DECRIMINALIZATION OF TAX LAW BY ADMINISTRATIVE PENALTIES ON TAX DUTIES

Transcription

1 DECRIMINALIZATION OF TAX LAW BY ADMINISTRATIVE PENALTIES ON TAX DUTIES European Association of Tax Law Professors - EATLP MILAN, MAY 2015 Lorenzo del Federico Full Professor, Tax Law, University of Chieti-Pescara (Italy) Scientific Director CIRTE - Centro Inter. Studi Tributari Europei (Rome-Italy) 1

2 The Framework First of all, it is possible to note that most Countries provide similar administrative, criminal (and in many cases indirect) penalties with reference to the same contra legem behavior of taxpayers. These penalties (and often the concurrent application of different kind of interests, additional fees and compensatory measures) seem excessive and endanger the effectiveness and the proportionality needs. Unlike what happens for the worthwhile and significant development of the international (OECD) and European (EU) guidelines and policies (just think to BEPS), the profile of the tax unlawful and the penalties is often overlooked. Also in the field of the European harmonized taxes (i.e. Vat), the taxpayers guarantees and the tax penalties are completely neglected because of the autonomy of the EU Member States regarding these profiles. Therefore, the main goal should be rationalize and simplify the domestic penalty system and the decriminalization could assume a relevant role in the perspective of a fair tax system. 2

3 The field of investigation Preliminary Issue What is criminalized nowadays and what to decriminalize? EU Member States, on the one hand, have the power to regulate the domestic penalty system autonomously but, on the other hand, this domestic freedom has to be BALANCED with the European principles. The ECHR Case law has clarified that, SUBSTANTIALLY, administrative penalties can fall into the criminal matters category. Indeed, in the light of ECHR principles, the wide notion of criminal charge represents a SUBSTANTIVE rather than a formal conception, TOTALLY AUTONOMOUS FROM EACH DOMESTIC FORMULA. 3

4 The leading functional approach We have to adopt a functional approach in order to overcome the formal and the inevitable defining and categorizing complexity. ECtHR Engel Criteria: the sanction is criminal having regard to the NATURE of the offence, the PURPOSE and the SEVERITY of the offence. Surcharges and penalties should have a compensatory regime, but sometimes they have a mere cosmetic discipline. Sometimes surcharges and penalties are substantially characterized by a PUNITIVE NATURE despite the formal cover. E.g.: also the application of a proportional surcharge in case of delayed tax payment could be considered a criminal charge, in some particular circumstances (see infra). 4

5 Overload of sanctions, massive accumulation Administrative and criminal tax penalties are frequently both characterized by a functional identity because they are aimed at afflicting and at re-educating the offender (punitive/deterrent function). This functional identity marks the fundamental division between criminal/administrative penalties and compensatory measures (i.e. Civil surcharges). The experience shows that in many Countries there is a massive accumulation of criminal penalties, administrative penalties, surcharges, interest, indirect penalties etc. We can note that the application of criminal or administrative penalties depends on the type of violation but, frequently, the same contra legem behavior is punished with different kinds of penalties and also interest is applied. 5

6 Overload of sanctions: critical points The overload of sanctions presents the following critical points: excessive severity massive accumulation violation of the ne bis in idem principle violation of the proportionality principle lack of effectiveness sometimes destruction of the taxpayer unfaithful (elimination from the market) In many Countries the Legislator and the Tax Authorities try to justify the overload of sanctions labeling the several measures with different formal covers. The differences are often limited to a mere cosmetic discipline. 6

7 Against the formal cover: an example Under the Italian Law, if the taxpayers do not intentionally file tax returns, they are subject to an administrative penalty from 120% to 240% of the taxes due. But, on the other hand, if the undeclared tax is higher than , a criminal penalty (imprisonment) is inflicted. In any case also the interest and several indirect penalties are applied. Consequently, the quantitative limit and the willfulness identify the boundary line between criminal behavior, punished by imprisonment and other contra legem behavior. The latter is punished only by a relevant and proportional penalty but, following a functional approach, both of these penalties have the substantial nature of criminal penalties. First of all it is fundamental to make the tax system fairer, then it seems necessary to promote its decriminalization (this is the orientation of the current Italian Tax Reform). 7

8 Overcome the overload of sanctions Towards the decriminalization What could be the possible objects of the decriminalization? Light violations Accumulation of sanctions Criminal penalties, generally punished by imprisonment Administrative penalties and surcharges, characterized by afflictive and deterrent nature Indirect penalties, multipurpose measures with a latu sensu afflictive function The convenience to decriminalize certain behavior concerns an extremely wide complex of punishment s measures DEPENDING ON THE SEVERITY S DEGREE. The decriminalization can concern an heterogeneous typology of punitive measures regardless their nomen iuris; at the same time, for light penalties there is not a matter of decriminalization, strictu sensu, but a need to reduce the impact of accumulation (administrative penalties, surcharges, interest, indirect penalties ). From a theoretical point of view the phenomenon of decriminalization should be strictu sensu appraised only in the scenario of the most worrisome and blameworthy taxpayer s behavior. 8

9 THE DIFFERENT MEANINGS OF DECRIMINALIZATION Generally speaking, decriminalization means the LEGALISATION of a specific conduct potentially or factually in contrast with a legal rule depending on different reasons. Therefore, the fulcrum is to define these latter. The legalization implies a political choice because in a certain age the Legislator believes that a contra legem behavior lacks in offensiveness. The most simple and intuitive kind of decriminalization is the transformation of a criminal charge punished by the affliction of personal freedom into an administrative penalty. However, it represents only the main and clearer/clearest kind of decriminalization. 9

10 DECRIMINALIZATION OR BETTER MITIGATION DECRIMINALISATION LINKED TO SUBJECTIVE OR OBJECTIVE CONDITIONS In a wider perspective, the decriminalization is strictly linked to the quantitative, objective and subjective prerequisites for the application of penalties The Countries could carry out a substantial decriminalization also limiting the above-mentioned conditions of applicability. According to a functional approach, it is possible to define as a type of decriminalization also where the Legislator decides to substantially decrease an ordinary administrative penalty. In this wider perspective the decriminalization is conceivable also as a mitigation, or attenuation, of the 10 sanction law regime.

11 MITIGATE, EVALUATE AND BALANCE THE SANCTION LAW REGIME A mitigation of the sanction law regime could allow to realize a right and proper punitive system. In any case the punitive tax system have to be evaluated and balanced not only in its complexity but also regarding each own specific rule. Hence the Legislator should graduate the prerequisites to the different levels of behavior severity: linking the punishments to different levels of guilt; providing different degrees of severity with reference to the amount of damage or significant danger caused by the infringement of duty. 11

12 PUNITIVE TAX SYSTEMS TRENDS AND EXPERIENCES For example, where a willful violation is punished by a high penalty but the same negligent breach of rule entails the application of a light fixed penalty, the second one could be considered substantially decriminalized. However, it is necessary to adopt a case by case approach and understand the real repressive nature of the single penalty. Several Countries (i.e. Italy) do not definitely distinguish between light and gross violations. Therefore, merely negligent conducts (i.e. an incorrect filing) creating a light tax damage are punished in the same way of intentional behavior which provokes a worthwhile loss. 12

13 TRENDS AND EXPERIENCES.. By contrary, many EU Countries (i.e. Finland, Netherlands and Portugal) provide different levels of severity depending on subjective and objective criteria. Consequently, in these Countries the area of low and medium offence (administrative penalties or default surcharges), or high offence (criminal penalties) is better defined. Virtuously, the criminal penalty are only applied for serious tax crimes characterized by intent or gross negligence. This approach safeguards the European needs and, in particular, avoids the violation of the proportionality and specialty principles as well as the ne bis in idem. 13

14 TRENDS AND EXPERIENCES.. The implementation of not punitive penalties such as compensatory surcharges and interest in the case of taxpayers conducts characterized by a minor degree of offensiveness, is in line with the European needs. Nevertheless we have to pay attention to the real and substantial nature of the measures. For example, where the application of a 10% surcharge in the case of a significant delay of the taxpayer (i.e. sending the tax return or invoicing) can be labeled as a compensatory measure, at the same time, a 30% surcharge applicable for a one day of delay has certainly the nature of punitive penalty (often the punitive nature is confirmed by the circumstance that the interest add up to the surcharge). In this case the surcharge is not quantified with regard to the actual severity of the delay, so we find out the clear symptom of its punitive nature. As usual the distinction between the true penalties and the true compensatory measures is fundamental. 14

15 THE OPTIMAL SOLUTION Thinking of a punitive tax system ideal, fair and efficient we could assume the following hypothesis: -the application of criminal penalties and interest only in the case of tax fraud or, in a wide sense, of intentional and worrisome conducts; -the application of administrative penalties and interest if the taxpayer s behavior is characterized by a medium - light offense; -the exclusive application of interest without other penalties and surcharges - in case of infringements strictly linked to the tax debt. 15

16 THE DECRIMINALISATION OF THE MINOR INFRACTIONS In general, a minor infraction is not a criminal one and it derives from an infringement that does not create a serious tax damage. Therefore, most European Countries provide specific light surcharges and the minor infringements of duties are substantially decriminalized. However, Italy is the only Country that provides a general rule under which the so called formal violations are completely decriminalized. It occurs if the taxpayer s infringement: does not compromise tax authorities control activities; does not affect the tax basis or the determination of the tax due. 16

17 FORMAL VIOLATIONS However, it is not correct to label, a priori, specific formal violations and it is necessary to value, according to the Italian case law, the effective consequences of the taxpayer s infringements. In other words, according to a functional and substantial approach, the infringements have to be appreciated ex post and the analysis of the case have not to base on a formal categorization. This because: a labeled formal violation could be characterized by a high level of offensiveness; also a substantial violation could be inoffensive on the basis of an ex post appreciation. 17

18 DECRIMINALISATION BASED ON COOPERATIVE TAXPAYER S BEHAVIOUR AND AGREEMENTS From a different and further point of view the decriminalization can depend on a specific virtuous conduct of the taxpayer or on a tax authority s deed. There are different kinds of decriminalization when the taxpayers opt for instruments aimed: to obtain an advance opinion by the Tax Authorities, or at disclosure their contra legem behavior. -1) Advanced ruling Several Countries (i.e. Belgium, France, Italy, Netherlands, Portugal, Spain, Turkey, Us) provide different instruments that, on one hand, are aimed to avoid a possible taxpayer s breach of rule. On the other one, these instruments could indirectly allow to legalize tax rule s infringements. In the light of EU Countries domestic law, advance ruling procedures are, essentially, instruments aim at giving to the taxpayers the right to know in advance Tax authorities approach in case of objective uncertainty in the tax law. 18

19 ADVANCED RULING.. Thanks to these procedures, the taxpayers may not be subject to any surcharge of penalty if their behavior is in accordance with the ruling. In the European scenario, there are various kinds of advance ruling, with very different and complex procedures. Even so, the common characteristic of these instruments is that, generally, THE ANSWERS ARE BINDING FOR THE TAX AUTHORITIES. The fundamental and basic reason which motivates the effects on these mechanisms on tax penalties is the protection of the taxpayer s legitimate expectations. 19

20 VOLUNTARY DISCLOUSURE -2) Voluntary disclosure Several EU Countries provide common guidelines and instruments in order to improve the tax compliance and the cooperation between taxpayers and tax authorities. Above all the voluntary disclosure system has been implemented in many Countries (Italy, Austria, France, Netherlands, Spain, Us); it is regulate such as a general tax agreements which reduce penalties and surcharges but it is not a tax amnesty. However, according to the above-mentioned functional approach the voluntary disclosure could be considered a case of substantially decriminalization. 20

21 CONCLUSIONS It is clear that exist a large phenomenon of overload of sanctions. It presents some serious critical points: excessive severity massive accumulation violation of the ne bis in idem principle violation of the proportionality principle lack of effectiveness sometimes destruction of the taxpayer unfaithful (elimination from the market). -1) Then it seems necessary to promote its decriminalization. The decriminalization in the above-mentioned wide sense - of certain taxpayers behavior could be the high road in order to balance the different needs of Member States, Tax Authorities and Taxpayers Communities in the framework of the European general principles traced out by ECHR and ECJ. The wide notion of criminal penalty suggests to adopt a broad conception of decriminalization despite a formal label. The central idea is that the ways to decriminalize certain taxpayer s behavior is not, a priori, recognizable. Thus, only a functional and case by case approach gives useful solutions. 21

22 CONCLUSIONS The concurrent application (accumulation) of different (but substantially equal) criminal and administrative penalties and moreover interest to the same contra legem behavior it is not in compliance with European principles. A reasonable answer would be to provide different levels of punishments depending on the level of guilt. The implementation of not punitive penalties (true surcharges) and interest in case of taxpayers conducts characterized by minor degree of offensiveness, would be in line with the European needs. - 2) In this this background we have to pay attention: avoiding cosmetic changes in the punitive tax systems; avoiding or limiting (and in any case focusing) additional measures such as indirect penalties that aim at afflicting moreover the offender; providing additional sanctions only if characterized by a compensatory nature; avoiding the concurrent application of different kind of compensatory measures. 22

23 CONCLUSIONS -3) According to a functional and substantial perspective, the optimal solution could be: The application of criminal penalties and interest only in the case of tax fraud or, in general, of intentional and worrisome conducts; The provision of administrative penalties and interest if taxpayer s behavior is characterized by a medium - light offense; The complete decriminalization of formal violations and exclusive application of interest without other penalties and surcharges - in case of infringements strictly linked to the tax debt; Highlighting the distinction between criminal/administrative penalties and compensatory measures (i.e. surcharges); The implementation of dialogue instruments between Tax Authorities and Taxpayers; The implementation of general voluntary disclosure as an ordinary regime. 23