Analysis
17 November 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 when 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 he was sentenced 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 ruled 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, in particular 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 cases of possible cumulation of criminal and administrative sanctions

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 the offence of tax fraud 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 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]

 

Related content

Publication
23 January 2025
LIR 8th Edition : Focus on a French Financial Markets Authority’s fine for price manipulation...
Navacelle contributes to The Legal Industry Reviews' eighth edition, focusing on a French Financial Markets Authority's sanction against a fund...
Publication
15 November 2024
Practitioner’s Guide to Global Investigations (2025) – GIR
NAVACELLE co-author of the ninth edition of Global Investigations Review’s Practitioner’s Guide to Global Investigations.
Publication
13 September 2024
Cross-country insights: Addressing Corruption Allegations in Arbitration Disputes
This guide aims at providing a comprehensive understanding of how different countries handle allegations of corruption in the course of...
Press review
7 February 2025
Press review – Week of 3 February 2025
This week’s press review covers offences against environment, especially the trial against Nestlé company, an investigation in Guinea on pollution...
Press review
31 January 2025
Press review – Week of 27 January 2025
This week’s press review covers the Ministry of Justice's order to pay damages to two members of the PNF, the...
Event
27 January 2025
The internationalisation of whistleblowing: ensuring compliance within a global framework
A webinar organised by EQS on 28 January 2025 built for international compliance actors.
Press review
24 January 2025
Press review – Week of 20 January 2025
This week’s press review covers the CNIL's publication of its 2025-2028 strategic plan, the ACPR’s intensification of its fight against...
Press review
17 January 2025
Press review – Week of 13 January 2025
This week’s press review covers the investigation launched against the current French Minister of Transport for misappropriation of public funds,...
Event
10 January 2025
Are companies accountable in court? Between legality and activism
A panel organized on 10 January 2025, during the AIJA 2025 Francophone Conference in Geneva.
Press review
10 January 2025
Press review – Week of 6 January 2025
This week’s press review covers the trial on suspicion of Libyan funding of Nicolas Sarkozy’s election campaign, the creation of...
Analysis
6 January 2025
A look back at the last CJIP of 2024: Areva SA and Orano Mining SAS
On 9 December 2024, the Paris Judicial Court approved the CJIP (French DPA) concluded between Areva SA and Orano Mining...
Analysis
23 December 2024
Lessons from the analysis of first-instance court decisions on probity offenses by the French Anti-Corruption...
The French Anti-Corruption Agency (AFA) published an analytical note on 9 December 2024, regarding the prosecution of probity offenses, based...
Press review
20 December 2024
Press review – Week of 16 December 2024
This week’s press review covers Nicolas Sarkozy’s definitive three-year prison sentence for corruption in the wiretapping case, corruption holding back...
Press review
13 December 2024
Press review – Week of 9 December 2024
This week’s press review covers the CJIP (DPA) concluded by Areva and Orano Mining for acts of corruption in Mongolia,...