New Tax Crime: VAT Fraud
Author: Attorney-at-Law Vojinović B. Milan, the Law Firm “VUK Tax Attorneys”
Date: 13th January 2021
Serbian National Assembly adopted on 26th November 2020 the Law of Amendments to the Law on Tax Procedure and Tax Administration (hereinafter: “LTPTA”) which, amongst other, introduced through the Article 173.a new tax crime Fraud in relation with Value Added Tax (VAT Fraud).
Article 173.a, paragraph 1 of the LTPTA defines that a person who intentionally claims for himself or for another person the right to unjustified VAT refund or VAT credit in previous 12 months, by submitting one or more VAT declarations with false content, whereas the amount of VAT refund or VAT credit exceeds one (1) million RSD, will be punished by imprisonment of one (1) to five (5) years and with monetary fine.
Article 173.a paragraph 2 of the LTPTA defines that a person who with intent that he or another person fully or partially evade payment of VAT in previous 12 months, does not submit one or more VAT declarations, or submits one or more VAT declaration with false content, or who otherwise with same intention evades payment of VAT, whereas the amount of VAT payment that has been evaded exceeds one (1) million RSD, will be punished by imprisonment of one (1) to five (5) years and with monetary fine.
Severe forms of this tax crime are defined by paragraphs 3 and 4 of the Article 173.a of the LTPTA, as follows: (i) if VAT amount from paragraphs 1 and 2 of this Article exceeds five (5) million RSD, perpetrator will be punished by imprisonment of two (2) to eight (8) years and with monetary fine, and (ii) if VAT amount from paragraphs 1 and 2 of this Article exceeds 15 million RSD, perpetrator will be punished by imprisonment of three (3) to ten (10) years and with monetary fine.
Article 173.a paragraph 5. of the LTPTA stipulates that security measure of prohibition to perform vocations, activities and duties in duration from one (1) to five (5) years will be imposed to natural person, entrepreneur and responsible person in legal entity – tax payer, in addition to said penalties.
Malintent of the perpetrator is essential element of the criminal offense of VAT fraud, as without such malintent, this crime cannot be committed. Therefore, it is necessary to prove existence of premeditation for criminal responsibility of the perpetrator, i.e. that criminal offense was committed with the highest degree of consciousness and willingness of the perpetrator (that the perpetrator was fully aware of his act and wanted to commit it).
Further-on, the act of perpetration of the criminal offense from the Article 173.a paragraph 1 of the LTPTA is submitting one (1) or more VAT declarations with false content, having the consequence of unjustified VAT refund or VAT credit for the benefit of a tax payer, in the amount which exceeds one (1) million RSD in previous 12 months, whereas the act of perpetration of the criminal offense from the paragraph 2 of the same Article is set alternatively, as follows: (i) omitting i.e. non-submitting one or more VAT declarations, or (ii) submitting one or more VAT declarations with false content, or (iii) evading VAT payment in another manner (with malintent), whereas the amount of VAT that has been evaded must exceed one (1) million RSD in previous 12 months.
Already from the title of new tax crime, it derives that it represents a tax fraud, whereas neither the Serbian Criminal Code (hereinafter: “Criminal Code”), nor any other regulation does not recognize or elaborate the term tax fraud, which brings confusion in the interpretation of basic concept of this criminal offense.
Important fact in the analysis of new tax crime is existence of the criminal offense Tax Evasion which is defined by the Criminal Code and its collision with essential elements of the new criminal offense VAT Fraud introduced by latest amendments to the LTPTA. This can cause dozens of problems both in practices of criminal law and tax law. Namely, Tax Evasion encompasses all types of tax, including VAT. Then, unlike current practices, where the existence of criminal offense of Tax Evasion was determined for each individual tax declaration, including VAT declarations that are commonly submitted on monthly basis, now the existence of VAT Fraud will be determined for the sum of all VAT declaration submitted in previous 12 months. Moreover, the act of perpetration of Tax Evasion crime is very similarly defined as the act of perpetration of VAT Fraud crime. On the other hand, penalties for both crimes are identical both for their basic and for severe forms.
Having in mind the aforesaid, initiation of criminal proceedings for VAT Fraud crime will be significantly less favorable and to the detriment of the defendants, comparing to criminal proceedings for Tax Evasion crime, especially because de minimis amount for VAT Fraud will be determined as total sum for all VAT declarations submitted in previous 12 months, and not for individual tax declarations as in the case of Tax Evasion. In addition, given that the VAT Fraud crime relates only to VAT, this means that for other types of tax defendants may be charged also for Tax Evasion crime, which means that in such case they would be prosecuted for two (2) crimes simultaneously, and this significantly complicates their procedural position and exposes them to risk of more severe prison sentences. All this conflicts with one of basic principles of the criminal law – that the perpetrator should always be subjected to less severe law.
It results from the above that introducing of criminal offenses by tax and other laws outside of the Criminal Code, is quite “problematic”, because it significantly contributes to legal uncertainty and causes serious doubts in practice, all to the detriment of taxpayers and other defendants.
Also, if the Tax Administration and taxpayers interpret tax regulations differently, this should be resolved through tax-administrative proceedings and tax-administrative dispute, and not within criminal proceedings that serve for prosecuting violation of laws which cause highest degree of menace for society. This is particularly problematic because in practice the Tax Administration and the Tax Police file criminal charges almost by automatism if the amount of tax assessed in tax audit exceeds one (1) million RSD, even though the tax-administrative proceedings are not finally resolved. In this way, the defendants are forced to defend themselves from allegations they committed tax crime, regardless of the fact that it is not finally determined that they were at all liable to pay the tax for which they are criminally prosecuted.
Despite of mentioned amendments, determining existence of crimes of Tax Evasion and VAT Fraud will still be difficult in practise of competent bodies, as it is necessary to ensure firm proofs and evidences that criminal offense is committed, and particularly that perpetrator undoubtedly acted with malintent to evade tax or commit VAT fraud, which is not easy to demonstrate at all.