Tax Evasion and Amendments to the Criminal Code of the Republic of Serbia

Authors: Attorneys-at-law, Ćiraković M. Goran and Vuković G. Veljko, the Law Firm “VUK Tax Attorneys”

At the end of November 2016, the National Assembly of the Republic of Serbia adopted the Law on Amendments to the Criminal Code (the "New Criminal Code"), that will enter into force on 1st June 2017, and certain provisions related to criminal offenses against commerce, which also includes Tax Evasion, comes into force on 1st March 2018. Amendments concerning Tax Evasion are significant because they define person who can be regarded as perpetrator, act of perpetration, minimum amount of evaded tax in order that criminal offense exists, as well as sanctions.

Payment of tax is general obligation defined by the Constitution of the Republic of Serbia, and regular fulfilment thereof contributes to financial stability of the state. Therefore, criminal offense of Tax Evasion in our legal system is fiscal delict, so the object protected by criminal law is the right and fiscal interest of the state to collect taxes.

The New Criminal Code defined criminal offense of Tax Evasion as follows: who with intention that he or other person fully or partially avoid payment of taxes, contributions or other statutory duties, gives false data on generated revenues, objects and other facts relevant for determination of such obligations, or who with same intention, in case of mandatory reporting, fails to report generated revenues, objects and other facts relevant for determination of such obligations, or who with same intention conceals data relevant for determination of aforesaid obligations, whereas the amount of liability whose payment is avoided exceeds 500,000 RSD, will be punished by imprisonment of six (6) months to five (5) years and with monetary fine. If the amount of liability avoided exceeds 1,500,000 RSD, perpetrator will be punished by imprisonment of one (1) to eight (8) years and with monetary fine, and if the amount of liability avoided exceeds 7,500,000 RSD, perpetrator will be punished by imprisonment of three (3) to ten (10) years and with monetary fine.

The perpetrator of criminal offense of Tax Evasion can only be natural person. Concerning legal entities as taxpayers, only statutory representative of legal entity could have been prosecuted as perpetrator so far, while other persons (e.g. accountants, proxies, shareholders, etc.) were mainly prosecuted as accomplices – assistants, which is important because an accomplice can be punished with lesser penalty than the penalty defined for Tax Evasion. However, the New Criminal Code determines that perpetrators of criminal offense of Tax Evasion can also be other persons, and not only statutory representatives, which thereby extends coverage of persons who can be prosecuted as direct perpetrators of this criminal offense and punished with penalty defined for the criminal offense of Tax Evasion.

At the time of committing discussed criminal offense, the perpetrator must possess clear intention to evade taxes. Without such intention, this criminal offense 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). Therefore, misinterpretation of tax regulations, supported with transparent and up-to-date accounting records of business transactions, cannot suffice per se for existence of criminal offense of Tax Evasion, whereas the burden of proof concerning premeditation, i.e. intentional conduct of the perpetrator aimed to evading taxes, rests with the Public Prosecutor, who has quite difficult task in proving this with business entities that duly maintain their business records. If the Tax Administration and taxpayers interpret tax regulations differently, this should be resolved through administrative proceedings and administrative dispute, and not within criminal proceedings that prosecute violation of regulations resulting with highest degree of danger for society. However, almost by automatism, due to, amongst other, fear from statute of limitation for criminal prosecution, the Tax Police files criminal charges to the Public Prosecutor already in the stage of first-instance tax proceedings, even before enactment of resolution upon taxpayer’s appeal after tax control.

The New Criminal Code, as well as current Criminal Code, sets the act of perpetration alternatively, through three actions, but with innovations regarding first and second type of perpetration act. Namely, in regard to giving false data on revenues, as well as to failure to report revenues, it is no longer required that these revenues are legally generated. This amendment should not be interpreted in a way that Tax Evasion will exists when revenues generated through illegal, i.e. criminal activities are not reported, because revenues and assets thus acquired are subject to confiscation. The purpose of this amendment is that process for proving existence of Tax Evasion will no longer require determination that revenues have been legally acquired, which caused certain problems in practise. There are no changes concerning third act of perpetration, i.e. concealment of data relevant for determination of tax liabilities.

Minimum amount of evaded tax for existence of basic form of criminal offense is raised from 150,000 to 500,000 RSD. For all amounts of taxes below 500,000 RSD whose payment is avoided, there will be no criminal offense, but rather tax misdemeanour, if applicable. However, if individual amounts of liabilities whose payment is avoided are below 500,000 RSD, but collectively exceed this amount, requirement for criminal prosecution would be considered to exist. Said amount of 500,000 RSD that is sufficient for criminal prosecution, which applies as of 1st March 2018, is still extremely low, given the reality of business relationships in which transactions are carried out on daily basis in much higher amounts.

Concerning amendments in sanctions, lowest measure of imprisonment for most severe form of criminal offense of Tax Evasion (if amount of liabilities whose payment is avoided exceeds 7,500,000 RSD) is strengthened, so that the New Criminal Code defines imprisonment of three (3), which was previously two (2), to ten (10) years and monetary fine.

Regardless of mentioned amendments, determination of tax evasion will still be difficult in court practise, as it is necessary to ensure solid evidences that criminal offense is committed, and particularly that perpetrator had intention to evade tax, that is not easy to prove.

Published: December 2017, German-Serbian Chamber of Commerce, booklet “Law and Taxes 2017”