“The fee as according to § 37b Act Nr. 337/1992 Coll, on the Administration of Taxes and Fees, version in force from 1st January 2007 to 31st December 2010, and to § 251 Act Nr. 280/2009 Coll, Tax Code, is in nature a sentence; further, Article 40 (6) of Charter of Fundamental Rights and Freedoms and Articles 6 and 7 of Convention for the Protection of Human Rights and Fundamental Freedoms shall be applied.”

The quoted sentence comes from a decision issued by the Supreme Administrative Court (SAC) and in the case of Odeř Agrag LP it meant, that the company does not have to pay a fee of 5% but a fee of 1% only (4 Afs 210/2014-57).

However, the impact of this sentence is much more extensive and caused a discussion among experts including judges and financial authorities.

Question arises whether the fee being assessed during a tax proceeding means that no criminal proceeding can be commenced? As according the SAC this is not the case. We shall hear a final answer to this question from the Court of Justice of the European Union who has on 1st September 2015 been asked by the Tribunale di Bergamo this preliminary question: “Does the provision of Article 50  [Charter of Fundamental Rights of the EU] interpreted in the light of Article 4 of Protocol 7 [Convention for the Protection of Human Rights and Fundamental Freedoms] and the relevant judicature of the European Court of Human Rights allow for the commencement of a criminal proceeding for an act (non-payment of VAT) for which a final administrative sanction had already been imposed on the defendant?” (Case C-524/15).

Till now (3rd October 2016) no decision has been made and the Opinion of Advocate General is not available yet either.

A similar problem is to be discussed in the case of UBS (Luxembourg) SA, Alain Hondequin, Holzem and Others (Case C-358/16) and Stefan Burzio (Case C-497/14).

The mentioned judgement brings more questions such as the possibility of moderation of tax penalties in cases where GFD Guideline D-21 does not allow for such modification for example because the tax has not been payed before request submission or because the tax authority assesses that the degree of coaction of the taxpayer is insufficient. The elimination of possibility of moderation is undeniably in disagreement with the rule that double sentence is unlawful and further even with the principle that the court decides the sentence. In its cases the Constitutional Court (CC) has several times decided that a sanction must not be strangling and have a liquidation effect, and if it does it can be modified even in cases in which the law does not explicitly allow for it (Pl. ÚS 37/11, Pl. ÚS 24/14, Art. IV./d).

Another question concerns the use of the above mentioned rule to double sentence for the same offense committed by a statutory body of a company, to which a tax penalty has been assessed additionally. In a case like this the use of “no double sentence” rule (ne bis in idem) isn’t that straightforward, however, it cannot be ruled out a priori.

Next question this ruling brings is whether, according to the Tax Code, some other sanctions are in nature a sentence and if, then which ones. Whether interest on account of late payment at the amount determined by law (currently 14,05%) isn’t also a sentence? The CC judgement confirmed that a penalty for late tax submission is a sentence. Even proceedings leading to sentencing must be as according to Art. 38 of Charter of Fundamental Rights and Freedoms carried out without unnecessary delays. That applies for example to the procedure of removing of doubts or for tax inspection.

In any case the SAC was very clear in its decision on the nature of penalties and other courts will now have to react to this judgement. A reaction will be required from tax authorities also. For the taxpayer this brings only good news. We will keep you informed about any further development concerning this topic in our newsletter.