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Mixing Different VAT Periods to Reach 1 Million RSD Threshold – Good or Bad Approach?

Mixing Different VAT Periods to Reach 1 Million RSD Threshold – Good or Bad Approach?

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On 06 November 2020 on the website of the National Assembly of the Republic of Serbia is published Proposal for the amendments of the Law on tax procedure and tax administration (hereinafter referred to as: “Proposal”).

Our attention was drawn by part of the Proposal suggestion for amendments of the Law on tax procedure and tax administration  (hereinafter referred to as: ”Law”), precisely by its Article 25 which envisages the amendments of the current Article 173a of the Law which incriminates the criminal offence Ungrounded expression of amounts for tax reimbursement and tax credit.

In this paper we shall attempt to point out the differences between the manner this criminal offence is currently prescribed in the Law and the manner of prescription thereof as proposed in the Proposal, as well as to point out the possible reasons for amendment proposed in the Proposal.

The Law, as already stated, in its Article 173a envisages criminal offence Ungrounded expression of amounts for tax refund and tax credit (hereinafter referred to as: “Ungrounded expression of amounts for tax refund”) which is incriminated in the following manner:

Whoever, with the intent to realize the right to ungrounded tax refund or tax credit, in the last 12 months, files a tax return i.e. tax returns with untrue content, in which an amount for tax refund or tax credit exceeds 1,000,000 RSD, shall be punished by imprisonment from six months to five years and by a fine.

If the expressed amount for tax refund or tax credit, in the last 12 months exceeds 3,000,000 RSD, the perpetrator shall be punished by imprisonment from one to eight years and by a fine.

If the expressed amount for tax refund or tax credit, in the last 12 months exceeds 10,000,000 RSD, the perpetrator shall be punished by imprisonment from three to ten years and by a fine.

To a natural person, an entrepreneur and a responsible person in the legal person – taxpayer, a security measure of prohibition to perform activity, profession, business or duty of from one to five years shall be imposed for a criminal offence from paragraphs 1-3 of this Article.

The Proposal, before all, in its Article 25 suggests amending the name of this criminal offence which would read Tax fraud relating to the value added tax (hereinafter referred to as: “VAT Tax Fraud“), while the proposal for incrimination of this proposed criminal offence is:

Whoever, with the intent that himself or the other person, in the last 12 months realize the right to ungrounded refund of the value added tax (hereinafter referred to as: “VAT”) or tax credit for value added tax, files one or more tax returns for value added tax of untrue content, in which an amount for refund or tax credit exceeds million RSD, shall be punished by imprisonment from one to five years and by a fine.

Whoever with the intent that himself or the other person, in the last 12 months fully or partially avoid payment of value added tax, does not file one or more tax returns for value added tax, files one or more tax returns for value added tax of untrue content or whoever in the same intent in other manner avoids payment of value added tax, while the tax amount which payment is avoided exceeds million RSD, shall be punished by imprisonment from one to five years and by a fine.

If the amount of value added tax from the paragraphs 1 and 2 of this Article exceeds five million RSD, the perpetrator shall be punished by imprisonment from two to eight years and by a fine. 

If the amount of value added tax from the paragraphs 1 and 2 of this Article exceeds fifteen million RSD, the perpetrator shall be punished by imprisonment from three to ten years and by a fine.

To a natural person, an entrepreneur and a responsible person in the legal person – taxpayer, a security measure of prohibition to perform activity, profession, business or duty of from one to five years shall be imposed for a criminal offence from paragraphs 1-4 of this Article.

Comparative analysis of manner of incrimination of the Ungrounded expression of amounts for tax refund from Article 173a of the Law and the VAT Tax Fraud from Article 25 of the Proposal 

Basic and qualified forms

The Law envisages as the basic form of the criminal act of the Ungrounded expression of amounts for tax refund from Article 173a paragraph 1 of this law the submission of tax return/returns for the for tax refund or for tax credit of untrue content. In order to exist this criminal offence, such tax return/returns of untrue content must be submitted by the perpetrator with the special intent to realize right on ungrounded tax refund or tax credit. Therefore, this criminal offence may be committed only with directly, i.e. qualified intent, as the form of guilt. For the existence of criminal offence Ungrounded expression of amounts for tax refund, it is necessary that objective condition for incrimination is fulfilled, precisely that amount for tax refund or tax credit expressed in the tax return/returns of untrue content exceeds the amount of 1,000,000 RSD.

This criminal offence is, by the manner of its incrimination, blanket offence and may refer, or to be more precise, may be committed in respect to any kind of tax envisaged by other law, provided that law which envisages such tax allows the taxpayer right to tax refund or tax credit. The sole linguistic formulation used for prescription of this form of Ungrounded expression of amounts for tax reimbursement may lead to a certain doubt. Namely, as it may be seen, lawmaker envisaged and linguistically formulated part of the operative part of this norm stating “whoever, in the intent to realize the right to ungrounded tax refund or tax credit, in the last 12 months, files a tax return i.e. tax returns of untrue content”. By lingual interpretation, bearing in mind the fact that words “in the last 12 months” are put between two commas, it cannot be concluded with certainty whether the stated time period refers to the period in which the tax return with untrue content is filed, in such case it would be time of commission of criminal offence as separate element of criminal offence, or the lawmaker had in mind time period encompassed by the intent of the perpetrator to gain ungrounded tax refund or tax credit. In such case, it would be sort of intent, as special subjective part of this criminal offence. Our opinion is that, nevertheless, this means the time period covered by the intention of the perpetrator in which he wants to acquire an ungrounded tax refund or tax credit. Such conclusion derives indirectly from the formulation of more serious form of this criminal offence whereby this lingual formulation is used “if the expressed amount for tax refund or tax credit, in the last 12 months exceeds” certain prescribed amount.

Consequence of this criminal offence represents ungrounded tax refund or tax credit to the perpetrator in the amount exceeding RSD 1.000.000. Consequence of this criminal offence is not explicitly stipulated, however it derives from the part of the norm stating “in which (tax returns/return) an amount for tax reimbursement or tax credit exceeds 1,000,000 RSD”. Consequence also derives from the more aggravated forms of this criminal offence, in detail mentioned later in this work, by which are envisaged more aggravated punishments for perpetrators of this criminal offence when, as the lawmaker envisages, “the expressed amount (in tax return/returns) for tax refund or tax credit, in the last 12 months exceeds” certain prescribed amount. Despite non-sufficient precise formulation here as well, due to which it may be concluded that this criminal offence exists solely by fulfillment in the tax return/returns amount prescribed as objective condition of incrimination, and having in mind that, due to the manner of prescription, it is not criminal offence with abstract danger as a consequence, we are of opinion that its consequence is, as stated, ungrounded tax refund or obtaining tax credit. 

Punishment envisaged for the basic form of Ungrounded expression of amounts for tax refund is imprisonment from six months to five years and a fine, cumulatively. Having in mind the special minimum of the imprisonment, according to the general provisions of Criminal Code  (hereinafter referred to as: “CC”), imprisonment may be maximally mitigated, under the conditions prescribed by the law, to 30 day of imprisonment. Furthermore, the prescribed range of imprisonment allows suspense sentence to be ordered.

The Proposal envisages, as a basic form of criminal act of VAT Tax Fraud from the paragraph 1, submission of one or more VAT tax returns of untrue content. As it may be clearly seen from the subject of the proposed criminal offence VAT Tax Fraud, it may be committed only in relation to the VAT, which tax represents its object of protection. This proposed criminal offence may be committed only with the qualified intent, as a sort of guilt, and in order to exist this criminal offence, one more subjective element must be fulfilled by the perpetrator, being the special intent that perpetrator for himself or for other person in the last 12 months realizes right to ungrounded VAT reimbursement, or VAT tax credit. From the manner of prescription of the criminal act of basic form of criminal offence VAT Tax Fraud, as well as prescription of special intent on the side of perpetrator which is necessary for its existence, and apart from the fact that it may be committed only in relation to the VAT, as a type of tax, two more differences are obvious comparing to the basic form of Ungrounded expression of amounts for tax refund. First, this criminal offence may be committed with the intent of the perpetrator to, for himself as well as for other person, being other natural and legal person, in the last 12 months, realize right on the ungrounded VAT refund or VAT tax credit. This is more precise linguistic formulation comparing to one containing the provision of paragraph 1 Article 173a of the Law, given that it leaves no doubt that the period of 12 months refers to the time period in which the perpetrator intends to realize the right to ungrounded VAT refund or VAT tax credit. Second difference is that such manner of prescription of special intent, as a special subjective element of the criminal offence, allows for extension of criminal zone to the perpetrators who submits tax return/returns with the intent that other persons realize right on the ungrounded VAT refund or VAT tax credit. Therefore, this encompasses responsible persons in the legal entities undertaking criminal act with the intent that legal entity unfounded realize stated rights in connection to the VAT. 

The consequence of this criminal offence is, as we consider, linguistically more precisely formulated comparing to the provision of paragraph 1 Article 173a of the Law. It consists of the VAT refund or VAT credit approval, together with the objective condition for incrimination which remains in the same amount, i.e. for the existence of this criminal offence it would be necessary that amount of the reimbursed VAT or the approved VAT credit exceeds one million RSD.

Punishment for the basic form of VAT Tax Fraud is imprisonment from one to five years and a fine, cumulatively. Having in mind the raising of the special minimum of imprisonment, in accordance with the general provisions of the CC, imprisonment may be mitigated, under the conditions prescribed by the law, to three months of imprisonment. Furthermore, the prescribed range of imprisonment allows suspense sentence to be ordered. 

Unfounded expression of amounts for tax reimbursement as well as VAT Tax Fraud envisage more aggravated forms for committing the basic form, and aggravated form exists because of the more serious, i.e. qualified consequence. More aggravated forms of these two criminal offences are slightly different, in respect to the manner of their prescription, as well in respect of the range of the punishment envisaged for their commitment.

The Proposal envisages new, special form of VAT Tax Fraud, unknown to the provision from Article 173a of the Law, about which more word shall be dedicated later in this work.

By the provision of paragraph 2 Article 173a of the Law is envisaged that the perpetrator of the Ungrounded expression of amounts for tax refund shall be punished by imprisonment from one to eight years and a fine if the expressed amount for tax refund or tax credit, in the last 12 months exceeds 3,000,000 RSD, while the paragraph 3 of same Article of the Law envisages that the perpetrator of the Ungrounded expression of amounts for tax refund shall be punished by imprisonment from three to ten years and a fine if the expressed amount for tax reimbursement or tax credit, in the last 12 months exceeds 10,000,000 RSD. In more aggravated forms of Ungrounded expression of amounts for tax refund linguistic formulations used for prescribing more aggravated consequences which gives this criminal offence more aggravated forms, may create same doubts as formulation used for defining criminal act and consequence of its basic form, as in detail explained earlier. Particularly, the question could be asked whether for the existence of more aggravated consequences that would give this criminal offence more aggravated forms, is it sufficient to fill a monetary amount in the tax return/returns, i.e. as stated by the Law “the expressed amount for tax reimbursement or tax credit exceeds” certain prescribed pecuniary amount. We are of opinion that such stance could not and may not be accepted, from the above stated reasons, as well as from the reasons of constitutional law and criminal law nature, which reasons goes far beyond the scope of this paper and therefore would not be further elaborated.

Taking into account prescribed special minimum, imprisonment for the perpetrator of more aggravated form of Ungrounded expression of amounts for tax refund from paragraph 2 of Article 173a of the Law may be mitigated to three months, and from the paragraph 3 of same Article of the Law to maximum of one year. Having in mind the prescribed special minimum of imprisonment, to perpetrators of more aggravated forms of Ungrounded expression of amounts for tax refund who committed more serious forms of this criminal offence after 01 December 2019, when Law on amendments and supplements on the Criminal Code  (“Official Gazette of the RS” no. 35/19) entered into force, it is not possible to order suspense sentence, while before this date, it was possible only for the perpetrator of Ungrounded expression of amounts for tax refund from paragraph 2 of Article 173a of the Law. 

On the other hand, paragraph 3 of Article 25 of the Proposal envisages that the perpetrator shall be punished by imprisonment from two to eight years and a fine for a basic and special form of VAT Tax Fraud if the amount of VAT exceeds five million RSD, and provision of the paragraph 3 of same Article of the Proposal prescribes that the perpetrator shall be punished by imprisonment from three to ten years for either basic or special form of VAT Tax Fraud if the amount of VAT exceeds fifteen million RSD. Having in mind special minimum as well as special maximum of imprisonment envisaged for more aggravated forms of criminal offence VAT Tax Fraud, to perpetrators of this criminal offence cannot be ordered suspended sentence, while the imprisonment may be maximum mitigated to six months for perpetrator who commits the criminal offence from paragraph 3 VAT Tax Fraud, and maximum to one year for perpetrator who commits the criminal offence from paragraph 3 VAT Tax Fraud. Our opinion is that during the prescription of more serious forms of VAT Tax Fraud better and more clear linguistic formulation are used comparing to ones used in the current provision of Article 173a of the Law, which is one of the imperatives when prescribing criminal offences and punishments for such offences. 

In case of Ungrounded expression of amounts for tax refund as well as in case of VAT Tax Fraud, for their basic and more aggravated forms, pecuniary fine is cumulatively prescribed. Such fine may be determined between the general minimum and maximum for this kind of punishment depending on whether fine shall be determined in daily amounts or in particular amount.

Special form of VAT Tax Fraud from Article 25 of the Proposal

As already stated, Proposal in its paragraph 2 Article 25 envisages special form of VAT Tax Fraud, which exists when perpetrator, with the intent that himself or the other person in the last 12 months fully or partially avoid payment of VAT, does not file one or more VAT tax returns, files one or more VAT tax returns of untrue content or, in the same intent, in other manner avoids payment of VAT, while the tax amount which payment is avoided exceeds one million RSD. As already stated, for this form of VAT Tax Fraud punishment by imprisonment from one to five years cumulatively with a fine is proposed.

Criminal act of special form of VAT Tax Fraud is alternatively envisaged, being: 

(i) Failing to file one or more VAT tax returns; or

(ii) Filing one or more VAT tax returns of untrue content; or

(iii) Avoiding VAT payment in other manner.

The consequence of special form of VAT Tax Fraud is avoided VAT payment if the objective condition of incrimination is fulfilled being that avoided VAT amount exceeds one million RSD.

VAT Tax Fraud may be committed only with direct intent as a form of guilt, having in mind that for its existence is envisaged special subjective element being the intent of perpetrator that for himself or other, natural or legal person, in the last 12 months fully or partially avoid VAT payment. 

The following question may be imposed: how to differentiate this form of VAT Tax Fraud as well as more aggravated forms of this criminal offence from the Proposal, from the criminal offence tax fraud from Article 225 of the CC (hereinafter referred to as: “Tax Fraud”) and its more aggravated forms, and furthermore question of reasons of proponent and author of Proposal for proposing such incrimination. 

Namely, by paragraph 1 of Article 225 of the CC, which envisages basic form of Tax Fraud, is prescribed that by imprisonment from one to five years and by  a fine shall be punished whoever with intent for himself or for other person to fully or partially avoid payment of taxes, contributions or other statutory duties, gives false information on legal income, objects or other facts relevant to determination of such obligations, or who with same intent, in case of mandatory reporting fails to report income, objects or other facts relevant to determination of such obligations or who with same intent in other manner conceals information relevant for determination of aforementioned obligations, and the amount of obligation whose payment is avoided exceeds one million RSD. 

Criminal act of Tax Fraud is also alternatively prescribed, being:

(i) giving false information on facts relevant for determination of obligation to pay tax, contribution or other statutory duties; or

(ii) failing to report, in case of mandatory reporting, income, objects or other facts relevant to determination of obligation to pay tax, contribution or other statutory duties; or

(iii) concealing in other manner information relevant for determination of obligation to pay tax, contribution or other statutory duties.

The consequence of Tax Fraud is avoided payment of either tax, or contributions or other statutory duties together with the objective condition of incrimination that avoided amount of tax, contribution or other statutory duties exceeds one million RSD.

Tax Fraud can be committed only with direct intent, as a form of guilt, having in mind that for its existence is envisaged fulfillment of special subjective element being the intent of perpetrator that for himself or other, natural or legal person, fully or partially avoid payment of tax, contribution or other statutory duties.

Tax Fraud also has two qualified forms prescribed in paragraphs 2 and 3 of Article 225 of CC by which is prescribed that the perpetrator of the basic form of Tax Fraud shall be punished by imprisonment from two to eight years and by a fine if the amount of the obligation of tax, contribution or other statutory duties whose payment is avoided exceeds five million RSD, i.e. by imprisonment from three to ten years and a fine if the amount of the said obligation whose payment is avoided exceeds fifteen million RSD. Therefore, pecuniary amounts of avoided tax, contributions an other statutory duties which gives Tax Fraud more serious forms, same as the punishments for such more serious forms, are the same as the avoided amount of VAT and punishments for more serious forms of VAT Tax Fraud. 

As it is clear that VAT is sort of tax and that its avoidance to pay, committed by one of the alternatively prescribed criminal acts of Tax Fraud shall represent this criminal offence as well, provided that all of its other elements are fulfilled. Furthermore, alternatively prescribed criminal acts of Tax Fraud are defined broader comparing to the alternatively prescribed criminal acts of special form of VAT Tax Fraud and they encompass by themselves these other criminal acts as well. Precisely, giving the false information on facts relevant for determination of obligation to pay tax, being criminal act of Tax Fraud, encompass submission of one or more VAT tax returns of untrue content, being one of alternatively prescribed criminal acts of basic form of VAT Tax Fraud. The same case is with the failure to report, in case of mandatory reporting, the income, objects or other facts relevant for determining obligation to pay the tax, being the criminal act of Tax Fraud and failing to submit one or more VAT tax returns, being the criminal act of special form of VAT Tax Fraud. Finally, avoidance in other manner information relating to determining obligation to pay tax, being the third alternatively prescribed criminal act of Tax Fraud, encompass avoidance in other manner VAT payment, being also third alternatively prescribed criminal act of special form of VAT Tax Fraud.

Having in mind all mentioned, further issue arises being which reasons had proponent for proposing in the Proposal special form of VAT Tax Fraud given that all elements of this criminal offence are already encompassed by the criminal offence Tax Fraud, i.e. question is what would be ratio legis for introduction in legal system incrimination which already exists.

In our opinion the reason for such proposal is time period of 12 months which is included in the subjective element of intent of special form of VAT Tax Fraud and that it is attempt to extend incrimination to acts which for now, having in mind the due dates for payments of VAT determined by law as well as constituted court practice in this respect, does not allow criminal prosecution and sanctioning the persons who in the different tax periods (monthly i.e. quarterly) avoid payment of VAT in the amounts which does not exceed one million RSD and which amounts could not be summed in order to pass the census of objective condition of incrimination for the existence of Tax Fraud. However, it is not clear why the VAT is so special among different kinds of taxes which exist in the Republic of Serbia in order to extend the incrimination only for VAT so it could encompass sum of avoided amounts of VAT from the different tax periods within 12 months, i.e. in this manner, for the tax period relating the due date of obligation to pay VAT and in relation to the avoided amounts of VAT which are in this tax periods lower than amount representing objective condition of incrimination for existence of Tax Fraud, will allow the construction of existence of criminal offence for periods and avoided amounts of VAT for which is not possible now.

Introducing period of 12 months in the intent of the perpetrator of the special form of VAT Tax Fraud, the criminal zone would, at least for the obligation of VAT payment, extended for a time period longer than tax period for due date of obligation to pay such kind of tax, and on the other hand would allow summing of lower amounts of avoided VAT in the period of 12 months in order to exceed amount of one million RSD as objective condition of incrimination for existence of Tax Fraud. In support of this intention to enable, by this incrimination, summing the amounts of avoided VAT that would be lower than one million, in order to try to reach this amount of objective condition of incrimination in a period of 12 months, is the fact that when prescribing criminal acts of special form of VAT Tax Fraud is used the term one or more VAT tax returns.

Conclusion

Having in mind all the mentioned in this work, our stance is that amendments of the Law, i.e. solutions envisaged by Article 25 of the Proposal suggestion for the amendments of the Law on tax procedure and tax administration by Ministry of finance may be marked only partially as positive. 

On one hand, scope of criminal offence Ungrounded expression of amounts for tax refund prescribed by paragraph 1 of Article 173a of the Law is narrowed in respect to the subject of its possible committing so that criminal act - instead of the current ungrounded tax refund or tax credit of any kind of tax, the new criminal offence may be committed only in respect to the refund of the amounts of VAT, i.e. right on credit only in respect to VAT. Simultaneously, on the other hand, stated provision is extended regarding the special intent of perpetrator, so instead of current provision which prescribes punishment only in case when criminal act of Ungrounded expression of amounts for tax refund is undertaken by a perpetrator with the intent to realize right on the ungrounded tax refund or tax credit, now is proposed punishment in case when a perpetrator criminal act of criminal offence undertake with intent that other person realize right on ungrounded tax refund or tax credit. 

However, special attention has to be paid to, at first glance unnecessary paragraph 2 of Article 25 of the Proposal, which proposes introduction in criminal law system special form of the proposed criminal offence and which substantially does not differs from the criminal offence Tax Fraud from the CC, except in the time period of 12 months in which creates the possibility to sum the avoided amount of VAT which are lower than one million RSD, and which possibility now does not exist having in mind the tax period in which obligation to pay VAT is due. The question arises whether the only reason for introduction of such extension of punishment for a periods and for the amounts of avoided VAT which are lower than the amount prescribed as objective condition of incrimination for the existence of Tax Fraud is to, by summing the longer periods than the tax periods for obligation of VAT payment are, reach the amount of one million RSD, with additionally unclear reasons for special treatment of VAT fraud in respect to the other types of taxes.

By Jelena Milinovic, Partner, and Nikola Djordjevic, Partner, JPM Jankovic Popovic Mitic

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