Certain high profile cases involving negotiations and court-based agreements have recently brought to the fore a new court scenario in the defence of tax crime proceedings. This has taken place in the scope of the reform introduced in Article 305 of the Spanish Criminal Code (“CC”) by Public General Act of Parliament (Ley Orgánica) 7/2012, of 27 December, on settlements in criminal tax proceedings. The legal definition for a tax crime is provided in the referred article. The reform highlights some technical aspects having significant impact for practical purposes, which have started to be applied in cases currently underway. They give a new treatment to the settlement of tax debts in criminal tax proceedings, in order to promote such settlement. The preamble of Public General Act of Parliament (Ley Orgánica) 7/2012, which reformed the CC, stated that the intention is “to establish the settlement of the tax payer’s debts as the true reverse of the tax crime, so that both the legal demerit of the action and the demerit of the result can be neutralised through the full payment of the tax debt, and not only of the tax liability, as is currently the case”. Prior to the reform mentioned above, the settlement of tax debts in criminal cases, as defined in Circular 2/2009 of the Public Prosecutor’s Office, removed the penalty, but not the tax crime. It referred to “positive and efficient behaviour on the part of the tax payer in connection with the tax liability, including self-incrimination (by means of the voluntary and true acknowledgement of the debt, prior to the temporary freezing provided by the law) and the payment of the debt arising from the fraud, which was grounds for acquittal”, and diverged from debt settlement in the tax administration context. The reform has changed the criminal and legal nature of the settlement of tax debts in order to promote such settlement, moving away from eliminating only the penalty for the crime to eliminating the crime in itself. There is a technical debate as to whether this change constitutes a case of an abandonment of crime, a cause of justification or grounds for acquittal or a cause for removal of the penalty. The most recent views hold that it operates as a cause of justification; the settlement of the tax debts excludes the previous tax crime and the money laundering crime in connection with the defrauded tax payable, and in turn, the criminal liability of those involved, due to the principle of limited accessory nature of their involvement. The reform specifies the objective scope of an effective settlement (for criminal purposes), and requires the full acknowledgement and payment of the tax debt, not the mere filing of a full true tax return, as is the case in the context of the tax administration procedures, or the mere payment of the liability, with no interest or surcharges. The doctrine of precedent has established that a merely partial settlement, which places the tax owed below the threshold of tax crime, has no legal effect (except when potential mitigating circumstances are considered by analogy). Another key element to be considered is the timeline for tax debt settlement in criminal proceedings. Tax debts must be settled of the taxpayer’s own accord, that is, prior to notice being served to inform of the start of an investigation by the Tax Administration, prior to the filing of a criminal complaint by the Public Prosecutor’s Office or the State Counsel, and/or prior to formal notice being given of the investigation initiated by the Court or the Public Prosecutor. The crucial point is awareness of these procedures, directly or indirectly, with respect to the taxes concerned, by the individual who intends to make the settle the tax debt, above and beyond the specific date of the procedures. This may generate conflicts when there are several subjects who have varying degrees of awareness of the procedures. Tax debt settlement in criminal proceedings shall have full force and effect in the event of the investigation process by the Tax Authorities being unjustifiably interrupted or if such process goes beyond its statutory deadline. It may be the case that, upon the statutory deadline, interest and surcharge payments have not been made to the Tax Authorities. In such cases, if appropriate prior contact has not been made with the authorities to ensure a fully effective settlement, the tax liability and the interest or surcharge must be paid (based on a cautious assessment), subject to the exact amounts being obtained from the Tax Authorities in order to pay them immediately. Claims may be filed on any differences. Under the reform, the settlements made in criminal proceedings shall have full force and effect with respect to statute-barred tax debts under the tax administration system. Any voluntary payments made after the prescribed deadlines, provided that they take place before the hearing, may result in mitigating circumstances regarding the remedy of damages, either ordinary or highly qualified, depending on the speed of the process and other co-operation criteria involved. If payment is made while the trial sessions are being held, this may result in mitigating circumstances by analogy (as a remedy). This will lessen the effect of reduction of the penalty for the rime. The objective and subjective effects of the tax debt settlement in criminal proceedings have not been changed. Tax crime and accounting crime (generally encompassed by tax crime) and any document forgery that is instrumental in tax crime are excluded (but not when it occurs after such tax crime). Tax debt settlement in the context of criminal proceedings benefits the perpetrator, but also any other individuals involved, including advisors or trustees. A new option for untimely pseudo tax debt settlement is provided for in Article 305.6 of the CC. It diminishes the penalty by one or two levels if the tax debt is paid and liability is acknowledged before the court within 2 months of receiving the subpoena to be questioned as a suspect. This is an option that does not exclude the crime, as the ordinary tax debt settlement does, but it may substantially reduce the penalty. Together with the payment, the subject is required to acknowledge liability before the court in some way, not necessarily by means of a tax filing. The deadline is calculated from receipt of the subpoena to be questioned as a suspect (by the person intending to make the settlement, not by other suspects). The new option may benefit the parties involved if they actively collaborate in obtaining decisive evidence to identify or arrest those responsible, or to find out information about the equity of the taxpayer. The undefined legal concepts used in delimiting such active collaboration will require a highly skilled application. Recent high profile court cases have shown that the mitigating or exonerating circumstances described to reduce the penalty in tax debt settlements in criminal proceedings need to be examined in detail. The current regulation and the new options are to be analysed in terms of the defence strategies in tax crime proceedings, whether within or outside the scope of prior settlement agreements. This is particularly relevant when there are several tax crimes involved, in view of the more rigorous and unpredictable judicial environment currently in place.
Victor Mercedes co-heads Baker & McKenzie's Litigation & Insolvency Practice Group in Barcelona and has more than 12 years of legal experience. He is also an associate professor at University Pompeu Fabra, teaching business litigation, corporate and arbitration law in different business programs. Mr. Mercedes has authored and co-authored various publications on procedural and public law, tax and administrative law. Prior to joining the Firm, Mr. Mercedes worked in the State Advocate-General’s Office in Tarragona and later served as State Advocate in Barcelona during which time acted for over 2000 disputes before different courts (Civil, Commercial, Criminal and Administrative). He was also a member of the National Administrative Observatory for Tax Crime, Contraband and Punishable Insolvencies of the Spanish Ministry of Economy and Finance. He is ranked and recommended as a leading lawyer in dispute resolution, restructuring and insolvency and corporate crime in Best Lawyers, Chambers Europe (2012,2013,2014) and Chambers Global (2012,2013,2014) and in Legal 500.