In three unpublished judgments of 7 September 2022, the Criminal Chamber clearly restated the rules governing the cumulative imposition of criminal and tax proceedings and sanctions, the non-punitive nature of joint and several tax liability under Article 1745 of the General Tax Code, and the criteria for a fixed establishment for VAT purposes.
On 7 September 2022, the Criminal Chamber of the Court of Cassation delivered three judgments, not published in the Bulletin, which in our view deserve attention at least for the clarity of their explanations.
All three cases concerned prosecutions for, in particular, tax fraud, resulting in convictions and the granting of the claims made by the tax administration as a civil party.
The Court took advantage of these straightforward cases to restate fundamental principles concerning the cumulative imposition of criminal and tax proceedings and sanctions, the nature of joint and several tax liability under Article 1745 of the General Tax Code, and the concept of a fixed establishment for value added tax purposes.
Reaffirmation of the principles governing the cumulative imposition of criminal and tax proceedings and sanctions
In the first case (appeal No. 21-84.325), the judgment was quashed without remittal for the retroactive application of a harsher criminal law: the fine imposed, 50 000 €, exceeded the maximum amount of 37 500 € applicable at the time of the offences.
The second, more interesting ground of appeal concerned the cumulative imposition of criminal and tax proceedings and sanctions.
The appellant alleged a failure to comply with the scope of the Constitutional Council’s interpretative reservation in its decision of 23 November 2018 (Constitutional Council, 23 November 2018, No. 2018-745 QPC, in particular §§ 11, 19 and 22, Dalloz actualité, 4 December 2018, commentary by P. Dufourq; ibid., 7 December 2018, commentary by J. Gallois; AJDA 2019. 1803, article by L. Burgorgue-Larsen; D. 2018. 2237, and accompanying commentary; ibid. 2019. 439, opinion by J. Roux; ibid. 2320, commentary by G. Roujou de Boubée, T. Garé, C. Ginestet, M.-H. Gozzi, S. Mirabail and E. Tricoire; Constitutions 2018. 465, Decision ). That reservation may be recalled as follows:
- the principle of necessity of offences and penalties requires Article 1741 of the General Tax Code (CGI) to apply only to « the most serious cases of fraudulent failure to file a return », seriousness being assessed by reference to the amount of tax evaded, the nature of the conduct of the person prosecuted or the circumstances in which it occurred;
- and, in any event, the principle of proportionality requires the total amount of any sanctions imposed not to exceed the highest amount of any one of the sanctions that may be incurred.
The Court of Cassation, referring both to « fraudulent concealment of taxable sums » (discussed by the Constitutional Council in 2016; see Constitutional Council, 24 June 2016, No. 2016-545 QPC, § 21, Dalloz actualité, 27 June 2016, commentary by J. Gallois; D. 2016. 2442 , case note by O. Décima; ibid. 1836, commentary by C. Mascala; ibid. 2017. 1328, commentary by N. Jacquinot and R. Vaillant; AJ pénal 2016. 430, commentary by J. Lasserre Capdeville; Constitutions 2016. 361, Decision; ibid. 436, article by C. Mandon; RSC 2016. 524, commentary by S. Detraz ) and to « fraudulent failure to file a return » (Constitutional Council, 23 November 2018, No. 2018-745 QPC, cited above, § 19), answered directly that the courts ruling on the merits should have « examined, before imposing any penalty for the conduct committed, whether criminal punishment was justified in view of the seriousness of the established facts, where it had been demonstrated that the defendant had incurred a tax penalty under Article 1729 of the General Tax Code » (§ 13). By failing to conduct that analysis, they had disregarded the scope of the Constitutional Council’s interpretative reservation.
The Court of Cassation had already stated these principles clearly (Criminal Chamber, 11 September 2019, No. 18-84.144, § 26, Dalloz actualité, 20 September 2019, commentary by S. Fucini; D. 2019. 2320, commentary by G. Roujou de Boubée, T. Garé, C. Ginestet, M.-H. Gozzi, S. Mirabail and E. Tricoire; AJ pénal 2019. 564 ), and they had been reiterated recently (Criminal Chamber, 23 February 2022, No. 21-81.366, §§ 8 to 10, Dalloz actualité, 11 March 2022, commentary by J. Gallois).
Although the judgment of February 2022 was quashed because the courts ruling on the merits had not « examined, before imposing any penalty for the conduct committed, whether criminal punishment was justified in view of the seriousness of the established facts, where the defendant maintained that he had incurred a tax penalty under Article 1729 of the General Tax Code » (§ 12), the present case did not warrant quashing on that ground. Unlike in the earlier case, the Court of Cassation could itself conduct that analysis, since the facts conclusively established by the Court of Appeal enabled it « to satisfy itself of the seriousness of the facts established against the defendant, by reference to the amount of tax evaded, namely 2 499 937 € » (§ 15).
The implications of these judgments should no longer be surprising. Since 2016, the Constitutional Council has repeatedly held that criminal and tax penalties may be imposed cumulatively only in the most serious cases, that seriousness potentially arising from the amount of tax evaded, the nature of the conduct of the person prosecuted or the circumstances in which it occurred (see, in particular, Constitutional Council, 24 June 2016, Nos. 2016-545 and 2016-546 QPC, § 21, cited above; see also Constitutional Council, 22 July 2016, No. 2016-556 QPC, D. 2016. 1569; 23 November 2018, No. 2018-745 QPC, cited above).
The Court of Cassation has repeatedly drawn on this constitutional case law to hold that « only conduct of a certain seriousness under the general criteria laid down in the reservation may attract criminal sanctions in addition to tax sanctions » (Criminal Chamber, 11 September 2019, No. 18-81.040, § 13, 18-81.067, § 32, and 18-84.144, § 20, Dalloz actualité, 7 October 2019, commentary by J. Gallois; AJ pénal 2019. 564; Rev. sociétés 2020. 251, case note by J.-H. Robert ). It follows that, where the defendant, who bears the burden of proof, « establishes that a tax sanction has been imposed on him personally for the same conduct, the criminal court must […] verify that the established facts display the degree of seriousness required to justify additional criminal punishment » (Criminal Chamber, 21 October 2020, No. 19-81.929, Dalloz actualité, 4 November 2020, commentary by H. Diaz; D. 2020. 2068; RTD com. 2021. 217, commentary by B. Bouloc ).
In this respect, it should be recalled that the Court of Justice of the European Union recently confirmed that the principle of proportionality « applies, without exception, to all sanctions imposed cumulatively and, therefore, both to the accumulation of sanctions of the same nature and to the accumulation of sanctions of different natures, such as financial penalties and custodial sentences. The mere fact that the competent authorities intend to impose sanctions of different natures cannot exempt them from the obligation to ensure that the severity of all the sanctions imposed does not exceed the seriousness of the offence established, failing which the principle of proportionality would be infringed » (CJEU, 5 May 2022, Case C-570/20, § 50, Dalloz actualité, 18 May 2022, commentary by J. Gallois).
The Criminal Chamber had no opportunity in this case to apply that recent interpretation. Future decisions in this area are likely to be followed closely.
Restatement of the nature of joint and several tax liability under Article 1745 of the General Tax Code
The second case (appeal No. 21-86.515) concerned the nature of joint and several tax liability under Article 1745 of the General Tax Code.
The appellate judgment had ordered the executives jointly and severally to pay the public finance administration an amount corresponding to the tax evaded and the related penalties. The sole ground of appeal challenged that decision on the basis that joint and several tax liability imposed on an executive of a company convicted of tax fraud amounts to punishment for that executive where no effective right of recourse exists against the company liable for the evaded taxes which the executive must pay in its place. Such a penalty would then require reasons to be given, in accordance with the principle that penalties are personal, by reference to the seriousness of the facts, the offender’s character and personal circumstances.
The Court of Cassation firmly answered that an order by a criminal court imposing joint and several tax liability under Article 1745 of the General Tax Code, which constitutes security for recovery of the Public Treasury’s claim rather than a penalty within the meaning of Article 132-1 of the Criminal Code, is not subject to the requirements of Article 485-1 of the Code of Criminal Procedure or, where applicable, to review of the proportionality of the interference with the person’s property rights.
This ruling may seem surprising, since the Criminal Chamber had repeatedly described joint and several liability under Article 1745 of the CGI as a « measure of a criminal nature » or a « criminal measure » (see, in particular, Criminal Chamber, 3 June 2004, No. 04-82.036, D. 2004. 2154; 4 November 2004, No. 03-87.503; 19 May 2010, No. 09-83.970, AJ pénal 2010. 445, commentary by J. Lasserre Capdeville; or 4 November 2010, No. 10-81.825, Dalloz actualité, 10 December 2010, commentary by S. Lavric; D. 2010. 2913; RSC 2011. 628, commentary by S. Detraz ).
It is nevertheless not new: the Court had already adopted it, in particular, to exclude application of:
- the principle of proportionality governing the cumulative imposition of tax and criminal sanctions, as in this case (Criminal Chamber, 23 October 2019, No. 18-85.088, Dalloz actualité, 12 November 2019, commentary by D. Goetz; D. 2019. 2097; AJ pénal 2020. 25, study by C. Litaudon; Rev. sociétés 2020. 308, case note by B. Bouloc; RTD com. 2019. 1022, commentary by B. Bouloc );
- the principle of necessity of offences and penalties (Criminal Chamber, 24 June 2020, No. 19-81.134, Dalloz actualité, 23 July 2020, commentary by R. Rue; D. 2020. 1359; RSC 2020. 663, commentary by S. Detraz );
- or certain defence rights, such as the defendant’s right to speak last (Criminal Chamber, 23 February 2022, No. 21-81.161, Dalloz actualité, 25 March 2022, commentary by C. Fonteix; AJ pénal 2022. 162 and accompanying commentary; RSC 2022. 615, commentary by S. Detraz; RTD com. 2022. 398, commentary by B. Bouloc ).
The Conseil d’État had likewise held that « joint and several liability under Article 1745 of the General Tax Code, which constitutes solely security for recovery of the Public Treasury’s claim, does not amount to punishment falling within the scope of Article 8 of the Declaration of 1789 » (Conseil d’État, 8 December 2017, No. 414303, § 5, Lebon ).
The Criminal Chamber did not take this further opportunity to clarify the nature, and consequently the legal regime, of the mechanism under Article 1745 of the CGI, the only certainty remaining that its purpose is to establish « security for recovery of the Public Treasury’s claim » (see G. Pellegrin and G. de Foucher, Tax Fraud and Money Laundering: Some Reflections on a Hesitant Approach, Dr. fisc. 2020, No. 28, study, p. 305).
The continuing ambiguity surrounding this mechanism can only be regretted and, in our view, creates legal uncertainty.
Restatement of the concept of a fixed establishment for value added tax purposes?
In the third case (appeal No. 21-85.056), the judgment was quashed with remittal under Article 485-1 of the Code of Criminal Procedure, since the courts ruling on the merits had determined the nature and amount of the penalty without addressing the defendant’s personal circumstances.
The first ground of appeal, of greater interest in criminal tax law, challenged, in particular, the lower courts’ finding of an establishment in France liable to value added tax (VAT) under the France–Luxembourg tax convention of 1 April 1958, on the basis that the concept of a fixed establishment for VAT purposes differs from the concept of a permanent establishment recognised in tax conventions concerning income and wealth taxes.
The Court of Cassation first recalled all the factual matters that had enabled the courts ruling on the merits to find the defendant guilty of evading the assessment and payment of VAT in respect of a fixed establishment he maintained in France.
It then merely substituted for the source of law applied by the lower courts, namely the France–Luxembourg convention of 1 April 1958, the provision that should have been applied for VAT purposes: Article 11 of Council Implementing Regulation (EU) No. 282/2011 of 15 March 2011 laying down implementing measures for Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.
It should be recalled that Article 11 defines a fixed establishment for these purposes as any establishment, other than the place of establishment of the business, characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it, in particular, to provide the services it supplies.
The Criminal Chamber then emphasised that the lower courts’ findings had indeed established a fixed establishment under the applicable legislation, so the judgment did not warrant quashing on that ground.
More specifically, it noted that the company had conducted the main part of its business in France through a fixed establishment characterised as:
- an autonomous and permanent entity engaged, in this case, in acting as a commercial intermediary for the purchase and sale of medical equipment;
- and possessing a suitable structure in terms of human and technical resources to enable it to provide the services it supplied.
This definition of a fixed establishment appears to correspond to that in Article 11 of Regulation No. 282/2011, cited above.
It nevertheless raises a question. No criterion of autonomy of the fixed establishment appears in that Article or is expressly required by case law (see, in particular, CJEU, 16 October 2014, Case C-605/12, RTD eur. 2015. 187, article by D. Berlin; 7 May 2020, Case C-547/18, RTD eur. 2021. 404, commentary by A. Maitrot de la Motte; or 7 April 2022, Case C-333/20), although it has previously appeared implicitly (see, for example, CJEU, 3 June 2021, Case C-931/19, § 45).
This concept is taken up in the judgment under review, although it is not yet possible to determine whether this potential criterion of autonomy is itself independent or necessarily and implicitly follows from the permanence of a suitable structure in terms of human and technical resources. The practical implications of such an express requirement of autonomy remain to be established.
By Ghislain de Fouchet and Chloé Méléard, Members of the Paris Bar