PONSETTI and CHESNEL v. FRANCE
Inadmissible
Mr [Frédéric] Ponsetti, who was born in 1949, lives at Pierrelatte and practises as a bailiff. Mr [Christian] Chesnel was born in 1936 and lives in Paris. He is a practising notary. Both are French nationals. They were represented before the Court by Mr P.F. Ryziger, a member of the Conseil d’État and Court of Cassation Bar. The facts, as submitted by the parties, may be summarised as follows. The applicant failed to file income tax returns for the years 1988, 1989 and 1990 despite receiving demands to do so from the tax authorities. In April 1991 the tax authorities conducted an audit of his accounts and assessed him to 95,823 French francs (FRF) in unpaid income tax for the first of those three years, FRF 206,388 for the second and FRF 286,957 for the third. They sought recovery of those amounts, to which on 20 December 1991, pursuant to Article 1728 of the General Tax Code, they added default interest and surcharges at the rate of 80% of the sum due for 1988 (namely FRF 76,658) and of 40% for the other two years (amounting to FRF 104,352 and FRF 155,395). At the same time the tax authorities lodged a criminal complaint against Mr Ponsetti alleging tax evasion and sought to be joined as a civil party to the proceedings. The applicant was charged with “having at Montélimar, during the years 1988 to 1990, fraudulently evaded assessment of his income tax liability and evaded partial payment of such tax by wilfully omitting to file his return within the prescribed time, by concealing parts of his income liable to tax, by arranging his insolvency or obstructing the collection of the tax by other subterfuges, or by acting in any other fraudulent manner, in the instant case by omitting to file income tax returns for the years 1988 to 1990, thus evading payment of FRF 589,168 in income tax, being FRF 95,823 for 1988, FRF 206,388 for 1989 and FRF 286,957 for 1990”, an offence under Article 1741 of the General Tax Code. On 21 July 1993, Valence Criminal Court convicted the applicant and imposed a three months’ suspended prison sentence and fine of FRF 10,000 on him. In reaching its verdict it stated: “... by failing to file income tax returns for the years 1988 to 1990, Mr Ponsetti committed the offence of which he stands accused of tax evasion, contrary to Article 1741 of the General Tax Code ...”. The applicant and the prosecution appealed to Grenoble Court of Appeal. On 17 November 1994 the Court of Appeal upheld the applicant’s conviction and increased the sentence to a suspended term of six months’ imprisonment and a fine of FRF 200,000. It reached its decision on the following ground: “... the intentional element of the offence of tax evasion is sufficiently made out by the fact that the accused failed to make the tax returns necessary for assessing his liability to tax when: – he was perfectly aware of that requirement, if only as a result of the 1986 audit; – he had been given due notice before the audit to make the returns for each of the three years concerned; – whatever the truth of his computing problems, the relevant information was available to him, as he had duly filed the monthly turnover figures for the calculation of VAT on time and therefore had only to deduct his professional liabilities in order to determine and declare his income; – it is plain that he has used the pretext of computing difficulties to draw out matters as long as possible in order to plead the statute of limitations from which he has already partially benefited in 1986. The tax authorities’ decision regarding at what level on the scale of surcharges for unpaid tax to impose the – purely fiscal – penalty on Frédéric Ponsetti as a result of his conduct is, in law, a separate issue from the decision of the criminal court on whether the intentional element of the offence of tax evasion has been made out ...” The applicant appealed to the Court of Cassation on the ground that there had been a violation of Article 6 of the Convention and of Article 4 of Protocol No. 7 to the Convention in so far as it guarantees the non bis in idem principle. On 20 June 1996 the Criminal Division of the Court of Cassation dismissed the appeal in a judgment which read as follows: “... Frédéric Ponsetti argued in his defence that as he had already been subjected to tax penalties for the same matters, no further penalties could be imposed on him. In rejecting the accused’s submissions and sentencing him to a term of imprisonment and a fine under Article 1741 of the General Tax Code, the Court of Appeal stated that the nature and purpose of prosecution for tax evasion, which is aimed at curbing the unlawful avoidance of tax, are different from those pursued by the tax authorities when conducting a tax audit with a view to collecting unpaid tax. Having regard to that reasoning, this Court is satisfied that the Court of Appeal gave a valid basis for its decision. In accordance with the reservations made by France regarding Protocol No. 7, the non bis in idem rule enshrined in Article 4 of Protocol No. 7 to the European Convention on Human Rights and Fundamental Freedoms is applicable only to offences which under French law fall within the jurisdiction of the criminal courts and does not prevent tax penalties being imposed concurrently with penalties by the criminal courts. It follows that the ground of appeal must be rejected ...” The applicant has since 1979 been in practice as a notary in Bezons. From October 1990 onwards, he failed to make his monthly value-added tax (VAT) returns with the result that his activity was included on the audit programme of the Val d’Oise département tax office by the administrative department. The audit, which concerned VAT, covered 1989, 1990, 1991 and January to April 1992. A notice advising that the accounts would be inspected was sent to the applicant on 12 June 1992 and the audit took place at his office between 25 June and 25 October 1992. The arrears to be paid by the applicant were assessed on the basis of VAT shown to be due by returns lodged during the audit. They came to a total of FRF 1,212,599. A demand for that amount was sent to the applicant on 27 November 1992. In addition to the VAT, the applicant was required to pay the surcharges laid down by Article 1728 of the General Tax Code for failure to file returns. They amounted to FRF 812,035 and FRF 209,859 (namely 90,95 % of the total). On 19 November 1993 the tax office of the Val d’Oise département lodged a complaint with Pontoise Criminal Court with the approval of the Tax Offences Board dated 8 November 1993. The tax authorities, represented by the Director of Taxes of the Val d’Oise département, lodged a request to be joined as a civil party to the proceedings. The applicant was charged with “having at Bezons, between 1 October 1990 and 30 April 1992, fraudulently evaded assessment of his liability to tax, namely value-added tax, and evaded its payment in whole or in part, by wilfully concealing part of the sums, namely FRF 9,073,333, liable to such tax, on which was due FRF 1,212,596 in unpaid VAT ...” Before the Criminal Court the applicant pleaded the non bis in idem rule, arguing that, since tax penalties had already been imposed on him he could not be prosecuted in the criminal courts for matters arising out of the same facts. On 8 November 1995 the Criminal Court dismissed that procedural objection in a judgment which read as follows: “It is common ground that an estoppel per rem judicatam constitutes an obstacle to a further prosecution if there is identity of legal basis, subject-matter and parties with a previous prosecution that has ended with an unappealable decision. In the instant case, even supposing that the tax proceedings resulted in a decision that could be described as criminal in character, the administrative proceedings involve different parties, a different subject-matter and a different legal basis. Firstly, there is no identity of parties between tax proceedings and criminal proceedings as the public prosecutor, who plays no role in the administrative proceedings, acts as the prosecuting party in the court proceedings. In the administrative proceedings, however, it is the tax authorities who instigate matters. In addition, the subject-matter and legal basis in tax proceedings and in criminal proceedings are different. Whereas the purpose of administrative proceedings is to obtain compensation only for the loss sustained by the tax authorities through the non-payment of taxes, the function of criminal proceedings is to remedy the harm caused to society by the actions of the perpetrator of the fraud. There is a radical difference in the nature of tax penalties and criminal penalties, as the former may be imposed following a mere unintentional mistake by the taxpayer, without there being any additional harm to society. The offence of tax evasion, however, causes additional harm which affects the whole fabric of society. Reparation for that harm is sought by the public prosecutor on behalf of society; thus, criminal proceedings and tax proceedings have a different purpose. That difference in character is likewise demonstrated by the different statutory bases for tax penalties and criminal prosecutions ...” As regards the merits, the Criminal Court stated “... in any event, the fact that notices were served on the accused from March 1991 onwards enables the arguments relating to the absence of intent or to improbable implied agreements with the tax authorities to be discounted ...”. The Criminal Court found the applicant guilty of the offences of which he was accused and sentenced him to, inter alia, twelve months’ suspended imprisonment and a fine of FRF 100,000. The applicant, the public prosecutor and the tax authorities appealed against that judgment. Referring to the European Convention on Human Rights, the applicant repeated his arguments based on the non bis in idem rule. On 24 October 1996 the Court of Appeal rejected that argument in a judgment in which it stated: “... the case-law of the European Court ... does not require the court concerned to treat fiscal administrative penalties as criminal penalties but to examine whether under domestic law any of the aims of the penalty for the violation of a general rule concerning all citizens – irrespective of how such penalty is classified under domestic law – is at once preventive or deterrent and punitive rather than the reparation of damage for the purposes of Article 6 § 1 of the [Convention]. That Article provides: ‘In the determination ... of any criminal charge against him, everyone is entitled to a fair ... hearing ... by [a] ... tribunal.’ In practice, [the applicant] could have raised the ‘criminal’ character of the penalties imposed for tax evasion by seeking a review (which he did not do in the instant case) before a court, namely the administrative court, which would try the issue of the penalties fairly. As matters stand, the case-law of the European Court regarding the interpretation of Article 6 of the [Convention] requires no more than that. Secondly, [as regards Article 4 of Protocol No. 7] ... France has made the following reservation regarding the application [of Article 4 of Additional Protocol No. 7]: ‘... only those offences which under French law fall within the jurisdiction of the French criminal courts may be regarded as offences within the meaning of Articles 2 to 4 of this Protocol’. Fiscal penalties and criminal penalties are different in nature, even though fiscal penalties, which are exclusively monetary, have a penal character for the purposes of the application of Article 6 § 1 of the [Convention]. Fiscal penalties are imposed by the authorities subject to review by the administrative courts whereas criminal penalties are imposed by the ordinary courts and may be other than financial, with sentences ranging from alternatives to prison to imprisonment itself and the imposition of additional penalties, none of which are available to the tax authorities. Proceedings for the collection of tax and penalties or, as in the instant case, for challenging interest or tax penalties are not criminal proceedings; there is no determination of ‘a criminal charge’ for the purposes of either domestic law or of the international convention ratified, with a reservation, by France. A criminal prosecution for tax evasion and administrative proceedings for the assessment of the base for tax, interest and penalties (whatever the stage, including the contentious stage, reached in the contemplated proceedings) are, both as regards their nature and subject-matter, different from each other and mutually independent. Thus, for the purposes of Article 4 of Protocol [No. 7], in the instant case neither the administrative proceedings (which cannot be classified as criminal) nor the nature of the administrative financial penalty (whose preventive and repressive character is relevant only as regards the requirement that the fundamental guarantees provided by Article 6 of the [Convention] should be applied), allow Mr Chesnel to affirm that he has previously been prosecuted in criminal proceedings solely on the ground that penalties were imposed on him in connection with unpaid VAT pursuant to Article 1728 of the General Tax Code. That is because the statutory basis is different from the one used in criminal proceedings, namely Articles 1741 and 1750 of the General Tax Code. The non bis in idem rule cannot be applied in the present case. Consequently, Mr Chesnel cannot assert that he has been prosecuted twice on the same basis. The Court of Appeal upholds the decision of the court below to reject that argument, but does so on different grounds ...” On the merits, the Court of Appeal upheld the impugned judgment finding that the applicant was guilty of the offence of tax evasion, and confirmed each of the penalties imposed by the Criminal Court. The applicant appealed to the Court of Cassation. His sole ground of appeal was that there had been a violation of Article 4 of Protocol No. 7. In a judgment of 11 December 1997, the Court of Cassation dismissed the appeal on the following ground: “... The Court of Appeal rejected the submissions [of the applicant] that, as a fiscal penalty had already been imposed on him, he could not be prosecuted for the same offence, and sentenced him to a term of imprisonment and fine pursuant to Article 1741 of the General Tax Code. In so doing, it stated that a criminal prosecution for tax evasion, which concerns criminal conduct, and administrative proceedings for the determination of the base of the tax, plus interest and penalties, are different in nature and purpose and independent of each other. Having regard to that reasoning, this Court is satisfied that the Court of Appeal gave a valid basis for its decision. The prohibition on two convictions for the same offence contained in Article 4 of Protocol No. 7 ..., is, according to the reservations made by France on signing the Protocol, applicable only to offences which under French law are within the jurisdiction of the criminal courts and does not preclude fiscal penalties being imposed concurrently with the penalties imposed by the criminal courts ...” The relevant provisions of the General Tax Code are as follows: “1. Where a natural or juristic person or an association under an obligation to make a return or to lodge a document supplying information needed for the calculation of the base of any of the taxes, duties, charges, dues or other sums assessed or collected by the Department of Revenue or their payment fails to make such return or lodge such document within the time-limit, interest for late payment calculated in accordance with Article 1727 and a 10% surcharge shall be added to the tax liability imposed on the person concerned or assessed on the basis of the return or document lodged out of time. ... 3. The surcharge shall be increased to: – 40% if the document is not lodged within thirty days after receipt of notice sent by registered post to produce the document within that time-limit; – 80% if the document is not lodged within thirty days after receipt of a second notice sent in the same manner as the first.” “Without prejudice to any special provisions ... anyone who fraudulently evades assessment or payment in whole or in part of the taxes with which this Code is concerned, or attempts to do so, whether by wilfully omitting to make his return within the prescribed time, or by wilfully concealing part of the sums liable to tax, or by arranging his insolvency or obstructing the collection of tax by other subterfuges, or by acting in any other fraudulent manner, shall be liable, independently of the applicable tax penalties, to a fine of FRF 250,000 and to imprisonment for a term of five years ...” Under the case-law of the Criminal Division of the Court of Cassation the offence of fraudulent evasion or attempted fraudulent evasion of the assessment or payment of tax is characterised by the accused’s wilful omission to make his returns within the prescribed time, there being no requirement that fraudulent means should have been used (see judgments of 4 October 1974, Gazette du palais 1975.1 Somm. p. 150; 2 March 1976, Reports Dalloz Sirey, 1976, 25e cahier; and 2 July 1998, Reports no. 213). A finding that there has been wilful concealment of sums attracting tax suffices to characterise the tax offence “in all its constitutive elements”, it being unnecessary to establish the use of fraudulent means (see judgment of 2 July 1998 cited above).