Skattenytt nr 1–2 2000 s. 10
The ”criminalisation” of administrative tax penalties in French law
The question of the legal status of administrative tax penalties – i.e. those likely to be imposed by the tax authorities on taxpayers not having fulfilled their legal obligations – has become in the last few years one of the most controversial among tax specialists. And the protection of the taxpayer in this field has considerably increased. This evolution over a relatively short period of time is a good illustration of two major and combined moves in the French tax system, i.e. constitutionalisation and internationalisation.
1 General background
1.1 The constitutionalisation of the French tax system
Before the entry into force of the 1958 Constitution, there was no real control of the conformity of statutes adopted by Parliament to the Constitution.
And for many years, the control instituted in 1958 has remained very limited. For different reasons:
the control of constitutionality is preventive (in that it takes place after the vote but before the enactment of the statute) but it is not systematic: it does not occur if the matter has not beforehand been referred to the Conseil constitutionnel (Constitutional Council) who is in charge of the control;
initially a matter could only be referred to the Conseil constitutionnel by one of the following authorities: the President of the Republic, the Prime Minister, the President of the Senate and the President of the National Assembly;
initially the Conseil constitutionnel controlled the conformity of statutes solely to the text of the 1958 Constitution, and not to the two fundamental texts to which the preamble of the Constitution refers, i.e. the 1789 Declaration of the Rights of Man and the Citizen (which lays down the major political and civil rights) and the Preamble of the 1946 Constitution (which lays down social principles, and refers to the ”the Fundamental Principles acknowledged in the Laws of the Republic” without defining them).
Things began to move in the early seventies when:
the Conseil constitionnel decided (in 1971) that it would henceforth control the conformity of statutes with the fundamental principles of the 1789 Declaration of the Rights of Man and the Citizen and the principles in the Preamble of the 1946 Constitution;
the Constitution was modified in 1974 so that a group of 60 Deputies to the National Assembly or 60 Senators may also refer a statute to the Conseil constitutionnel.
As a result practically all Finance Acts and most of tax provisions in non-finance acts are nowadays submitted to the Council. And thus the room for manoeuvre of Parliament has been considerably narrowed.
But the system has still notable defects. Most importantly, since the seizure of the Council is optional and the development of constitutional case law is still recent, a certain number of statutes (old or even recent) do not necessarily conform to fundamental constitutional principles.
These defects are all the more serious in that ordinary courts do not consider themselves empowered to contest the constitutionality of statutes and so have to enforce statutory provisions even if the latter run clearly counter to constitutional principles.
Both court systems having jurisdiction in tax matters share this position; firstly administrative courts (Administrative Tribunals, Administrative Courts of Appeal, the Conseil d’État) as far as direct taxes (essentially individual and corporate income taxes and local direct taxes) and VAT are concerned; secondly civil courts (First instance Tribunals; Courts of Appeal, which have had jurisdiction in tax matters since March 1998; the Cour de cassation) for stamp, registration, gift and death duties and wealth tax. Though they are not specialized in tax matters, these courts will be for greater convenience hereafter called ”tax courts”.
To some extent the ever increasing internationalisation of the French tax system during the same period makes up for the defects of the System of constitutionality control.
1.2 The internationalisation of the French tax system
Today ordinary courts and particularly tax courts consider that they are entitled to control the conformity of statutes with international treaties and conventions, bilateral or multilateral, when such conformity is contested by litigants, and to set aside statutes when the latter are found contrary to the international obligations of the French Republic.
As far as treaties set rules and principles similar to those contained in French constitutional texts (1789 Declaration and 1946 preamble), the former can thus be used as substitutes for the latter before ordinary courts in order to improve the situation of taxpayers. Moreover, as far as they set rules more favourable to taxpayers than French constitutional principles, they can contribute to ensuring for taxpayers a level which would not even have been reached in domestic law.
This process has not yet borne all its fruit, since the positive attitude of ordinary courts towards international treaties is quite recent, especially as far as administrative courts are concerned i.e. those courts which have jurisdiction over the most important taxes (direct taxes and VAT): it was only in 1789 that the Conseil d’État agreed to recognize that treaties, including tax treaties and the Rome treaty instituting the EEC, should in all cases prevail over domestic statutes (even passed at a later date) (CE Ass. October 20 1989, Nicolo)1, and, very recently, that EEC Council Directives should enjoy the same effect (CE Ass. October 30 1996, SA Cabinet Revert et Badelon)2.
But as regards administrative tax penalties, the protection of taxpayers does not come from the application by tax courts of double tax treaties or of the EEC treaty or directives. It essentially stems from the Convention for the Protection of Human rights and Fundamental Freedoms (in brief the European Convention on Human Rights, or ECHR) drawn up within the council of Europe, opened for signature in 1950 and ratified by France only in 1974. It lays down a catalogue of civil and political rights and freedoms and sets up a system of enforcement of the obligations entered into by Contracting States.
Where the Contracting States have accepted the right of individual petition (which France did in 1981) individual applicants can lodge complaint against them for alleged violations of Convention rights.
Up to 1999, complaints were first subject to a preliminary examination by the European Commission of Human Rights (the Commission) which determined their admissibility and, where the respondent State had accepted the compulsory jurisdiction of the Court, the case could be brought before the European Court of Human Rights (the European Court, or ECHR) for a final adjudication. The increasing case-load prompted a reform af the Convention supervisory machinery in order to simplify the structure with a view to shortening the length of proceedings. The Commission was suppressed and a single full-time court, the new ECHR, was created and came into operation on November 1, 1998. Committees set up within the Sections of the Court are responsible for the filtering of claims.
The most remarkable result of the double move toward internationalisation and constitutionalisation was the intrusion of civil rights in the system of administrative tax penalties.
RJF 11/89, n° 1266.
RJF 12/96, n° 1415, concl. G. Goulard.
2 The intrusion of civil rights in the system of administrative tax penalties
The system of administrative (or civil) tax penalties – i.e. imposed by tax authorities without any intervention of a judge on taxpayers having failed to comply with their obligations as set up by the tax Code – is quite complicated (about 200 penalty provisions: Code, Section 1725 sq) and tough, even though a statute of July 8, 1987 brought some simplification and rationalization and noticeably alleviated the severity of the sanctions.
It consists of fixed fines and increases in the tax due by a given percentage. There are numerous rates, which vary according to the tax concerned, the nature and seriousness of the offence and the procedure adopted for revising the initial assessment.
They are imposed by tax authorities under the supervision of tax courts, since taxpayers can contest before the latter an administrative tax penalty as well as the tax itself.
The code contains another category of penalties, those of a criminal nature (Section 1741 sq). The same action or omission can trigger both the imposition of a civil penalty and a prosecution under one or more of the penalty sections. Only criminal courts, when seized by tax authorities, have jurisdiction to inflict criminal penalties (fines and emprisonment).
2.1 The starting point
In 1982, at the beginning of the process of constitutionalisation of the law governing administrative tax
tax authorities were under no obligation to motivate the decision imposing a tax penalty,
there was no compulsory debate between tax authorities and the taxpayer;
nothing prevented a text creating or aggravating sanctions from being retroactive;
conversely more lenient sanctions could not be applied retroactively;
there was absolutely no limit to the cumulating of administrative and criminal tax penalties;
neither tax authorities nor tax courts could modulate penalties according to particular circumstances of fact.
2.2 The main provisions on which the evolution of the legal status of tax penalties was founded
Since the beginning of the eighties, quite a few provisions of tax statutes have been set aside by the Conseil constitutionnel as contrary to the principles of the 1789 Declaration of Rights, mainly equality and individual liberty. These provisions relate to all tax matters.
As regards tax penalties, the Conseil constitutionnel based its decisions on Article 8 of the 1789 Declaration of the Rights of Man and the Citizen, that provides:
”The Law must prescibe only the punishments that are strictly and evidently necessary; and no one may be punished except by virtue of a Law drawn up and promulgated before the offence is committed, and legally applied”.
In the international field, the main provision was Article 6-1 of the European Convention on Human Rights, which lays down the so-called right to fair trial and reads as follows:
”In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independant and impartial tribunal established by law. Judgment shall be pronounced publicly but the press and public may be excluded from all or part of the trial in the interests of morals, public order or national security in a democratic society where the interests of juveniles or the protection of the private life of the parties so require, or to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice”.
Both texts were declared applicable to administrative tax penalties through a construction of the terms ”punishment” and ”criminal charge” which led to aligning such penalties on criminal penalties, an interpretation which would certainly have much surprised those who wrote the texts interpreted.
3 Likening administrative tax penalties to criminal penalties: The ”criminalisation” of administrative tax penalties
3.1 In domestic law
In its December 30th 1982 decision (n° 82–155 DC, Nouvelle Calédonie), the Conseil constitutionnel set aside a statutory provision retroactively validating administrative sanctions instituted to aid the enforcement of a newly created income tax levied in the French overseas territory of Nouvelle Calédonie.
The Council adjudged that these sanctions were ”punishments” for the purposes of Article 8 of the 1789 Declaration of Rights, since the word ”punishment” meant ”any sanction of a punitive nature, even if Parliament has entrusted administrative authorities with the task of imposing the same”.
The criterion used by the Conseil constitutionnel, administrative tax courts3 and by civil tax courts4 as well in order to determine if an administrative sanction has to be qualified as ”punishment” for the purposes of Article 8 of the 1789 Declaration of Rights is clearly and exclusively the object of such sanction: if such object is exclusively the pecuniary compensation of a damage (e.g. interest for late payment5), it is not a punishment; but if the sanction is, even partially, of a punitive character, then it is a punishment. And indeed, all administrative tax penalties except interest for late payment seem to belong to this second category.
CE February 17, 1992, Vermeersch, RJF 4/92, n° 503, concl. Philippe Martin; CE July 8, 1998, Min. v. SARL Clinique Mozart, RJF 8-9/98, n° 942.
See e.g. Cass. com. November 7, 1989, Daloz, RJF 12/89, n° 1461.
See e.g. CE February 27, 1998, Vanadia, Droit fiscal 1998, n° 23, comm. 516, concl. Arrighi de Casanova.
3.2 For the purposes of the ECHR
In 1994, in the Bendenoun case6, the European Court of Human Rights held for the first time that an administrative tax penalty – in the case in point an increase in the tax due provided for by one of the penalty sections of the French tax code – was based on a ”criminal charge” for the purposes of Article 6-1 of the ECHR.
The French Conseil d’État which, up to then, had constantly rejected such interpretation of Article 6-1 finally admitted defeat and adopted the point of view of the European Court in 1995 in its Opinion in the case of SARL Auto-industrie Méric7. As for the Cour de cassation, it had no difficulty in sharing the view of the European Court since it has long been favourable to the application of the ECHR in all tax matters, either on the grounds of the ”criminal charge” or the ”civil rights and obligations” concepts of Article 68.
The European Court uses several criteria to determine whether an offence qualifies as ”criminal” for the purposes of the Convention9.
First of all, it must be ascertained whether or not the text defining the offence is part of criminal law in the legal system of the respondent State. But, as the concept of ”criminal charge” is an autonomous concept which overrides the domestic law of the Contracting States, this merely gives an indication, and the fact that in domestic law a penalty is of an administrative nature does not prevent it from being qualified as based on a criminal charge, if one of the other criteria, or both are met.
These two other criteria, i.e. the nature of the offence and the nature and degree of severity of the penalty that the person concerned was liable to incur, must be examined having regard to the object and purpose of article 6, to the ordinary meaning of the terms of that article and to the laws of the Contracting States. These two criteria are alternative and not cumulative ones: for article 6 to apply by virtue of the words ”criminal charge”, it suffices that the offence in question should by its nature be ”criminal” from the point of view of the Convention, or should have made the person concerned liable to a sanction which, in its nature and degree of severity, belongs in general to the ”criminal” sphere. This does not exclude that a cumulative approach may be adopted (e.g. in the Bendenoun case) where the separate analysis of each criterion does not make it possible to reach a clear conclusion as to the existene of a ”criminal charge”.
As for the French tax courts, when they apply Article 6-1 of the ECHR, they use the criterion of the object of the penalty only, the same one they and the Conseil constitutionnel use for the enforcement of the ”punishment” concept in Article 8 of the 1789
Declaration of Rights10. This difference in approaches between the European Court and French courts may lead to differences in qualification. For instance, imprisonment for debts to which a taxpayer not having paid his tax debts can be sentenced is neither a criminal nor an administrative penalty in French law as it is considered as an enforcement measure putting pressure on the debtor; because of its non punitive object, the Cour de cassation does not qualify it as based on a ”criminal charge”11, whereas the European Court decided that, mainly because of its severity, it was of a ”criminal” nature for the purposes of Article 6-1 of the ECHR and so the guarantees provided by such article were applicable to it12.
In spite of possible marginal differences of this type, it can be said that probably all French administrative tax penalties are of a ”criminal” nature for the purposes of the European Convention on Human Rights, unlike interest for late payment13.
CEDH (ECHR), February 24,1994, Bendenoun c. France, RJF 6/94, p. 383, Chron. G. Goulard.
CE Section, Avis (Opinion) March 31, 1995, SARL Auto-industie Méric, RJF 5/95, n° 623, concl Arrighi de Casanova.
Cass. com. November 20, 1990, Donsimoni, RJF 1/91, n° 123; Cass. Ass. June 14, 1996, Kloekner, JCP éd. G. II 22692, concl. Y. Monnet; Cass. com. April 29, 1997, Ferreira, RJF 6/97, n° 641.
See, on this set of criteria ECHR September 24, 1997, Garyfallou Aebe v. Greece, AJDA 1997, p. 982.
See e.g. CE Section, Avis (Opinion) March 31, 1995, SARL Auto-industie Méric, and Cass. com. April 29, 1997, Ferreira, RJF 6/97, see footnotes 7 and 8 supra.
E;g. Cass. com. October 12, 1993, M. L. RJF 12/93, n° 1590.
ECHR June 8, 1995, Jamil v. France, RJF 1/96, n° 164.
In spite of their level, which can be noticeably higher than the market rate: European Commision, July 2, 1997, Lemoine v. France, req. n° 26242/95.
3.3 The scope of the ”criminalisation” of administrative tax penalties
It differs in internal and in international law.
In domestic law, the ”criminalization” of administrative tax penalties is liable to have consequences at all the stages of the process: the creation or modification of the penalty by Parliament, its imposition on a particular taxpayer by the Revenue Service and the supervision of such imposition by the tax judge.
But Article 6-1 is much norrower in scope, in that the right to a fair trial it lays down normally only relates to the control by a judge of the conformity to law of the penalty imposed on a taxpayer. It does not concern the stage of the imposition of penalties by administrative authorities. The European Court14 and French tax Courts15 are of this opinion. The ECHR however stated in the case of Imbrioscia v. Switzerland of November 11, 1993 that, if the primary purpose of Article 6 where criminal matters are concerned is to ensure a fair trial by a”tribunal” competent to determine ”any criminal charge”, it does not follow that the Article has no application to prior proceedings; ”requirements of Article 6 may also apply before a case is sent for trial if and so far as the fairness of trial is likely to be seriously prejudiced by an initial failure to comply with them”16.
CEDH (ECHR), February 24,1994, Bendenoun c. France, see footnote 6 supra.
CE Section, Avis (Opinion) March 31, 1995, SARL Auto-industie Méric, see footnote 7 supra; Cass. com. January 28, 1991, Lavigne, RJF 4/91, n° 528.
Series A, n° 275, § 36. See also ECHR September 26, 1996, Miailhe c. France, Rec. 1996 IV, p. 1319 sq, RJF 11/96, n° 1375, in which the ECHR decided, contrary to the Cour de Cassation in Lavigne (see supra), that in order to determine whether the right to a fair trial of Article 6 is respected in the field of criminal tax penalties, the proceedings before the Tax Criminal Offences Board (in French ’Commission des Infractions Fiscales’, an administrative advisory body whose opinion is a mandatory prerequisite for lodging a criminal complaint of tax evasion but is not binding on the tax authorities and still less on the courts) and the subsequent proceedings before the criminal courts themselves should be taken as a whole.
4 The consequences of the ”criminalisation” of administrative tax penalties
The major consequence of the qualification of administrative tax penalties as ”punishments” for the purposes of Article 8 of the 1789 Declaration of Rights is that, insofar as they have a constitutional value, the principles of criminal tax law will be extended to them:
According to a famous statement by the Conseil constitutionnel17:
”It stems from Article 8 of the Declaration of Rights of Man and the Citizen as well as from the Fundamental Principles acknowledged in the Laws of the Republic that a punishment may only be imposed on the condition that the principle of punishment only by virtue of Law, the principle that punishment must be strictly and evidently necessary, the principle prohibiting the retroactive application of more severe criminal Law and the principle of the protection of the rights of defence be respected.
”Such requirements not only concern punishments imposed by criminal courts but also any sanction of a punitive nature, even if Parliament chose to vest a non judicial authority with the task of imposing the same ”.
On the other hand, the criminalisation of administrative penalties with regard to the European Convention on Human Rights triggers the applicablilty to such sanctions of the guarantees relating to criminal penalties enshrined in the Convention as interpreted by the European Court: those inherent in the right to a fair trial of Article 6-1 (access to a ’tribunal’, i.e. a court having full jurisdiction, the right to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law), to the presumption of innocence of Article 6-2 (and particularly the rights to silence and not to incriminate oneself) and to the rights of defence (article 6-3). The principle that only the law can define a crime and prescribe a penalty and that the retrospective application of the criminal law when more severe is prohibited (ECHR Aticle 7), and the prohibition of the cumulating of penalties should be applicable as well (Article 4 of Protocol 7 to the Convention).
Only the main and actual consequences of the ”criminalisation” of administrative tax penalties will be dealt with in the following developments. They can be summarized as follows:
statutory provisions instituting or aggravating administrative tax penalties cannot be retroactive;
less severe provisions must be applied retroactively to administrative tax penalties;
the giving of reasons for a decision imposing a tax penalty and the respect of the audi alteram partem principle are now mandatory;
progress towards a prohibition of the combining of administrative tax penalties and criminal penalties;
progress towards a possibilitity for tax courts to modulate administrative tax penalties.
Cons. const. decision n° 90–285 DC, September 28, 1990 (1991 Finance Act).
4.2 Statutory provisions instituting or aggravating administrative tax penalties cannot be retroactive
The non-retroactivity of criminal penalties is a fundamental constitutional principle laid down by Article 8 (already cited) of the 1789 Declaration of the Rights of Man and the Citizen.
Outside criminal matters, the principle of non-retroactivity (see Article 2 of the Civil Code) has no constitutional value, especially as far as taxation is concerned.
However, by likening administrative and especially administrative tax penalties to criminal penalties, the Conseil constitutionnel in its decision n° 82–155 DC of December 1982 (Territoire de Nouvelle-Calédonie) has built a (partial) protection against retroactive tax statutes which tended to proliferate at the end of the seventies and the beginning of the eighties.
Since then, the Constitutional Council has been able to keep under strict supervision retroactive statutes, since practically all of them have been submitted to its control and Parliament is now careful not to pass retroactive provisions relating to administrative penalties.
Thus Article 7-1 of the ECHR is of little help before French tax courts. It provides that ”No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. nor shall a heavier penalty be imposed than one that was applicable at the time the criminal offence was committed”.
4.3 Less severe provisions must be applied retroactively to administrative tax penalties
In a decision of 19 and 20 January 1981 (decision n° 80–127 DC, Rec. 15) the Conseil constitutionnel conferred constitutional value in the field of criminal justice on the so-called retroactivity in mitius principe, according to which a criminal provision which is less severe than the previously applicable provision is to be applied retrospectively. And it clarified the basis for that principle, citing Article 8 of the Declaration of the Rights of Man and the Citizen of 1789, which states that ”the law shoud impose only such penalties as are absolutely and evidently necessary”. It considered that ”failure to apply to offences committed at a time when earlier law was in force new, less severe provisions amounts to allowing the courts to impose penalties prescribed by the earlier provisions when such penalties are, according to the view of the legislature itself, no longer necessary”.
As a consequence of the likening of administrative tax penalties to criminal penalties, this principle also applies in the tax field, both as regards the definition of the offence and the sanctions imposed. And, in accordance with the Opinion of the Conseil d’État in the Houdmond case (April 5, 1996)18, administrative tax courts now apply, if necessary ex officio, the more lenient law in force at the time they decide on the case on hand. Civil tax courts do the same19.
This principle is not enshrined in the European Convention for the Protection of Human Rights. But, if necessary (in case of a statute stipulating a date for its entry into force clearly contrary to the retroactivity in mitius principe), some help can be found in Article 15-1 of the United Nations covenant on Civil and Political Rights, according to which: ”If subsequent to the commission of the offence, provision is made by law for the imposition of a lighter penalty, the offender shall benefit thereby”20.
Avis (Opinion) CE Section, April 5, 1996, Houdmond, Droit fiscal 1996, n° 25, comm. 765, concl. J. Arrighi de Casanova.
See Cass. com. October 7, 1997, Tiberghien, RJF 3/98, n° 340.
See e.g. Strasbourg Administrative Tribunal, December 8, 1994, Simon, RJF 1/96, n° 73.
4.4 The giving of reasons for a decision imposing a tax penalty and the respect of the audi alteram partem principle are now mandatory
French administrative tax courts have constantly interpreted the statutes relating to administrative tax penalties as not requiring any justification by the tax authorities nor any adversary debate before they are imposed on taxpayers.
But after the Decision of 1982 (Nouvelle-Calédonie)21 in which the Conseil constitutionnel for the first time checked the conformity of a statutory provision relating to an administrative tax penalty with one of the principles laid down by Article 8 of the 1789 Declaration of rights (in that instance the non-retrospectivity principle), the Conseil d’État felt compelled to declare that a July 11, 1979 statute requiring that ”administrative decisions imposing a sanction” be motivated was applicable to tax penalties22.
In two very explicit decisions23, the Conseil constitutionnel thereafter declared two new penalties relating to stamp duties contrary to the constitutional principle of the rights of the defence, which it considers as one of the Fundamental Principles acknowledged in the laws of the Republic (for the purposes of the 1946 Constitution Preamble), in that a debate between the Revenue service and the taxpayer had not been provided for by the legislature.
The message was clear and this statement clearly applied to all existing adminstrative tax penalties. But the Conseil d’État maintained its position that the statutes then in force did not require the respect of the audi alteram partem principle24. Meanwhile a special statutory provision had provided that the justifications for the tax penalty had to be notified to the taxpayer thirty days in advance and that the taxpayer could during that period of time present his observations25.
So here, the evolution is the result of the pressure put by the Conseil constitutionnel on Parliament. But perhaps the statutory provisions do not fully comply with the requirements of the article 6 of the ECHR since, if the taxpayer can answer the motivation of the penalty, there is actually no real debate between him and the tax authorities whom nothing obliges to answer his arguments.
Cons. const. December 30th 1982, n° 82–155; see 3-1 supra.
CE October 13, 1986, Droit fiscal 1987, n° 19-20 comm. 996, concl Martin-Laprade.
Cons. const. December 29, 1989, n° 89–268 DC (1990 Finance Act); and December 28, 1990, n° 90-285 DC (1991 Finance Act).
CE November 20, 1995, Adnet, Droit fiscal 1996, n° 11, comm. 336.
Article 112 of Statute n° 92–1376, December 30, 1992 (1993 Finance Act).
4.5 Can administrative tax penalites and criminal penalties be cumulated?
4.5.1 The Conseil constitutionnel has never granted the well known non bis in idem principle a constitutional status in the criminal law field (see Decision n° 82–143DC, July 30, 1982).
Consequently, it has clearly stated in a recent decision of December 31, 199726 that an administrative penalty, and specially an administrative tax penalty can be cumbined with a criminal one.
All the more so since those two kinds of penalties are considered to be different in nature and to pursue different aims. Criminal proceedings against tax evasion aim at punishing acts that threaten public order and the organisation of society; while administrative tax penalties only aim at defending the interests of the Treasury and the level of public revenue. Both are of a repressive nature, but the latter also consitute the pecuniary compensation of a damage to the Treasury. The Cour de cassation (Criminal chamber) clearly favours that theory of the mixed nature of administrative tax penalties27, a theory to which the Conseil d’État does not seem to be hostile, since, when having to determine whether a particular provision in the Code is a sanction or not, it currently uses the following expression: ”its object, contrary to interest on arrears, is not only to provide compensation of a damage”28. So, since they are different in aim and nature, no principle prevents the combining of tax and criminal penalties.
Nevertheless the Constitutional Council derives from the constitutional principle according to which only penalties strictly and evidently necessary can be imposed the irrebutable presumption that combining administrative and criminal penalties infriges the requirement of proportionality which such principle implies: ”whenever an administrative sanction is likely to be combined with a criminal sanction, then the principle of proportionality implies that in any case the global amount of the sanctions imposed is not higher than the highest of the two sanctions incurred”29.
But, since the efficacy of this statement before tax courts is far from being certain, because courts are not entitled to set aside the application of statutes which would be unconstitutional, while they now consider that in any case they must not apply provisions contrary to tax treaties, many commentators think that recourse to Article 4-1 of Protocol n° 7 to the ECHR could be of some help.
This text provides: ”No one shall be liable to be tried or punished again in criminal proceedings under the jurisdiction of the same State for an offence for which he has already been finally acquitted or convicted in accordance with the law and penal procedure of that State”.
But the recourse to such provision comes up against the very explicit reservation to the Protocol according to which, as far as France is concerned, the scope of Article 4 of Protocol 7 should be limited ”exclusively to those offences which in French law come under the jurisdiction of criminal courts”. The Cour de cassation had decreed that this reservation was an impediment to the use of this text in relation with administrative tax penalties30.
However, the European Court of Human Rights has already in a recent past found an equivalent reservation to Article 4 by Austria invalid for being too vague and affording a guarantee to no sufficient degree (ECHR October 1995, Gradinger v. Austria). It will probably do the same with the reservation by France; a case is now pending before it, and we will know soon (in a few months... or years).
But were this the case, one cannot be sure that Protocol 7 Article 4 would be construed as prohibiting the combining of tax and criminal penalties since the ECHR recently construed this provision as not applying when the same fact gives rise to two different offences31.
4.5.3 As a last resort, some hopes were set on Article 14-7 of the 1966 International Covenant on Civil and Political Rights (UN Doc. A/6316 /1966) providing that ”No one shall be liable to be tried or punished again for an offence for which he has already been finally convicted or acquitted in accordance with the law and penal procedure of each country”. The wording of this text is less restrictive than Article 4 of Protocol 7 to the ECHR (the words ”tried or punished again” are not followed by the words ”in criminal proceedings”), and France made no reservation to it. But the French Conseil d’État is of the opinion that this provision relates to proceedings and sentences before or by criminal courts only32.
Decision n° 97–395 DC, December 31, 1997, about the 1998 Finance Act.
Cass. crim. June 20, 1996, Ponsetti, Droit fiscal 1997, n° 15–16, comm. 427; and November 6, 1997, Pini, Droit fiscal 1998, n° 24, comm. 521.
E.g. CE Opinion July 6, 1998, Fattell, RJF 8-9/98, concl. J. Arrighi de Casanova, and CE Opinion, March 31, 1995, Auto-Industrie Méric, see footnote 7 supra.
Cons. const. decision n° 89–260 DC, July 28, 1989, Commission des Opérations de Bourse; and in the tax field, decision n° 97–395 DC, December 31, 1997, 1998 Finance Act.
Cass. crim. November 6, 1997, Pini, see footnote 27 supra.
ECHR, July 30, 1998, Oliveira v. Switzerland.
CE Opinion of April 4, 1997, Jammet, RJF 5/97 n° 469.
4.6 The question of the modulation of administrative tax penalties by tax courts
4.6.1 French administrative tax penalties are characterized by their automaticity. They are automatic firstly in their principle, in that they have to be imposed by the tax authorities if the legal conditions are met, and secondly in their amount, since Parliament has stated fixed amounts or rates, as the case may be33. And it was widely admitted, up to the beginning of the nineties, that the courts could only set them aside if they considered that the legal conditions were not met and that they could not in any way modulate their amount according to the circumstances of the case (good or bad faith, importance of the loss for the Treasury, extenuating circumstances, circumstances outside the control of the taxpayer...). Even in the very rare instances where Parliament has set a scale of sanctions proportionate to the gravity of the offence committed (e.g. in Code Article 1729), the tax judge cannot choose to substitute for the penalty inflicted by the tax authorities a penalty of an intermediate amount not stipulated by the applicable statute.
4.6.2 The Conseil constitutionnel has up to now refused to declare that automatic penalties were automatically unconstitutional, either in the penal field (see for a recent example Decision n° 98–408 DC, January 22 1999 about the treaty instituting the International Penal Court) or, a fortiori, in the administrative tax field (Decision n° 97–395 DC, December 31, 1997, about a tax penalty created by the 1998 Finance Act and amounting in any case to 50 % of the amount of false invoices). And the Conseil d’État is of the opinion that the wording of statutes excludes the possibility for the judge to moderate the tax penalties stipulated34 However, the French Constitutional Council from time to time sets aside as contrary to the constitutional principle according to which only penalties strictly and evidently necessary can be instituted, statutes creating penalties of an amount manifestly disproportionate with regard to the gravity of the offence and the benefit the taxpayer derived from such offence (e.g. Decision n° 87–237 DC, December 30 1987, penalty for breach of tax secrecy amounting in any case to the amount of the taxable income divulgated).
It remains that the principle of individualisation of penalties is not in French domestic law of constitutional value. The question is then whether the obligations of the French Republic in the international field impose on French tax courts the obligation to comply with such a principle.
4.6.3 Does the ECHR require that tax Courts be empowered to modulate tax penalties?
The long stated European Court ’s position is that decisions to impose sanctions taken by administrative authorities which do not themselves satisfy the requirements of Article 6-1 of the Convention – as in the case with tax authorities’ decisions to put tax penalties on taxpayers – must be subject to subsequent control by a ”judicial body that has full jurisdiction”.
The Cour de cassation says ”Yes”
In 1997, in its now famous Ferreira35 case, the French civil supreme court (Commercial chamber) interpreted the notion of ”full jurisdiction” as implying that the judge must be able not only to set aside an administrative decision if the legal conditions put to imposing a penalty on the taxpayer are not met, but also to modify the sanction e.g. modulate its amount, if it seems fair according to the circumstances of fact, within the rate or amount stipulated in the statute, which amount or rate having to be interpreted as a maximum and not a fixed number.
The Conseil d’État apparently says ”No”
The French administrative supreme court considers that the mere possibility of setting aside a penalty meets the requirements of the ”full jurisdiction” notion. In its 1998 Fattell Opinion36, it stated that the system of penalties of Article 1729 of the French tax code was compatible with the ECHR. But one has to keep in mind that in this Article Parliament instituted a scale of penalties varying according to the attitude of the taxpayer: a 40 % increase of the amount of tax evaded if the taxpayer’s bad faith has been established, but 80 % if the taxpayer has been found guilty of deception or abuse of process. If it seems to most commentators that the Conseil d’État would have probably given the same answer if there had been a unique and automatic penalty, as in the Ferreira case mentioned supra, one cannot be absolutely sure.
European case law is still not clear on this particular point
The European Court has stated in the case of Schmautzer v. Austria37 that the defining characteristics of ”full jurisdiction” include ”the power to quash in all respects, on questions of fact and law, the decision of the body below”.
If a court sitting in proceedings that are of a criminal nature for the purposes of the Convention (as is the case with tax penalties) lacks that power, then it cannot be regarded as a ”tribunal” within the meaning of the Convention; the applicant having no access to a ”tribunal”, there is accordingly a violation of Article 6-1.
There is up to now no case law about what ”to quash in all respects” exactly means38. Moreover, the French and English versions of the judgment seem to differ. The French for this expression is ”pouvoir de réformer en tous points”, and the French verb ”réformer” not only means ”to set aside” but also ”to reverse and modify”.
So the French administrative tax judge, who considers that he has only the power to confirm or to reverse, but not to modulate the penalty would be a ”tribunal” within the meaning of the Convention according to the English version of the Schmautzer case, but he would not be so qualified if the French version is used.
Perhaps the truth lies between the two, as a recent decision by the (former) European Commission of human Rights would suggest.
In the Taddéi v. France case39, the Commission ruled that as regards the implementation of Article 1729 of the French tax code, where the statute itself modulates the tariff of the penalty (40 % if bad faith, 80 % if deception or abuse of process), the French courts have ”full jurisdiction” for the purposes of Article 6-1 of the Convention since they may assess the gravity of the offence and consequently fix the adequate legal rate (40 % or 80 %), even if they cannot choose intermediate rates.
Though in the past the European Court has not always shared the views of the (now former) Commission, it does not seem hazardous to suggest that the position of the Court could reasonably be as follows: where the statute itself has introduced a modulation of the applicable sanction, even in a general and abstract way, there is no incompatibility with the requirements of Article 6-1 of the Convention; whereas, when there is no such legislative modulation (for instance a FF 10,000 fine every time a particular offence has been committed), the impossibility for the courts to modulate the penalty amounts to a violation of the Convention.
The process of ”criminalisation” of administrative tax penalties certainly has reached its limits in domestic law. Some progress in the protection of taxpayers may still be expected from the law of the ECHR. Some answers will be given in a foreseeable future to some of the questions taken up in the present study. But some aspects of the topic, such as the scope and implications of the presumption of innocence clause, have not yet been explored.
Guy Gest is Professor of Public Law at Paris I (Panthéon-Sorbonne) University.
The taxpayer may however ask the tax authorities for either a total or partial remission of the penalty on the ground of its being difficult or impossible for him/her to pay it or the conclusion of a friendly settlement whereby the Service grants a reduction of the penalty and the taxpayer undertakes to pay the tax and the remaining part of the penalty, the execution and performance of such an agreement by the taxpayer preventing him/her from challenging penalty and tax in the courts (Sections L 247 to L 251 of the Code of Tax Procedure). But the tax authorities are vested by the law with a discretionary power to grant or to refuse such a unilateral remission or to enter or not into a friendly agreement, over which courts exercise a limited control.
CE Opinion April 5, 1996, Houdmond, see footnote 18 supra.
Cass. com. April 29, 1997, Ferreira, see footnote 8 supra. In this case, the penalty impugned was an automatic 200 % fine imposed on taxpayers not having paid the stamp duty on cars. Confirmed by Cass. com. June 15 1999, Lise, RJF 8-9/99, n° 1119.
CE Opinion July 6, 1998, Fattell, see footnote 28 supra.
ECHR October 23, 1995, Schmautzer v. Austria, Series A n° 328-A.
Most commentators have considered that the position of the Conseil d’État had been strengthened by the European Court’s decision in the case of Malige v. France (September 23, 1998, req. n° 27812/95). Contrary to the submission of the applicant that the administrative court should have had a discretionary power to modulate the sanction, it is not necessary to have a separate, additional review by a court having full jurisdiction concerning an administrative sanction (i.e. the deductionof a certain number of the points of the driver’s licence varying with the seriousness of the offence committed) that is the automatic consequence of a decision of a criminal court convicting the driver of excessive car speed, since a review sufficient to satisfy the requirements of Article 6-1 of the Convention was incorporated in the criminal decision itself. In my opinion, thisdecision is absolutely not decisive as far as normal (i.e. independent from any criminal decision) administrative sanctions are concerned. I think that, on the contrary, it could back a contrario the position of the Cour de cassation in the Ferreira case.
European Commission of Human Rights June 29, 1998, Taddéi v. France, req. n° 36118/97.