Tax Evasion, Damages and New Challenges

A Short History

In Romania, the act that includes measures in preventing and combatting tax evasion offenses and related criminal acts is Law no. 241 of July 15, 2005, published in the Official Gazette no. 672 of July 27, 2005. It underwent a series of changes during the period 2010 – 2015, including  an exception of unconstitutionality that was admitted by the Romanian Constitutional Court regarding the provisions of art. 6 of this law. Thus, the Constitutional Court of Romania established that the legislator respected only from a formal point of view the constitutional competence to legislate, without establishing clearly and precisely through the normative content of the incriminating text the material object of the crime, which determines a lack of predictability for the legal norm.

In a nutshell, one might say that at the time being Law no. 241/2005 on the whole does not meet the modern standards of a law aimed at preventing and sanctioning tax evasion. As mentioned by the relevant doctrine [D. Nițu, C.F. Costaș, Timpul care nu mai are infinită răbdare sau vremea reformei Legii evaziunii fiscale, Tax Magazine nr. 4/2017; C.F. Costaș, Drept financiar, ed. a II-a, Ed. Universul Juridic, București, 2019], national legislation concerning tax evasion should be reformed dramatically, in terms of concepts employed, sanctioning of certain behaviour that does not amount to criminal behaviour, payment of damages and general system of sanctions for both individuals and companies (e.g. a criminal sanction for a company shall not lead to the annulment of the VAT code).

New Rules. Law no. 55/2021

On 31 March 2021, a new amendment to this normative act was adopted. The amending approach began at the end of 2017 through the legislative initiative of a group of deputies who, in the Explanatory Memorandum, starts from the premise of the preventive purpose of criminal punishments and recovery of damages, proposing the release of persons who committed acts provided by the Law for preventing and combating tax evasion, provided that the full coverage of the damage created, thus modifying the content of art. 10 of the normative text mentioned above. The initiators consider that if the defendant fully covers the damage and no longer executes the effective prison sentence, the state will have to win twice: it will recover the damage created in full, in a relatively short time and will not incur expenses with the convict’s detention. On 17 January 2018, the Legislative Council approves favorably the proposal to amend and supplement Law no. 241/2005, with a series of observations and proposals, by reporting on aspects of predictability, clarity and normative rigor.

In the period of 2018-2019, the legislative initiative followed the path of adoption by the Senate on May 29, 2018, being then presented in the Permanent Bureau of the Chamber of Deputies, debated and adopted by a majority in the plenary meeting of the Chamber of Deputies on December 19, 2018. The Constitutional Court of Romania, by Decision no. 147/2019, ordered a re-examination of the amending text, with the consequence of adopting the updated form by both Chambers of the Romanian Parliament.

Compared to the initial form of the Law for preventing and combating tax evasion, art. 8 paragraphs (1) and (2) and art. 9 paragraph (1) are amended to add the phrase „or by a fine” in respect of the penalty for which the acts provided for in this act are punishable:
art. 8 para. (1): It constitutes a crime and is punishable by imprisonment from 3 to 10 years and the prohibition of certain rights, or by fine, the establishment in bad faith by the taxpayer of taxes, fees or contributions, resulting in obtaining, without right, sums of money as reimbursements or refunds from the general consolidated budget, or compensations due to the general consolidated budget.

art. 8 para. (2): It constitutes an offense and is punished with imprisonment from 5 to 15 years and the prohibition of certain rights, or by fine, the association in order to commit the deed provided in par. (1).

art. 9 para. (1): It constitute crimes of tax evasion and are punished with imprisonment from 2 to 8 years and the prohibition of certain rights, or by fine, the following deeds committed for the purpose of evading the fulfillment of fiscal obligations.

Also, within Chapter III – Causes of reduction of punishments, interdictions and revocations, art. 10 paragraph (1) undergoes substantial modifications, becoming: In the case of committing an offense of tax evasion provided in art. 8 and 9, if during the criminal investigation or trial, the damage caused is fully covered, and its value does not exceed 100,000 euros, in the equivalent of the national currency, the penalty with a fine may be applied. If the damage caused and recovered under the same conditions is up to 50,000 euros, in the equivalent of the national currency, the penalty with a fine shall apply. In comparison to the initial form, which provided exclusively the reduction of the punishment limits by half in the situation of full coverage of the damage, regardless of its value, at the latest until the first term, the current amendment includes the possibility of applying the penalty of a criminal fine if the damage does not exceed 100,000 euros, in the equivalent of the national currency. This approach does not exist in any of the previous variants of Law no. 241/2005. Also, an important novelty is the imperative of applying the penalty of a criminal fine, in the situation where the value of the damage does not exceed 50,000 euros, equivalent in lei, compared to the previous normative act.

Within the same article 10, two new paragraphs are introduced, representing new causes of impunity, as follows:

para. (11): In case of committing one of the offenses provided in art. 8 and 9, if during the criminal investigation or during the trial until the pronouncement of a final court decision, the damage caused by committing the deed, increased by 20% of the calculation base, plus interest and penalties is fully covered, the deed will not be punished, applying the provisions of art. 16 para. (1) lit. h) of Law no. 135/2010 on the Criminal Procedure Code, as subsequently amended and supplemented.

para. (12): The provisions of this article apply to all defendants even if they did not contribute to the damage provided in para. (1) and (11).

The objections of unconstitutionality raised by the United Sections of the High Court of Cassation and Justice, the Government of Romania and the Ombudsman were rejected by the Constitutional Court of Romania by Decision no. 101 of February 17, 2021, being thus promulgated by Decree no. 255/2021, becoming Law no. 55/2021.

New Challenges

Although media focused on the relatively small problem of damages that have to be paid, we do believe there are a number of issues to be further discussed in ongoing and upcoming cases. Such problems refer at least to the following issues:

– Proper determination of damage under art. 10 of Law no. 241/2005, solely by the competent tax authorities. It is our view that prosecutors cannot determine such damage on their own and courts would have to check upon any claims made by the tax authorities.

– Based on the new architecture of art. 52 par. (3) of the Criminal Procedure Code, criminal courts will have to look into decisions taken by other courts involved in parallel procedures regarding the same damage, as such damage is unique [C.F. Costaș, Prejudiciul sau eterna necunoscută a galaxiilor fiscale, penale și de insolvență, Cluj Tax Forum Journal nr. 2/2019]. The interpretation of the Constitutional Court, made by Decision no. 102 of 17 February 2021 is expected to have a significant impact in the field.

– For any damage claimed, one must bear in mind that payment does not necessarily mean cash payment. According to the rules of Government Ordinance no. 6/2019, as recently amended and extended by Government Emergency Ordinance no. 19/2021, the accused persons can also conclude an agreement with tax authorities for the deferred payment of their tax debt. It is our view that such an agreement would mean damage has been paid or has been agreed to be paid and there will be no criminal responsability whatsoever.

This article has been prepared or the website of Costaș, Negru & Asociații by our Senior Associate, Mr. Paul Sorinca.

Costaș, Negru & Asociații is providing legal assistance and representation in criminal cases concerning charges of tax evasion under Law no. 241/2005, based on a dual experience as both tax and criminal lawyers. The legal practice in this field is coordinated by Dr. Cosmin Flavius Costaș (Managing Partner and Head of Tax Law Practice) and Lia Pricope (Partner Head of Criminal Law Practice)

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