THE BOTTOM LINE
- No Corporate Shield: Evidence from a criminal case against a company’s directors or managers can be used against the company itself in a separate tax dispute, even if the executives are legally distinct persons.
- A “Win” Isn’t Always a Win: The discontinuation of criminal proceedings against individuals (e.g., for tax fraud) does not automatically clear the company in a related tax audit. Tax authorities can still pursue the company for the alleged tax liability.
- Defence Rights are Paramount: While tax authorities can use evidence from parallel proceedings, the company must be given a full and fair opportunity to access, review, and challenge that evidence. This procedural safeguard is a critical line of defence.
THE DETAILS
This recent order from the EU’s top court addresses a critical intersection of corporate tax liability and criminal law. The case involved a Romanian company, Fashion TV RO, which was denied a significant VAT deduction after tax authorities flagged invoices from allegedly inactive or non-existent suppliers. Concurrently, criminal proceedings for tax fraud were initiated against the company’s manager and accountant. However, this criminal case was later discontinued. The company argued that since the criminal case against its representatives was closed, the tax authorities should not be allowed to use evidence from that file in the ongoing administrative case against the company itself.
The Court of Justice of the European Union (CJEU) disagreed, providing a crucial clarification for businesses across the EU. It ruled that the principle of ne bis in idem (often known as double jeopardy) did not apply here. The Court reasoned that this principle prevents the same person from being tried twice for the same offence. In this instance, the criminal proceedings were against the individual executives (natural persons), whereas the tax assessment was against the company (a separate legal person). Therefore, using evidence from the first case in the second does not constitute double jeopardy. The ruling underscores the broad powers of tax authorities to use all objective evidence available to combat potential VAT fraud.
However, the Court’s decision is not a blank cheque for tax authorities. It firmly anchored its ruling in the protection of fundamental rights. The CJEU stressed that while evidence from a discontinued criminal case can be considered, the company’s rights of defence, guaranteed under Article 47 of the EU Charter of Fundamental Rights, must be scrupulously respected. This means the company must have the right to a fair hearing, including the ability to access all evidence used against it and effectively challenge its validity. National courts are now tasked with ensuring this “equality of arms” between the taxpayer and the tax authority is maintained throughout the proceedings.
SOURCE
Source: Court of Justice of the European Union
