The ruling of the Court of Justice of the European Union (CJEU) of 5 December 2017 on case C-42/17 "M.A.S. and M.B." is remarkable, as it went as far as placing the European Charter of Fundamental Rights and especially the European Convention on Human Rights as procedural guarantees in favour of VAT contributors.
This case originated from criminal proceedings in Italy concerning a form of VAT carousel fraud.
The outcome of these proceedings was uncertain, because although the Italian criminal proceedings were clear in declaring the legal action as time-barred, the strict enforcement of a previous CJEU ruling of 16 October 2015 (case C-105/14, "Tarrico") conversely resulted in the lapse being considered unenforceable in accordance with Article 325 of the Treaty on the Functioning of the European Union (TFEU), according to which:
"1. The Union and the Member States shall counter fraud and any other illegal activities affecting the financial interests of the Union through measures [...] which shall act as a deterrent and be such as to afford effective protection in the Member States, and in all the Union's institutions, bodies, offices and agencies.
2. Member States shall take the same measures to counter fraud affecting the financial interests of the Union as they take to counter fraud affecting their own financial interests."
In addition, the "Tarrico" precedent de facto ordered the criminal courts not to "take rules under domestic law into consideration which obstruct the imposition of effective deterrent sanctions in a considerable number of serious fraud cases that jeopardise the financial interests of the European Union or which stipulate shorter limitation periods for serious fraud cases that jeopardise the aforementioned interests solely for those that jeopardise the financial interests of the Member State involved."
Despite the clarity of this ruling, on 5 December 2017 the Court of Justice decided not to sacrifice the basic principle of legality of criminal offences and penalties for the sake of the financial interests of the European Union.
It has been decided that the requirements for predictability, precision and non-retroactivity of criminal law:
- ensue from the principle of legality of criminal offences and penalties established in the Charter of Fundamental Rights of the European Union and in the Convention for the Protection of Human Rights and Fundamental Freedoms and hence
oppose the indiscriminate enforcement of the tax effectiveness sought by TFEU Article 325.