Tax sanctions or jail? Or are both of these possible?


More than one year ago, the Supreme Administration Court caused a stir when it declared that the penalty in itself is the punishment. However, the court reached the conclusion during the resolution of amount of the sanction imposed by the tax administrator in the case of the adjustment of the tax loss, when it came to the legality of reducing the sanction by assessing the tax loss. On the basis of this verdict, criminal proceedings were stopped in many cases because of the sanction, which was imposed in the administration proceeding. The principle that nobody can be punished twice in the same case was applied, which is one of the basic European rules.

In November, The European Court for human rights delivered a revolutionary verdict (the dispute called “A and B against Norway”), which can impose two punishments for tax evasion – a tax assessment with the relevant fine and, if it would be necessary, to send the taxpayer to jail. The courts have to take the imposed sanction in the tax proceeding and vice versa (they make an inclusion of punishments) into account. It has to be predicted by law that the taxpayer can receive two punishments. The courts have to use proofs from one proceeding to the other proceeding and both of the punishments have to be close to each other in the factual and time basis. The court has acknowledged that both of the punishments have different functions. The fine has an enforcement and preventative function, but the condition of jail has a punishment function.

This verdict will have consequences at the Supreme Court, which will have to reappraise its declared resolutions in the ongoing proceeding in similar cases. Specialists and taxpayers are waiting impatiently for these verdicts, who hopefully will not be punished in the criminal proceeding. In many cases, we expect that prosecutors will re-open the criminal proceedings, which had been stopped. The Financial Administration is full of expectation too. It is hard to think right now what adjustment they should make in the tax order. The Financial Administration has thought about cancelation of the penalties associated with tax evasion. By the payment of this penalty, the taxpayer would avoid criminal proceedings, which the financial administration does not wish to avoid.

The verdict of the Supreme Court is being determined and the specifics of the next developments and practice in these problems is awaiting us.

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