Determining the most appropriate sanction can still be tricky to do. Although there are maximum penalties and a few policy rules or national agreements, they are not always consistent. To a large degree, the court is free to establish the sentence and its severity. Therefore, it is rather uncommon for the Dutch Supreme Court to intervene on such matters in appeals. The first option to intervene arises when the sentencing is contrary to legislation or policy. A second reason for the Supreme Court not to maintain the court’s sentencing lies in the grounds given for the punishment. The Supreme Court is very reluctant to intervene as far as this last point is concerned, because lower courts are pre-eminently equipped to give a balanced opinion on the factors that may be important to the sentencing. The Supreme Court will only verify whether the grounds given are understandable against the background of all that which has been established and argued in the fact-finding instance. The fact that the Criminal Division of the Supreme Court recently gave a judgment on the punishment in a criminal tax case is therefore quite exceptional. Interestingly, the fact-finding court sought a link with the AFTCAD, Administrative Fines (Tax and Customs Administration) Decree (in Dutch: Besluit Bestuurlijke Boetes Belastingdienst) and thus gave this matter a courageous try.
The court of appeal’s judgment
In this case, the court of appeal had sentenced the accused to a fine for intentionally declaring a taxable amount in his income tax return that was too small. When determining the size of that fine, the court sought a link with the size of the negligence penalty that the tax authority would have imposed if the matter had been settled by the tax inspector. In this context, the court considered that income tax had incorrectly not been paid on taxable income from a substantial shareholding amounting to €400,000. From the premise that this was the amount in question, the court established that the accused would therefore have to pay a fine of 25 per cent of the evaded amount. Consequently, the court considered that a fine of €100,000 was appropriate and necessary.
The Supreme Court’s judgment
Firstly, the Supreme Court analysed tax legislation and regulations and noted that tax negligence penalties are calculated as a percentage of the tax that was not levied in full (Article 67d AWR, Algemene wet inzake rijksbelastingen (State Taxes Act)), that the tax rate for tax on taxable income from substantial shareholdings is 25 per cent (Article 2.12 Wet inkomstenbelasting 2001, Income Tax Act 2001), that in cases of intent the inspector imposes a negligence penalty of 50 per cent and that in cases of aggravating circumstances the negligence penalty can be increased up to a maximum of 100 per cent (Sections 8 and 25 of the Administrative Fines (Tax and Customs Administration) Decree (AFTCAD). Secondly, the Court considered that the judgment of the court of appeal that:
‘the accused [would] have had to pay 25 per cent of the evaded amount as a fine if the case had been settled by the tax authority’ and ‘that the fact that a fine of €100,000 is therefore appropriate’ is not understandable without further substantiation. If the Court used 25 per cent of the concealed income as a basis, it failed to recognise that the determination of a tax negligence penalty is calculated as a percentage of the amount of the assessment based on the concealed income. If the Court did not fail to recognise the foregoing and did take a percentage of the amount of the assessment as a basis, it failed to explain on what grounds it assumed a negligence penalty of 100 per cent.’
Therefore, the Supreme Court referred the matter back to the court of appeal to reconsider the determination of the punishment. Although tax penalties were first designated as a ‘criminal charge’ within the meaning of Article 6 of the ECHR a long time ago and a tailored approach is necessary, deviations from the policy-determined fixed percentages in tax matters are rare. It is striking that in this case exactly the opposite was at issue: the criminal court specifically used the fiscal framework to establish the size of the penalty as a starting point. In that sense, the tax rules are complementary to the ‘national reference points’ to determine the appropriate punishment as far as the imposed financial penalty is concerned.
Green light for the AFTCAD in criminal tax cases
The court of appeal’s attempt to extensively explain its decision when determining the punishment by using the starting points for a tax fine is to be lauded. In criminal tax cases, the Public Prosecution Service always seems to be able to demand a higher percentage for more or less the same offence for which the tax authority imposed a fine. However, it has become clear that the criminal court’s decision on determination of the punishment can be vulnerable in cassation, especially if the court was exploring the boundaries of tax penalty law. But now that the Supreme Court is providing a point of reference to further explain the grounds of the decision, the fact-finding court should be able to handle these types of cases; it has now got the green light to let the guiding principles of the AFTCAD the underlying basis.