(September 8, 2015)

On September 8, 2015 the European Court of Justice (CJEU) ruled in Case C‑105/14 in the criminal proceedings against Ivo Taricco, Ezio Filippi, Isabella Leonetti, Nicola Spagnolo, Davide Salvoni, Flavio Spaccavento and Goranco Anakiev (ECLI:EU:C:2015:555).

·        In so far as it provides for the limitation period to be extended by only a quarter following interruption and, therefore, allows crimes to become time barred, resulting in impunity, even though criminal proceedings were brought in good time, has the amendment to the last subparagraph of Article 160 of the Italian Criminal Code made by Law No 251 of 2005 led to infringement of the provision protecting competition in Article 101 TFEU?

·        Has the Italian State, in amending by Law No 251 of 2005 the last subparagraph of Article 160 of the Italian Criminal Code, in so far as this provides for the limitation period to be extended by only a quarter following interruption, which means therefore that there are no penal consequences for crimes committed by unscrupulous economic operators, unlawfully introduced a form of aid prohibited by Article 107 TFEU?

·        Has the Italian State, in amending by Law No 251 of 2005 the last subparagraph of Article 160 of the Italian Criminal Code, in so far as this provides for the limitation period to be extended by only a quarter following interruption, thus conferring impunity on those who exploit the Community directive, unlawfully added a further exemption to those exhaustively listed by Article 158 of Council Directive 2006/112/EC of 28 November 2006?

·        In so far as it provides for the limitation period to be extended by only a quarter following interruption and, therefore, fails to penalise conduct that deprives the State of the resources necessary in order to meet its obligations to the European Union also, has the amendment to the last subparagraph of Article 160 of the Italian Criminal Code made by Law No 251 of 2005 led to breach of the principle of sound public finances laid down by Article 119 TFEU?

The facts of the main proceedings and the questions referred for a preliminary ruling

·        The accused are charged before the Tribunale di Cuneo with having formed and organised, during the fiscal years 2005 to 2009, a conspiracy to commit various offences in relation to VAT. They are alleged to have put in place fraudulent ‘VAT carousel’ legal arrangements, involving, inter alia, the creation of shell companies and the use of false documents, by means of which they were able to acquire goods — in this case, bottles of champagne — VAT free. This allowed Planet Srl (‘Planet’) to procure products at costs below the market price, which it could then sell to its customers, thereby distorting the market.

·        Planet is alleged to have taken receipt of invoices issued by shell companies for non-existent transactions. Those companies did not submit any annual VAT returns or, where they did submit returns, did not actually pay the corresponding VAT. Planet, on the other hand, entered the invoices issued by those shell companies in its accounts, wrongly deducting the VAT recorded in each of them, and, consequently, submitted fraudulent annual VAT returns.

·        It can be seen from the order for reference that various procedural matters have arisen in the case before the referring court and it has rejected numerous objections raised by the accused at the preliminary hearing held before it. At this stage, the referring court must, first, deliver a judgment dismissing the charges in respect of one of the accused, Mr Anakiev, since the offences in question are time-barred as regards him and, secondly, it must commit the other accused persons for trial, and fix a hearing before the trial court.

·        The referring court indicates that the offences which the accused are alleged to have committed are punishable, under Articles 2 and 8 of Legislative Decree No 74/2000, by a term of imprisonment of up to six years. However, the offence of conspiracy, laid down in Article 416 of the Penal Code, of which the accused could also be found guilty, is punishable by a term of imprisonment of up to seven years for those instigating the conspiracy and up to five years for those merely taking part. It follows that, for those instigating the conspiracy, the limitation period is seven years, whereas it is six year for the others. The last event interrupting the limitation period was the order fixing the preliminary hearing.

·        Despite the interruption of the limitation period, that period cannot be extended, pursuant to the last subparagraph of Article 160 of the Penal Code, read in conjunction with Article 161 of that Code (‘the national provisions at issue’), beyond seven years and six months or, as regards those instigating the conspiracy, eight years and nine months from the date on which the offences were committed. According to the referring court, it is certain that all the offences — in so far as they are not already time-barred — will be time-barred by 8 February 2018 at the latest, before a final judgment can be delivered as regards the accused. As a result, the accused, who are alleged to have committed VAT evasion amounting to several million euros, may enjoy de facto impunity as a result of the expiration of the limitation period.

·        According to the referring court, that result was none the less foreseeable, because of the rule laid down in the last subparagraph of Article 160 of the Penal Code, read in conjunction with the second subparagraph of Article 161 of that code, which, by allowing the limitation period to be extended, following an interruption, by only a quarter of its initial duration, is tantamount to not interrupting the limitation period in most criminal proceedings.

·        Criminal proceedings in relation to tax evasion, such as that which the accused are alleged to have committed, usually involve very complex investigations, with the result that the proceedings already take a considerable amount of time at the preliminary investigation stage. The duration of the entire proceedings is such that in Italy, in that type of case, de facto impunity is a normal, rather than exceptional, occurrence. Furthermore, it is often impossible for the Italian tax authorities to recover the amount of the taxes evaded through the offence in question.

·        In that context, the referring court takes the view that the national provisions at issue indirectly authorise unfair competition by some economic operators established in Italy in relation to undertakings established in other Member States, thus infringing Article 101 TFEU. Moreover, those provisions are liable to favour certain undertakings, in breach of Article 107 TFEU. In addition, those provisions create a de facto VAT exemption which is not laid down in Article 158(2) of Directive 2006/112. Lastly, the de facto impunity enjoyed by tax evaders infringes the guiding principle, laid down in Article 119 TFEU, that the Member States must ensure that their public finances are sound.

·        However, the referring court considers that, if it were able to disapply the national provisions at issue, it would be possible to ensure the effective application of EU law in Italy.

·        In those circumstances, the Tribunale di Cuneo decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

1. In so far as it provides for the limitation period to be extended by only a quarter following interruption and, therefore, allows crimes to become time barred, resulting in impunity, even though criminal proceedings were brought in good time, has the amendment to the last subparagraph of Article 160 of the Italian Criminal Code made by Law No 251 of 2005 led to infringement of the provision protecting competition in Article 101 TFEU?
2. Has the Italian State, in amending by Law No 251 of 2005 the last subparagraph of Article 160 of the Italian Criminal Code, in so far as this provides for the limitation period to be extended by only a quarter following interruption, which means therefore that there are no penal consequences for crimes committed by unscrupulous economic operators, unlawfully introduced a form of aid prohibited by Article 107 TFEU?
3. Has the Italian State, in amending by Law No 251 of 2005 the last subparagraph of Article 160 of the Italian Criminal Code, in so far as this provides for the limitation period to be extended by only a quarter following interruption, thus conferring impunity on those who exploit the Community directive, unlawfully added a further exemption to those exhaustively listed by Article 158 of Council Directive 2006/112/EC of 28 November 2006?
4. In so far as it provides for the limitation period to be extended by only a quarter following interruption and, therefore, fails to penalise conduct that deprives the State of the resources necessary in order to meet its obligations to the European Union also, has the amendment to the last subparagraph of Article 160 of the Italian Criminal Code made by Law No 251 of 2005 led to breach of the principle of sound public finances laid down by Article 119 TFEU?

The CJEU ruled as follows:

1.     A national rule in relation to limitation periods for criminal offences such as that laid down by the last subparagraph of Article 160 of the Penal Code, as amended by Law No 251 of 5 December 2005, read in conjunction with Article 161 of that Code — which provided, at the material time in the main proceedings, that the interruption of criminal proceedings concerning serious fraud in relation to value added tax had the effect of extending the limitation period by only a quarter of its initial duration — is liable to have an adverse effect on fulfilment of the Member States’ obligations under Article 325(1) and (2) TFEU if that national rule prevents the imposition of effective and dissuasive penalties in a significant number of cases of serious fraud affecting the financial interests of the European Union, or provides for longer limitation periods in respect of cases of fraud affecting the financial interests of the Member State concerned than in respect of those affecting the financial interests of the European Union, which it is for the national court to verify. The national court must give full effect to Article 325(1) and (2) TFEU, if need be by disapplying the provisions of national law the effect of which would be to prevent the Member State concerned from fulfilling its obligations under Article 325(1) and (2) TFEU.

2.     A limitation system applicable to criminal offences in relation to value added tax such as that established by the last subparagraph of Article 160 of the Penal Code, as amended by Law No 251 of 5 December 2005, read in conjunction with Article 161 of that Code, cannot be assessed in the light of Articles 101 TFEU, 107 TFEU and 119 TFEU.

For further information click here to be forwarded to the text of the ruling as published on the website of the CJEU, which will open in a new window.

Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).

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