Criminal judgment as evidence in tax proceedings

In a recent judgment in Case No. 6 Afs 125/2021, the Supreme Administrative Court (“SAC”) dealt with the question of when the tax administrator is bound by a criminal court judgment and when it is not bound by it but is obliged to take the criminal judgment into account when assessing the facts in tax proceedings.

Subject of the dispute

The plaintiff was additionally assessed for a corporate income tax because the tax authority disallowed tax-deductible expenses related to seven invoices for silver supplies from the plaintiff’s supplier and concluded that the plaintiff had failed to prove that the supply occurred. On appeal, the plaintiff offered as evidence a criminal court judgment finding the supplier’s statutory executive guilty of tax evasion. He was alleged to have committed that offence by failing to file VAT returns in respect of taxable supplies made to the plaintiff with the intention of evading VAT. In its judgment, the criminal court stated that the plaintiff’s supplier made taxable supplies of silver to the plaintiff as a customer during the relevant period and issued seven invoices in respect of those supplies. The Appellate Financial Directorate (the “AFD”) refused to deal with this criminal judgment on the ground that the criminal proceedings and the tax proceedings were separate and had different meanings and purposes.

Review by the Supreme Administrative Court

The SAC stated that the question of the actual performance of the taxable supply is the direct subject matter of the tax proceedings, which fall within the competence of the tax administrator. Thus, it is not a question which is for another public authority to decide, nor is it a question which could be the subject of separate proceedings. Therefore, the criminal court in the present case did not decide on a preliminary question and the tax administrator was not bound by the criminal judgment. It was, therefore, not an error for the AFD to consider that it was not bound by the judgment of the criminal court. However, the SAC found it to be a mistake that the AFD did not take the criminal judgment into account at all when assessing the facts of the case.

The criminal judgment dealt with an issue that is also relevant to the AFD’s decision. In view of the principle of legal certainty, according to the SAC, the procedure whereby the AFD, as a public authority, completely ignores the conclusions reached by another public authority on the same matter cannot be approved. On the contrary, it is its duty to deal with the existence of the earlier decision and to respond to its content and the conclusions drawn from it.

The SAC concluded that evidence from criminal proceedings is applicable in tax proceedings. A final decision of a criminal court can therefore constitute evidence in tax proceedings. In the present case, the criminal judgment confirmed the fact that the plaintiff had, in fact, received the supplies, a question which is essential for the decision on its tax liability. The AFD, therefore, erred in refusing to draw any conclusions from the criminal judgment on the ground that it was not binding on it.

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