ECJ permits an exception to the principle of double jeopardy (ne bis in idem) in criminal tax law: Judgement of 20/03/2018, C-524/15

According to art. 103 section 3 of the German Basic Law, no-one can be punished more than once for the same offence (on account of general culpability). Art. 103 section 3 of the German Basic Law constitutionally establishes the "ne bis in idem" principle - the principle of double jeopardy in prosecutions. Under this principle, any further prosecution of the same perpetrator on account of the same offence is inadmissible; this constitutes one of the most important principles of the German criminal justice system and it has a twofold function: If a judgement has already been declared for an offence, ne bis in idem creates a procedural obstacle for any further prosecution. Moreover, this principle also grants a subjective constitutional right - not to be punished more than once on account of the same offence. Moreover, the "ne bis in idem" principle is also legally established at an international level. Art. 50 of the EU Charter of Fundamental Rights (EU CFR) and art. 4 of protocol no. 7 to the European Convention on Human Rights (ECHR) specify that no-one can be prosecuted or punished again in criminal proceedings on account of an offence with regard to which said person has already effectively been sentenced or acquitted according to the applicable law in the European Union.

A judgement by the European Court of Justice (ECJ, judgement of 20/03/2018 - C-524/15) is now attracting interest in this respect. It says that the "ne bis in idem" principle can be restricted under certain preconditions in order to protect the financial interests of the European Union and its financial markets. In a preliminary ruling procedure, an Italian court submitted the question to the ECJ as to whether art. 50 EU CFR in connection with art. 4 of protocol no. 7 to the ECHR precludes the possibility of carrying out criminal proceedings on account of an offence for which an irrevocable administrative sanction has already been imposed on the defendant.

What matter was the ruling based on?

In the framework of administrative proceedings in which an Italian taxpayer was charged with not having paid value-added tax within the periods required by law, the Italian fiscal administration imposed an administrative sanction (fine) of 30% of the tax liability on said taxpayer. After the final conclusion of these administrative proceedings, the department of public prosecution initiated criminal proceedings on account of the same offence (non-payment of value-added tax). According to the national rules, the administrative proceedings and the criminal proceedings have to be carried out separately. 

Aim of ensuring VAT collection

The ECJ explained that for the purpose of implementing the Directive on the VAT system (Directive 2006/112/EC) the member states are obliged to enact legal and administrative regulations intended to secure the collection of value-added tax within the territory of the respective state and also to combat fraud. Moreover, the member states are obliged to deter illegal activities aimed against the financial interests of the EU. In this process, it is up to the member state to select the sanctions for the attainment of this objective. These can be administrative or criminal law sanctions, or a combination of both.

Preconditions of art. 50 of the Charter of Fundamental Rights

The ECJ found that, in principle, art. 50 EU CFR bans an accumulation of prosecution measures and sanctions which are of a criminal law nature within the meaning of this article regarding the same person because of the same offence. According to the jurisdiction of the ECJ, three criteria are decisive for the evaluation of the criminal law character of a measure:

1. the legal classification of the violation in domestic law

2. the type of violation and

3. the severity of the sanction which might be imposed on the parties concerned.

In this case, both the prosecution in the criminal proceedings and the final administrative sanction have a criminal law character within the meaning of art. 50 EC CFR: While this applies without doubt to the criminal proceedings, further considerations are necessary with regard to the administrative sanctions based on the items specified above: Even though the proceedings are classified as administrative proceedings under Italian law, the application of art. 50 EU CFR is not limited to sanctions which are classified as sanctions under criminal law at a national level and the classification of the two other criteria also needs to be observed. In the context of the type of violation it needs to be considered, in particular, whether the sanction in question has a repressive objective, while the fact that preventative aspects are also considered in addition, should not preclude the criminal law classification. (A measure which is only intended to compensate for the damage caused by the criminal offence is not a criminal law measure.) Moreover, the level of the sanction (30% of the value-added tax owed) indicated a corresponding level of severity.

Furthermore, it must concern the same person and the same offence. According to the ECJ adjudication, the criterion of the identity of the material offence, i.e. the entirety of concrete and interconnected circumstances which have led to an acquittal or a sentence imposed on the parties concerned, is material for the same criminal offence. The presence of the same criminal offence is not changed by the fact that, in contrast to the administrative sanctions proceedings, in criminal proceedings a subjective element (premeditation) must apply.

Justification of the restriction of the "ne bis in idem" principle

However, a restriction of the "ne bis in idem" principle according to art. 50 of the Charter on Fundamental Rights requires a justification satisfying the EU legislation requirements, i.e. it is only admissible under certain preconditions according to art. 52 section 1 sentence 1, sentence 2 of the Charter on Fundamental Rights. The ECJ specifies the preconditions which national provisions must fulfil to ensure that in spite of the accumulation of criminal law prosecution measures and sanctions of a criminal law nature a certain level of protection for the "ne bis in idem" principle is fulfilled:

-        The rule pursues a provision for the public welfare which can justify such an accumulation of prosecution measures and sanctions (i.e. in this case preventing value-added tax offences) with prosecution measures and sanctions pursuing complementary aims.

-        The provision must establish clear and precise rules which enable citizens to anticipate to which acts or omissions such an accumulation might be applicable.

-        The provision includes rules to ensure coordination designed to limit the additional strain which results from an accumulation of proceedings for the parties concerned to the absolute minimum and

-        the provision provides for rules which can ensure that the severity of all sanctions imposed are the absolute minimum in relation to the severity of the offence concerned.

ECJ then emphasised that it was up to the national court to ensure that the admissible accumulation of prosecution measures and sanctions resulting from the national provision and the strain on the party concerned resulting from this are not disproportionate with a view to the severity of the offence committed.

Example of lack of justification: Overview of the ECJ judgement C-537/16

In a further ruling (ECJ, judgement of 20/03/2018 - C-537/16), the ECJ provided further explanations on the restriction of the "ne bis in idem" principle in connection with market manipulations. In this case, the Italian national company and exchange supervisory authority imposed an administrative sanction of a criminal law nature on grounds of market manipulation - even though the party concerned had already been effectively sentenced under criminal law before. The sentence was subsequently waived by way of a pardon.

Here the ECJ explained that, in principle, the aim of protecting the integrity of the EU financial market and the trust which the public places in the financial instruments might justify an accumulation of criminal law prosecution measures and sanctions of a criminal law nature. Moreover, it again confirmed the preconditions for a justification of the restriction of the "ne bis in idem" principle which the national provision must fulfil (an objective serving the public good, clear and precise rules, ensuring coordination restricting the additional strain to the required minimum and there being rules to ensure that the severity of the sanctions is limited to the absolute minimum in proportion to the offence).

However, in this case, the national provision on punishment of market manipulations is not proportionate since the criminal law sanction as such is already suited to provide effective, proportionate and deterrent punishment for the offence. Any continuation of the proceedings exceeding this in order to impose a fine as an administrative sanction of a criminal law nature exceeds what is absolutely required for the attainment of the aim of protecting the integrity of the EU financial markets.

Conclusion:

Every lawyer will probably rub their eyes in astonishment - since every student learns, at the latest in the 2nd term lecture on constitutional law, that no-one may be repeatedly prosecuted or punished for the same offence. This principle applied as early as in Roman law - therefore: "ne bis in idem". Against this backdrop, it is particularly noteworthy that, in criminal tax law, the ECJ now considers an exception to this principle established in constitutional law (albeit within narrow limits) admissible. Public prosecutors and tax investigators may perhaps be rejoicing; however, they should consider that the exception which was consciously and significantly restricted by the ECJ will certainly not become general rule, as a result. (Tax) Defence lawyers will certainly increasingly face the task of resolutely opposing the financially motivated ambitions of public prosecutors and tax investigators.

LHP Attorneys Tax Advisers have worked in criminal tax law for two decades. As expert lawyers and tax advisers, our tax lawyers hold dual qualifications in criminal law and in tax law - with many of them having previously worked as treasury officials. In other words: We also know "the other side" and how to deal with it/them. In the framework of a non-binding initial consultation we take the time required to identify the risks and possible solutions for the client's problems and also to point out legal consequences. We are pleased to make an appointment to see you at any time - discreetly and without commitment.