.
With the annulment of art. 197bis.2, there is no precept whatsoever that protects the passing on of the amount of fault at any time, so that when such a circumstance occurs, the tax administration is acting contrary to the law. The principle of legality, the principle of legitimate expectations and ne bis in idem have won, in favour of the taxpayer, the battle against the tax agency’s ‘duty to report’.