On December 29 2014 the Constitutional Council issued a decision relating to several provisions of the Finance Bill 2015 which a group of members of the Senate and the National Assembly had argued did not comply with the Constitution (October 4 1958). The Constitutional Council found all provisions submitted to its review to be constitutional, except for Article 79, which created a new offence of facilitating tax evasion and fraud.
Article 1729(b) of the General Tax Code provides that a taxpayer is liable for inaccuracies or omissions in a tax return or other document that contains information used to determine taxable amounts or tax payments. In such cases the taxpayer is subject to an additional tax at a rate of 80% if there is an abuse of right, or a rate of 40% if the taxpayer did not initiate the abuse of right or was not its principal beneficiary.
Article 79 of the Finance Bill sought to insert a new provision into the General Tax Code in relation to Article 1729(b). The proposed new Article 1740C read as follows:
"Any person who, with the intention of having someone evade taxes, intervened, helped or assisted or knowingly engaged in conduct, tactics or concealment leading directly to insufficiencies, inaccuracies, omissions or concealments which have led to reminder notices or tax increases with the tax surcharge set out in Article 1729 b), are liable to pay a fine amounting to 5% of turnover or of gross revenue achieved as a result of the facts punished in this article. The fine may not be lower than €10,000."
The senators who petitioned the Constitutional Council regarding Article 79 of the Finance Bill did not challenge the underlying goal to penalise and potentially deter third parties that assist with tax evasion and tax fraud practices. Rather, they argued that Article 79 violated the constitutional right to an effective judicial remedy because:
- the offence related to facts involving an abuse of right, yet Article 79 did not allow the person concerned to challenge the existence of an abuse of right; and
- a third party could be punished pursuant to the new provision without any penalties having been imposed on the principal taxpayer for abuse of right.
The Constitutional Council agreed that Article 79 did not comply with the Constitution, but did not base its decision on the same rationale. It held that Article 79 did not comply with the constitutional principle that criminal offences and penalties must be defined by law and must be defined sufficiently clearly and precisely.
The Constitutional Council established two violations:
- The new provision did not clearly identify what constituted in rem the de facto punishable conduct. Assuming that assistance was established, it remained difficult to determine whether:
- a third party commited the offence simply because a tax surcharge was applied against the taxpayer for abuse of right pursuant to Article 1729(b); or
- commission of the offence implied the burden of proving an abuse of right which the third party could challenge.
- Further ambiguity was found in the definition of the penalty. The phrasing "a fine amounting to 5% of turnover or of gross revenue achieved as a result of the facts punished in" Article 1729(b) did not indicate clearly whether the relevant turnover or gross revenue was that achieved by the third party or that achieved by the principal taxpayer with the assistance of the third party.
According to the Constitutional Council, such vague wording created uncertainty in terms of interpretation as to the actual offence and the related penalties. As such, Article 79 violated a fundamental constitutional principle. Consequently, the government removed the invalidated provision from the Finance Bill, which was signed into law on December 29 2014 and came into force on January 1 2015.
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