As we have promised, we continue to monitor the development of case law relating to the ban on double jeopardy. Nearly one year after the issuing of a judgment of the Supreme Court of Administration from November 24, 2015, file no. 4 Afs 210/2014-57, which set the following legal statement in the reasoning:

“A penalty according to article 37b of act no. 337/1992 Sb., on administration of taxes and fees, as applicable from January 1, 2007 to Dec 31, 2010, and according to article 251 of act no. 280/2009 Sb., of the code of tax procedures, has the nature of a punishment; and it is thus necessary to apply article 40 paragraph 6 of the Charter of Fundamental Rights and Freedoms and articles 6 and 7 of the Convention for the Protection of Human Rights and Fundamental Freedoms (no. 209/1992 Sb.).“

the European Human Rights Court in Strasbourg issued a decision on November 15, 2016 in the case of “A and B v. Norway” in Applications no. 24130/11 and 29758/11, which brings a new perspective on the question of whether or not a punishment imposed during tax administration will preclude imposing a punishment according to criminal law. An annotation of this judgment was issued by the Ministry of Justice. (hereinafter only referred to as annotation). [1]

According to the annotation, in this case the tax administration assessed an additional tax for the applicants from unreported income and raised this by a penalty of 30 %, and because the applicants did not protest, the decision with the additionally assessed tax and the penalty came into effect. Based on the same facts, the applicants were subsequently found guilty of tax fraud in a proceeding before court and the courts stated that when determining the height of punishment, they too the imposed tax penalty into consideration. Both applicants demanded cancellation of prosecution, referring to the principle of “ne bis in idem”, but the Supreme Court of Administration, which decided in the first-instance proceeding, reached the conclusion that: “although a tax penalty in common height represents a criminal accusation in the sense of the so-called Engel criteria for the purposes of the ban on double jeopardy, yet with regard to sufficient temporal and factual connection between the punishment in the tax proceeding and in the criminal proceeding in this case the interest in protection against a burden in the form of a new proceeding did not prevail over the interest in ensuring efficient prosecution.“ The applicants did not identify with this conclusion and passed the case on to the next link in the chair of judicial power, with the European Human Rights Court being the last to decide.

In the reasoning to its judgment, the European Human Rights Court stated the following:

„In the light of the circumstances of the cases of both applicants, the court reached the conclusion that with regard to the conclusions of the Norwegian Supreme Court as well as previous case law of the Court in similar matters (for example Janosevic v. Sweden, no. 34619/97, judgment from July 23, 2002, § 68–71; or Lucky Dev v. Sweden, no. 7356/10, judgment from November 27, 2014, § 6 and 51), the imposition of a tax penalty on the applicants was of criminal law nature. The factual circumstances, which formed the ground for tax penalty and conviction in the criminal proceeding, were similar to such an extent that they fulfilled the requirements for identical prosecuted actions. Sufficient temporal and factual connection existed between the tax proceeding and the criminal proceeding, and it is thus not necessary to examine, if a final decision was issued in the first before the end of the second one. Repeated proceeding banned by article 4 of Protocol no. 7 did not take place, though, because each proceeding followed a different purpose (the aim of a tax penalty is mainly to make taxpayers fulfil their duty to present full and correct information for tax assessment duly, while criminal prosecution also follows a repressive target), the applicants could have expected conduction of a combined administrative and criminal proceeding, these proceedings were conducted more or less simultaneously (with the temporal connection in the case of the second applicant not having been disturbed by the lapse of nine months between the legal effect of the tax decision and of the verdict in the criminal judgment), were mutually connected by use of the evidence obtained and the sanction imposed in the criminal proceeding took the previous tax penalty into consideration.

Violation of article 4 of Protocol no. 7 therefore did not take place in the case of either of the applicants.”

According to the reasoning, a tax subject can be punished for the same act according to the tax laws and according to criminal law, because each proceeding follows a different purpose and they relate to different aspects of the same behaviour (i) both proceedings are conducted in cooperation, so as to prevent repetition during collection and assessment of evidence to the highest possible degree (ii), both proceedings are sufficiently connected in time and fact (iii) and the last proceeding to end should take into consideration the sanction already imposed when setting the sanction (iv).

The above-mentioned judgment of the European Human Rights Court was so consequential and related to very frequent disputes so that judicial practice in the Czech Republic did not need to wait long for its application and the Supreme Court of the Czech Republic - grand panel stated in decision with file no. 15 Tdo 832/2016 on January 4, 2017 already:

“A penalty according to article 251 of act no. 280/2009 Sb., code of tax procedure, as amended, imposed in a tax proceeding for failure to fulfil a reporting duty by a final decision of an administrative body, has the nature of a criminal sanction, although sui generis, and therefore article 4 paragraph 1 of Protocol no. 7 to the Convention for the Protection of Human Rights and Fundamental Freedoms needs to be applied to it as well. A tax proceeding and a criminal proceeding for an act consisting in the fact that failure to fulfil reporting duty showed, in addition to signs of a payment delict, significant in the realm of administrative prosecution, also the signs of a criminal act of evasion of taxes, fees and similar obligatory payment according to article 240 of the criminal code, are proceedings on an identical act. This applies in a situation when the person in this criminal act and the taxpayer are the same natural person (see also no. 51/1997 Sb. criminal case law).

A final decision, which ends on of simultaneously or successively conducted tax and criminal proceedings, which are criminal-law proceedings in the sense of the so-called Engel criteria, does not constitute an obstacle in matter decided with ne bis in idem effect, if there is not only sufficiently close factual connection between the tax proceeding and the criminal proceeding, but also a connection in timing (see the verdict of the Grand Chamber of the European Human Rights Court in the case of A and B against Norway, no. 24130/11 and no. 29758/11, from November 15, 2016, points 132. and 134.).

Significant factors for determining, if there is sufficiently close factual connection, include the following: of the two separate proceedings follow a mutually complementing aim, and thus if they, not only in abstracto, but also in concreto, relate to different aspects of the given unlawful action; if the combination of the given proceedings is a predictable consequence of the same action, both legally and factually; if the respective proceedings are conducted in such a way as to prevent repetition in the collection and evaluation of evidence to the maximum possible degree, especially by means of adequate cooperation between the individual bodies, due to which the proven facts will be used in the second proceeding as well; and most of all, if the sanction imposed in the proceeding, which was the first to end, is taken into account in the last proceeding to end, with the aim of preventing the affected individual from being exposed to excessive burden as a result. This means that within the individuation of determining the criminal sanction, it is necessary to take into account the sanction imposed in the tax proceeding and its payment. When determining the type of punishment and its assessment, the court must therefore take into consideration a final decision of the financial authority on the duty of paying penalty on additionally assessed tax, and in the reasoning, the court must explain, how this circumstance was reflected.

The connection in timing must be sufficiently close to provide the affected person with protection against uncertainty, delays and prolongation of proceeding. The weaker the connection in timing, the higher the demands that need to be made on clarification and justification of delays in conducting the proceeding, for which the state may bear responsibility.”

Out of other current resolutions from judicial practice, it is possible to mention the following with this topic:

• The Supreme Court of the Czech Republic-panel said in resolution file no. 7 Tdo1068/2016 on February 23, 2017:

“The fact that a penalty was imposed by a financial authority on a person, which returned tax reaching a sum lower than that subsequently assessed correctly by a decision of the financial authority, does not yet mean that prosecution and conviction of a person, on which a penalty was imposed, is in disagreement with the stipulation of article 4 of Protocol no. 7 to the Convention for the Protection of Human Rights and Fundamental Freedoms. The Convention does not prohibit that proceedings, within which punishments are imposed, could be divided into several stages and that during them, various sanctions for unlawful action of criminal-law nature would be imposed successively or simultaneously.”

• Regarding the perspective for applying the ne bis in idem principle, The Supreme Court of the Czech Republic-panel said in resolution file no. 4 Tdo 764/2016 on February 28, 2017:

“A tax proceeding is separate from a criminal law proceeding, but both of these proceedings follow up on each other immediately and are sufficiently integrated into one whole, they are duly interconnected and predictable for the accused. They therefore do not lead to inadequate harm for the accused. The two proceedings react to different aspects of unlawful action and complement one another mutually. The rule of law enables conducting simultaneous proceedings in relation to one unlawful act by various authorities for various purposes.”

• To the application of the ne bis in idem principle and the tax proceeding and the criminal proceeding, the Supreme Court of the Czech Republic-panel said in resolution file no. 4 Tdo 43/2017 on February 28, 2017:

“Application of the ne bis in idem principle in relation to criminal liability for the criminal act of evasion of tax, fee and similar obligatory payment according to article 240 of the criminal code in case of penalty imposed according to article 37b of the tax and fees administration act, and article 251 of the code of tax procedure, is, among other things bound to assessing the nature of the two sanctions, identity of the act (the idem condition) and double proceeding (the bis condition). When evaluating the “ne bis in idem” obstacle, investigative, prosecuting and adjudicating bodies must also deal with the question if there is not only sufficiently close factual connection between the tax proceeding and the criminal proceeding, but also a connection in timing. The fact that the tax and the criminal proceeding were not conducted simultaneously from the beginning does not preclude close connection of timing of the two proceedings. As for the factual connection of the mentioned proceedings, it is given by the mutual interconnection of the tax and the penal proceeding, because according to article 8 paragraph 1 of the code of criminal procedure, the respective tax administrator is obliged to immediately announce to the public prosecutor or to a police body the facts suggesting that tax crime has been committed.”

• Regarding penal and administrative sanction for a tax delict, the Supreme Court of the Czech Republic-panel said in resolution file no. 4 Tdo 1359/2016 on February 28, 2017:

“Within the individuation of determining a criminal sanction, it is necessary to take into account the sanction imposed in a tax proceeding and its height. It is therefore necessary courts take into accounting the decision of the respective tax administrator when determining the form and assessment of punishment (that is also to the adjustment notice), regarding the duty to pay penalty from the additionally assessed tax, and that they explain in the reasoning to the decision,  how this circumstance has been reflected.”

To conclude, it is possible to note that in the course of less than a year, the attitude of judicial practice has turned completely, which now approves and applies punishment of a taxpayer for one and the same act both according to tax laws and according to criminal law. It may seem that this double punishment will be rare, because several conditions have been set, which must be fulfilled simultaneously for it to be applied. Upon re-reading these conditions and reflecting their interpretation practices by judicial practice, the idea of rarity disappears, though. These specified conditions correspond to most tax and criminal procedures that currently occur. Moreover, fulfilment of some conditions follows from compliance with the laws itself, for example the condition of factual connection from article 53 paragraph 3 of the code of tax procedure, or from article 8 of the code of criminal procedure, when the tax administrator has a reporting duty in case he finds during his activity that circumstances suggest that a criminal act has been committed.

The way to double punishment has thus commenced. How long will it take judicial practice to take another step along this way and where else will it lead then? We will continue to monitor the situation and will keep you informed.

[1] Source: https://hudoc.echr.coe.int/eng#{"display":["0"],"languageisocode":["CZE"],"appno":["24130/11","29758/11"],"documentcollectionid2":["GRANDCHAMBER"],"itemid":["001-175380"]}