Deloitte: Changes regarding the fight against tax evasion – implications and clarifying aspects

Approximately four years after the deadline for transposing Directive 1371/2017 on combating fraud affecting the financial interests of the European Union and over a year since the European Commission initiated action against Romania for incomplete transposition of the directive, the national legislature has adopted Law 125/2023 amending Law No. 241/2005 on the prevention and combating of tax evasion, which entered into force on May 25, 2023.

By Alex Slujitoru, Partner, Cătălin Chibzui, Senior Associate, Reff & Associations | Deloitte Legal, and Ana Săbiescu, Senior Manager, Indirect Taxes, Deloitte Romania

However, the preamble of Directive 1371/2017 explains that the concept of serious offenses against the common value-added tax (VAT) system, as established by VAT Directive 112/2006, refers to the most serious forms of VAT fraud, especially carousel fraud, VAT fraud through phantom companies, and VAT fraud committed within a criminal organization, which pose serious threats to the common VAT system and, therefore, to the Union budget.

The new law aims to complete the transposition of the directive by criminalizing new acts that harm the “resources of the European Union”, namely any action or inaction committed within fraudulent cross-border schemes that result in a decrease of the European Union budget resources by at least ten million euros, in the equivalent of the national currency, through methods such as: the use or presentation of false, incorrect, or incomplete VAT statements or documents; the non-disclosure of VAT information when such information must be disclosed according to the law; the submission of correct VAT declarations to fraudulently conceal non-payment or the establishment of undue rights to VAT refunds.

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Methods of fraud targeted by the new legislation

However, the newly adopted law does not specify what “resources of the European Union” mean as a social value that needs to be protected, so this phrase should be interpreted in relation to the definition of the financial interests of the European Union (EU) provided by the directive. Therefore, it includes all revenues, expenses, and assets included, collected, or owed to the EU budget, the budgets of EU institutions, bodies, offices, and agencies established under the treaties, or budgets managed or monitored directly or indirectly by them.

The value of the harm, of at least ten million euros, in the equivalent of the national currency, may seem very high at first glance. However, since multiple offenses, acts, and parties involved can be considered in a single case, this threshold can be easily reached in reality.

Regarding the material element, the incriminated action or inaction must be committed within “fraudulent cross-border schemes,” a notion that, once again, is not defined by the national legislator in the body of the normative act.

Therefore, in establishing the fraudulent nature of actions or inactions, the provisions of the directive will be relevant. The directive aims to harmonize European legislation regarding actions or inactions classified as fraud and states in the preamble that there is a cross-border character of the incriminated act when the actions or inactions are related to the territory of two or more member states.

At the same time, an important role in establishing the character of a “fraudulent cross-border scheme” will be played by the Department for the Fight against Fraud (DLAF) and the European Anti-Fraud Office (OLAF), which will support law enforcement authorities in discovering and dismantling transnational networks involved in defrauding European funds.

Regarding the element of guilt, for the act to be considered an offense, it must be committed with direct intention qualified by purpose, i.e., aiming to obtain undue advantages from the European common VAT system. This conclusion is based on the provisions of the directive, which mention in the preamble that the offenses are committed in a structured manner precisely with this purpose of obtaining undue advantages from the VAT system. However, these provisions have not been expressly included in Law 125/2023, which would have been desirable to ensure compliance with the principles of legality of incrimination and punishment.

Moreover, it is important to note that, in VAT matters, the case law of the Court of Justice of the European Union (CJEU) must also be taken into account, as the CJEU has analyzed VAT fraud in multiple cases. However, by analyzing the provisions of criminal and tax laws, as well as European directives and CJEU case law, it is currently unclear how, for example, the non-disclosure of VAT information when such information must be disclosed according to the law (an aspect primarily addressed by Law 207/2015 on the Fiscal Procedure Code) will be interpreted. In the absence of a specific provision in legislation that mentions direct intention qualified by purpose, an erroneous tax treatment could potentially be subject to the legal norm without the situation resulting from fraudulent behavior by the taxpayer.

On the other hand, it should be emphasized that the failure to meet all the conditions defining the new offense does not imply the absence of a criminal nature of the acts. In this regard, depending on the specific circumstances of the case, other offenses, such as those provided for by Law 241/2005, Law 78/2000, or offenses of forgery of documents provided for by the Penal Code, may be considered.

What are the sanctions provided by the new law?

The sanctions provided by the new regulation fall within the upper limit established by Law No. 241/2005, namely imprisonment from seven to fifteen years and the prohibition of exercising certain rights. To establish the punishment limits, both the significant value of the harm and the provisions of Articles 6 and 7 of the directive were taken into account. These articles impose on member states the obligation to apply effective, proportionate, and deterrent criminal penalties. The sanction can be applied to both individuals and legal entities, in which case it will consist of a criminal fine ranging from 24,000 to 2.1 million lei, according to the Penal Code.

Furthermore, beyond the recovery of the harm caused by the commission of the offense, from a sanctioning perspective, the provisions of the Penal Code are also relevant. They impose the obligation to confiscate assets acquired through the commission of the offense, as well as the provisions of Law 241/2005, which impose precautionary measures that can potentially block the activity of a company.

Regarding the practical incidence of this offense, the risk is clearly present in high-value cross-border transactions or those carried out over extended periods. Therefore, participants in such transactions must pay close attention to the VAT regime to determine the correct tax treatment and comply with the corresponding obligations.