Is the imposition of a fine and a
tax increase a double penalty?
December 2021 – Tax legislation provides for a large number of obligations which, in the event of non-compliance, can be enforced by means of sanctions, seizures, forced executions, etc. Sanctions may be administrative (tax increases) or criminal (fines). But the combination of these two types of sanctions is also possible! Isn't this a question of double punishment and isn't the use of this practice prohibited by the European Court of Human Rights?
Facts
A couple - he a lawyer, she a notary - did not file a declaration in 2014. As a result of an impending divorce. The tax authorities send a reminder letter, which also remains unanswered, so that shortly afterwards the tax authorities impose an administrative fine of 1 250 euros for failing to file a tax return.
The couple soon reacted and filed a declaration. The fine was paid.
A little later, the husband was subjected to a tax audit which led to an increase in his taxable income, which he did not contest. Finally, the tax authorities issued an automatic tax assessment and applied a 10% tax increase for late filing. The wife contests this decision. At the time, the spouses were de facto separated and could not therefore be taxed together.
The wife wins her case in 2019 and the taxman establishes what is called subsidiary taxation, i.e. taxation in her name only. However, the tax authorities still impose a 10% tax increase on her for late filing.
Non bis in idem?
The law allows for the imposition of a fine and a tax increase for failure to file a tax return or for filing late.
The European Court of Human Rights (ECHR) has already concluded in the past that administrative sanctions can also be criminal in nature. So we are indeed dealing with two sanctions for the same act. However, the famous "non bis in idem" principle states that no one may be punished twice for the same act. One could deduce that a taxpayer cannot be fined and have his tax increased at the same time.
But the tax authorities see things differently.
The ECHR also seems to consider that a legal system that allows for the accumulation of several penalties is permissible if there is a sufficiently substantial and temporal link between the two proceedings. In other words, the two sanctions should not be considered as separate sanctions, but rather as a coherent system to sanction - in this case - the failure to declare.
This means that the tax authorities can apply both a fine and a tax increase, but also that the judge is entitled and even obliged to rule on the proportionality of the sanctions.
Reasonable sanction
The Ghent Court of Appeal, which heard this case in 2021, followed exactly the same reasoning. It considers that the following elements should be taken into account
the declaration was finally submitted ;
the tax authorities did not correct the data in the return for the wife;
the taxpayer had already paid a large part of her tax liability through the withholding tax; and
there was no precedent, so there was no question of malicious intent.
According to the Court, an administrative penalty of 1 250 euros for late filing is proportionate to the nature and gravity of the offence and achieves its objective, namely to compensate (the work of the tax authorities, but also the taxpayers' community), to sanction and to deter the perpetrator from committing the offence again. On the other hand, the application of a 10% tax increase was not proportionate to the nature and gravity of the offence committed.
Constitutional Court
A similar case was brought before the Court of First Instance in Luxembourg. A late declaration resulted in a fine of 1 250 euros and a tax increase of 50% as it was a fourth offence.
But unlike the Ghent Court of Appeal, the Luxembourg court did not consider the proportionality of the accumulation of the two penalties, but the core of the case. It asked the Constitutional Court whether it is possible to impose two different sanctions for the same fact.
The Constitutional Court has not yet answered the question. This is a matter that must be followed up, especially as the tax authorities very often resort to double sanctions.
