GRAND JUSTICES' INTERPRE-TATION NO. 503

07/01/2000

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On 20 April 2000 the Council of Grand Justices delivered its Interpretation No. 503, which rules on an extremely important principle of tax ad-ministration: that in principle, an act that is both an offence in its own right and an act of tax eva-sion cannot be penalized twice.

According to the text of the interpretation, a taxpayer who fails in a duty of action becomes liable to penalty merely by virtue of the omission concerned, but to be penalized for tax evasion a person must have committed an act of non-payment of tax which meets the statutory definition of that offence. The purpose of and conditions for penalty are different in these two cases. However, if one and the same act simul-taneously trigger two penalties against an of-fence in its own right (penalty for action) and against an act of tax evasion (penalty for tax evasion), dual penalties may not be imposed unless the nature and category of the penalty for each offence are different, such that it is neces-sary to impose both punishments in order to achieve the administrative purpose of the penal-ties. If the same act not only breaches a duty of action, but also constitutes tax evasion, and the penalty in each case is of the same category, and if the more serious penalty of the two is sufficient to achieve the administrative purpose of the punishment, then the act in question may not be further penalized as another offence. To do so would run contrary to the constitutional purpose of protecting the people's rights.

It has been a general practice of tax agencies to impose both a penalty for omission and a penalty for tax evasion, without differentiating the form of the act or the nature and category of the pen-alties. This practice was reinforced by the Council of Grand Justices' Interpretation No. 356, which upheld a fine imposed on the grounds that it is a sanction imposed on the business operator for failing in a duty of action, and is by nature a penalty for omission; and that it differs from a penalty for tax evasion, imposed for non-payment of tax. Tax authorities often cite Interpretation 356 when imposing concurrent penalties on a taxpayer for an omission which breaches a duty of action but also constitute tax evasion.

For instance, in a case where a company fails to issue Government Uniform Invoices (GUIs), thereby failing in its statutory duty to give re-ceipts, and as a result sales revenue is not fully declared, the tax authorities often impose both a penalty for the failure to issue GUI's, and a pen-alty for the resultant non-payment of tax. This would indeed appear to violate the principle of not punishing the same act twice.

With reference to the above practice of blanket imposition of concurrent penalties without en-quiry as to the form of the act or the type and purpose of the penalty, Interpretation 503 ex-plicitly sets forth the following principles:

The question whether an act in breach of the duty to submit to taxation, which contravenes more than one legal provision, may be the subject of multiple penalties, will be answered differently depending on the form of the act, the types of penalties, and the purposes of the penalties. If there are actually multiple acts violating multiple statutory provisions, and the resulting penalty is different in each case, such penalties may still be imposed concurrently.

However, where a breach of the duty to submit to taxation can be penalized both as an offence in its own right and as an act of tax evasion taking the failure to issue GUI's for example, although the purpose of and conditions for the potential penalties are different (a penalty for omission requiring merely the failure to act, while a penalty for tax evasion requires the non-payment of tax), dual penalties may not be imposed unless the nature and category of the penalty are in each case different, such as one being a fine and the other confiscation, or one being a fine and the other suspension of business operations, such that it is necessary to concurrently impose different forms of pen-alty in order for the administrative purposes of the penalties to be achieved.

Therefore, if an act which breaches a duty of action is also punishable as part of an act of tax evasion or the means to an act of tax evasion, but the penalties in each case are of the same type (i.e. fines), and a single penalty is suffi-cient to achieve the administrative objective of the punishment, it is not permissible to impose both fines.

The implications of this interpretation are indeed far reaching. In future cases, if the tax collection authorities continues their current practice, many dual punishments may be found to have been illegally imposed, and the taxpayer will be enti-tled to seek administrative remedy in court.