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VAT Penalties and Human Rights

A recent landmark judgement threaded on the issues of VAT penalties coupled with criminal charges. Local VAT legislation calls for administrative fines for late VAT payments. In doing so, it does not exclude the recourse to separate criminal proceedings, which could effectively lead to a prison term.

Anthony P. Farrugia vs Prime Minister, may lead to amendments to local tax legislation, this in view of the fact that the Constitutional Court ruled that local VAT legislation is in breach of the fundamental right to be tried twice for the same offence.

Farrugia argued that article 83(3) of the Value Added Tax Act infringed upon his rights, because he was being punished twice for the same offence. The focus of the matter before the Constitutional Court is on the article hereunder:

83(3) The  institution  of  proceedings  or  the  imposition  of  a penalty for any offence under this Part shall not relieve any person from prosecution under any other law or from liability to the payment of any tax or administrative penalty for which he is or maybe liable under this Act, and the institution of proceedings or the imposition of a penalty for any offence under any other law or the payment of any tax or administrative penalty under this Act shall not relieve any person from any prosecution or penalty under this Part.

Farrugia argued that this article violates the ne bis in idem principle. This principle is given protection by virtue of Article 39(9) of the Constitution of Malta and Article 4 of Protocol Number 7 of the ECHR – the right not to be tried or punished twice.

Convention on Human Rights:

“1. No one shall be liable to be tried or punished again in criminal proceedings under the jurisdiction of the same State for an offence for which he has already been finally acquitted or convicted in accordance with the law and penal procedure of that State.

  1. The provisions of the preceding paragraph shall not prevent the reopening of the case in accordance with the law and penal procedure of the State concerned, if there is evidence of new or newly discovered facts, or if there has been a fundamental defect in the previous proceedings, which could affect the outcome of the case.
  2. No derogation from this Article shall be made under Article 15 of the Convention.”

It is worth noting that The European Court of Human Rights has ruled on the ne bis in idem principle in a number of judgements. The main argument in Farrugia vs Prime Minister was whether administrative penalties fall within the definition of a criminal charge. The ECHR’s case-law sets out three criteria, commonly known as the ‘Engel Criteria’ which need to be considered in determining whether or not there was a ‘criminal charge’. The first criterion is the legal classification of the offence under national law, the second is the very nature of the offence and the third is the degree of severity of the penalty that the person concerned risks incurring. The second and third criteria are alternative and not necessarily cumulative. This, however, does not exclude a cumulative approach where separate analysis of each criterion does not make it possible to reach a clear conclusion as to the existence of a criminal charge.

In Farrugia’s case, contrary to what the Court of First Instance declared, the Constitutional Court considered administrative penalties, for the purposes of the European Courts of Human Rights, to fall well within the definition of a criminal charge. Therefore, separate criminal proceedings, which could lead to jail time, effectively imply that an individual is being tried twice for the same crime.

This case is a notorious one for the sole reason that it challenged local legislation relating to VAT penalties and punishments in relation to such offences. In view of this judgement, one would expect that changes are made to our local legislation to reflect the stand taken by the Constitutional Court.

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