by Daniela Guimarães, Collaborating Member of CEDU

 ▪

On 8th, September 2015, the Court of Justice of the European Union reached a decision that draws consequences from the case law Åkerberg Fransson, C-617/10, considering the standpoint of the protection of the financial interests of the European Union.

Mr. Ivo Taricco and other defendants, Italian citizens, were charged before the Tribunale di Cuneo (Italy), for having formed and organised during the fiscal years 2005 to 2009 a conspiracy to commit various offenses in relation to VAT. During their legal prosecution, several matters have arisen in the case causing delays in the process. Such delays can have serious consequences once the limitation period for each of the accused goes from six to seven years and even though that limitation period can be interrupted, it cannot be extended beyond a quarter of its initial duration (Articles 160 and 161, Italian Penal Code). According to the referring court, it is certain that all the offences will be time-barred before a final judgement can be delivered regarding the accused. The referring judge says that situations of “de facto impunity” in cases related to tax evasion are rather normal due to the mentioned Italian norms as they do not allow an extension of the limitation period in crimes such as the ones at stake. Being the criminal investigations, in most cases, of great complexity, often, the time-limit compromises an effective criminal prosecution. In practical terms, the statute of limitations regime in Italy can, actually, function as a “way out” for white collar crime offenders.

Considering all the facts presented, the referring court wondered whether Italian law, by effectively granting impunity to persons and undertakings which commit criminal offences, has created a new VAT exemption which is not provided for by EU law. In that regard, the Tribunale di Cuneo decided to suspend the proceedings and to refer the CJEU four questions about the compatibility of the Italian norms and the EU Law, considering, the commitments of the Member States relating the protection of competition, the prohibition against State Aid, the nature of the VAT exemptions and the protection of the EU financial interests.

In response, the CJEU started by pointing out that, according to Article 4(3) of the Treaty of the European Union (TEU), Member States are obliged to take all legislative and administrative measures appropriate to ensure an effective collection of all the VAT due on their territory as well as to fight tax evasion. In this context, article 325 of the Treaty on the Functioning of the European Union (TFEU), establishes that Member States must fight illegal activities affecting the financial interests of the European Union through effective deterrent measures. In particular, they are obligated to take the same measures to counter fraud affecting the financial interests of the European Union as they take to counter fraud affecting their own financial interests.

Being the European Union’s budget financed, inter alia, by revenue from the application of a uniform rate to the harmonised VAT assessment bases, there is a direct link between the collection of that revenue and the financial interests of the European Union. In this sense, although the Member States have freedom to choose the applicable penalties to ensure that all VAT revenue is collected and that the financial interests of the EU are protected, criminal penalties may be essential to combat certain serious cases of VAT evasion in an effective and dissuasive manner as already developed on the judgement in Åkerberg Fransson. That is the reason why Article 2(1) of PFI Convention imposes that Member States take all measures to ensure that fraud affecting the European Union’s financial interests is punishable by effective, proportionate and dissuasive criminal penalties, including, at least in cases of serious fraud, penalties involving deprivation of liberty.

Given this, the Italian court must determine whether the Italian law at issue allows the effective and dissuasive penalisation of cases of serious fraud affecting the financial interests of the European Union since VAT evasion – caused by actions such as the ones taken by the accused – is considered “fraud” on the terms of the PIF Convention. The Italian law would be contrary to Article 325 TFEU if the Italian court were to conclude that, in a considerable number of cases, the commitment of serious fraud would escape criminal punishment because the rules on limitation periods generally prevent the imposition of final judicial decisions. Likewise, the Italian law would be contrary to Article 325 TFEU if it provided for longer limitation periods in respect of cases of fraud affecting Italy’s financial interests than in respect of those affecting the financial interests of the European Union.

That seems to be the case, since Italian law does not lay down any absolute limitation period in respect of the offence of conspiracy to commit crimes in relation to import duties on tobacco products.

The CJEU noted that, if the national court concludes that Article 325 is infringed, it must then ensure that EU law is given full effect, if necessary by displaying the rules on limitation periods in question. Such conclusion gives full implementation to the principle of the precedence of EU law. However, that doesn’t free the national judge of finding the right balance between the effectiveness of EU law and the individual’s fundamental rights as the national courts must always observe the principles of legality and proportionality of criminal offences and penalties (Article 49 of the Charter of Fundamental Rights of the European Union). The CJEU considers that the disapplication of the Italian rules relating to the statute of limitations period does not infringe the suspect’s fundamental rights as the disapplication of the national law would not modify the substance of tax offences at stake leading to a conviction for an act or omission that did not constitute an offence at the when it was committed.

The reasoning of the CJEU comes in a time of negotiations for the future PIF Directive that will replace the convention. Even thought the Parliament and the Council are very close to an agreement on almost all questions of the Directive, they do disagree on a key issue – the inclusion of VAT fraud in the scope of the PIF Directive. The CJEU clearly took the stand and clearly expressed that VAT fraud should be included on the Directive by including it on the broad concept of fraud against the financial interests of the EU.

On the other hand, the Court asserts that Italian law should be disapplied “without having to request or await the prior repeal of those articles by way of legislation or any other constitutional procedure”. Well, this raises important questions given the fact that such disapplication is contrary to the suspect’s fundamental rights as they are recognized by their Constitution. The CJEU has already addressed a situation where national law provided more safeguards than European Law in the Melloni Judgement. At the time, the EU Law prevailed given the need to assure its effectiveness. With Taricco, such reasoning is clearly taken to a whole new level since the CJEU is now talking about substantive national criminal law.

In my view, the Taricco Judgement puts in display two important questions for the development of the future of the EU. First, it brings the notion that VAT fraud constitutes a crime susceptible of affecting the EU’s financial interest. As a result, it needs to be effectively fought by the Member States. Second, in spite of the principle of the highest level of protection of fundamental rights contained in the Charter of Fundamental Rights of the EU, in order to protect the EU’s financial interests, Member States can lower the level of protection of fundamental rights.