Analysis
14 July 2022

The cumulation of criminal and administrative sanctions in tax fraud

The judges of the Court of Cassation recently ruled on the cumulation of criminal and fiscal sanctions in tax fraud cases. This decision confirms the case law which permits the cumulation of penalties for the most serious frauds.

 

In this case, the defendant had filed an under-reported tax return for the 2015 fiscal year for a total amount of nearly 70,000 euros. He had recorded sums received as prepayments while they were actually collected in the month they were invoiced, with no corresponding income in the accounting statements.

On November 21, 2017, the tax authorities filed a criminal complaint for tax fraud after receiving the approval of the tax offences commission.[1] The criminal court ruled that the defendant was guilty of tax fraud and sentenced him to a fine of 5,000 euros. The defendant and the public prosecutor appealed this decision.

The defendant was then sentenced to a fine of 15,000 euros by the criminal Court of Appeal, while he had been sentenced to financial penalties of up to 40% of the VAT and income tax assessments by the administrative court.[2] The criminal Court of Appeal indeed ruled that it could impose such a fine because the two cumulative penalties did not exceed the limit of 500,000 euros specified in the French tax code.[3] An appeal to the Court of Cassation was then filed by the defendant claiming that the Court of Appeal breached the principle of offences and penalties being established in law. He argued that the judges of the Court of Appeal had not verified, with regard to the amount of the alleged tax fraud and to the nature of the acts or circumstances of the offence, whether the acts committed by the defendant were sufficiently serious to justify the cumulation of criminal and administrative penalties.

This decision is an opportunity to explain how the potential combination of criminal and administrative sanctions for tax fraud works. To do so, it is necessary to look at the context (I) and the scope (II) of this decision.

 

I. Case law allows for the combination of criminal and administrative penalties for tax fraud under certain conditions

The issue of the possible cumulation of criminal and administrative sanctions in cases of tax fraud has been discussed for a long time. Indeed, the cumulation of repressive procedures is subject to the ne bis in idem principle, which prohibits the cumulation of sanctions for the same acts.[4]

In French law, the Court of Cassation has ruled that criminal and tax proceedings are, by their nature and purpose, different and independent.[5] The Court has also established that, in cases involving tax fraud, a criminal court does not have to stay its proceedings in the event of an ongoing administrative procedure involving the same facts,[6] even if no penalty was imposed in the administrative procedure.[7]

The European Court of Human Rights was reluctant to enforce the ne bis in idem principle, before formally recognizing it in matters of financial offenses.[8] Nevertheless, the European Court of Human Rights has subsequently specified that a cumulation of criminal and administrative penalties is possible, particularly in tax matters, in accordance with the principle of complementarity of proceedings.[9]

To clarify the conditions of cumulation, the Constitutional Council has validated the possibility of cumulation by stating that the collection of taxes and the necessity to fight tax fraud justify in some cases the undertaking of complementary proceedings.[10] The Constitutional Council specified that the principle of cumulation applies only to the most severe cases of fraudulent dissimulation or omission of declarations. The seriousness may result from the amount of tax evaded, the nature of the actions of the person prosecuted or the circumstances of the offense.[11] The proportionality principle requires that the total amount of the sanctions cannot exceed the highest amount of one of the sanctions incurred.[12]

The Court of Cassation finally applied the same reasoning, ruling that when a defendant prosecuted for tax fraud has been subjected to an administrative penalty for the same facts, the criminal judge must, before imposing criminal sanctions, verify whether the facts of the case are serious enough to justify such additional sanctions. The Court emphasized that judges are required to justify their decision based on the seriousness of the facts, which may result from the amount of evaded taxes, the nature of the actions of the defendant or the circumstances of the facts, including those constituting aggravating circumstances. In the absence of such a showing of seriousness, the judges cannot sentence the defendant to criminal sanctions when administrative sanctions have already been imposed.[13]

 

II. The Court of Cassation insists on the obligation of judges to control the existence of a sufficient degree of seriousness in possible cumulation of criminal and administrative sanctions cases

In the case at hand, and in line with case law, the Court of Cassation confirms that the cumulation of criminal and fiscal sanctions is possible, based on articles 1729 and 1741 of the French tax code. The latter prescribes a criminal penalty, while the former provides for an administrative sanction in the form of a financial penalty.[14]

In this case, the main debate related to the rationale followed by the judges of the Court of Appeal to impose a criminal sanction to the defendant where the defendant had already been subject to an administrative sanction imposed by administrative courts. The defendant considered that the Court of Appeal had not sufficiently motivated its decision on this issue[15].

With this ruling, the Court of Cassation emphasises that criminal judges must establish two elements in order to allow for a cumulation of criminal and administrative sanctions in cases of tax fraud. First, they must demonstrate that a tax fraud offence has been committed. Then, they must give reasons for their decision based on the seriousness of the facts.[16]

The Court of Cassation notes that the absence of a showing of seriousness of the facts must lead to the acquittal of the defendant.[17] Following its precedents, the Court reiterates that the seriousness of the situation results from the amount of evaded taxes, the nature of the actions of the defendant or the circumstances of the facts.[18]

In this case, the Court of Cassation ruled that the Court of Appeal did not provide sufficient reasons for its decision, by not investigating, prior to the sentencing, whether the criminal sanction was justified in light of the seriousness of the acts committed. Thus, the judges of the Court of Appeal failed to comply with the rule established by the Constitutional Council.[19]

 

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