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Can tax planning be criminal ? Domestic and international perspective

Can tax planning be criminal ? Domestic and international perspective. Daniel Gutmann Sorbonne Law School Daniel.gutmann@cms-bfl.com. Practical relevance of the topic. A relatively new topic

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Can tax planning be criminal ? Domestic and international perspective

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  1. Can tax planning becriminal?Domestic and international perspective Daniel Gutmann Sorbonne Law School Daniel.gutmann@cms-bfl.com

  2. Practical relevance of the topic • A relatively new topic • Criminallawrarelyinterfereswithtaxlaw, except in extreme situations (absence of tax return, concealment of income, wrongstatements etc.)  tax planning is not concerned • However, seriousconcern for tax managers • Widespread feeling of « criminalization of taxlaw » • Ex 1 : Business restructuring and failure to declare the existence of a PE : a criminalproblem? • Ex 2 : Transfer pricing : criminalconsequences? • Ex 3 : Tax arbitrage : from « abuse of law » to taxfraud in the criminalsense

  3. Theoretical issues • Tax planning, a normal practice : whyshoulditturncriminal? • Cf. controversy about the legitimacy of tax arbitrage • Whereis the borderline betweensoundoptimization and agressive tax planning? • Assumingthatcriminallaw has something to do withtax planning, how to design a proper system of criminallaw in this area?

  4. I- Why should there be a connection between tax planning and criminal law?

  5. A- Becausetax planning is an evilwhich must befought (?) • Tax planning harms equality between taxpayers + it affects significantly tax revenues • Is this enough to make it criminal? • No : no fundamental State interest is at stake • Yes : • New forms of particularly harmful tax planning • In a period of crisis, solidarity is more necessary than ever + effectiveness of the tax system is actually the only way out (cf. Prof. Bouvier yesterday)

  6. B- Because criminal law is an appropriate tool to fight tax planning (?) • Functions of criminallaw • Deter • Punish (bothnatural and legalpersons) • No better instrument? • A behaviouralapproach of criminallaw? • Anti-abuse rules • Non-coercitive instruments (« enhancedrelationship » betweentaxpayers and taxauthorities) • Disclosurerules (administration/stakeholders)

  7. II- How to design a proper criminal legislation to fight tax planning?

  8. A- Define the boundariesof criminallaw • Problem n° 1 : choose between « administrative » penalties and « criminal » penalties • Many different possible models • Limit between « administrative » and « criminal » is not clear  criminal principles apply to administrative sanctions under some conditions

  9. A- Define the boundariesof criminallaw (cont.) • Problem n° 2 : distinguish between a tax and a penalty • Ex 1 : higher withholding taxes for income directed towards certain countries • Ex 2 : specific taxation of offshore trust

  10. B- Distinguishbetween « normal » tax planning and criminaloffence • French example : « abus de droit » vs. « fraude fiscale » • Comp. Brazil (art. 2° Lei 8.137/1990) : « empregaroutra fraude para eximir-se, total ou parcialmente, de pagamento de tributo » • General obs. : • Distinguishbetweensham transactions and tax-driven transactions? • Crucial importance of the intentionalelement for criminalmatters

  11. C- Avoid double jeopardy • Problem whether a criminal sanction may be added to an administrative sanction • // whether a tax GAAR may cumulate with a criminal GAAR • Non bis in idem • Interesting evolution of the ECHR on this topic • Behind the problem : question of independence of tax and criminal proceedings

  12. D- Refrain fromcriminalizingeverything… • Pb n° 1 : an excessivelybroaddefinition of criminallypunishedtax planning infringes the principle of legality • France : question whether the 80% penalty for « abuse of law » is consistent with the Constitution •  need for well-definedcriminaloffences • Pb n° 2 : issue of excessive penalties • Principle of proportionality of penalties • Protection of property (ECHR case law)

  13. E- Think about the international context • Intrinsiclimit of criminallaw : territoriality • Ex : a tax planning schemeisinitiated by a non-residentcompany : whatcanyou do? • Possible paths • Mutual recognition of criminaljudgments • Exists in the EU ; taxfraud situations explicitlydealtwith • International criminallaw as anothertool? • International treatiesproviding for criminaltaxoffences?

  14. Thank you for your kind attention

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