LANDMARK RULING

VAT penalties together with criminal proceedings are in violation of fundamental rights

A landmark judgment in the Constitutional Court ruled that Malta’s VAT legislation, which allows for heavy administrative fines for late VAT payments together with court proceedings that see the accused receiving an effective prison term is in breach of fundamental rights.

The central part of the judgment deals with the ne bis in idem rule dictating that a person cannot be tried twice for the same offence. It also delves into the proportionality of administrative and punitive penalties.

Malta’s VAT legislation system allowing for administrative fines to be levelled against a person together with court proceedings has been found to breach the ne bis in idem rule. Contrary to what the Court of First Instance declared for the case in question, 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 means that an individual is being tried twice for the same crime.

The case was instituted by Anthony P Farrugia, defended by leading tax lawyer Dr Robert Attard, against the Prime Minister of Malta, the Attorney General, the VAT Commissioner and the Police Commissioner. Mr Farrugia had been accused of not paying VAT dues on time, leading to the VAT department to issue a series of tax statements incorporating administrative penalties and punitive interest. The department also instituted criminal proceedings against Mr Farrugia with respect to the same accusations.

The courts found him guilty and he was fined and granted a period of time within which to settle his dues. Any failure to meet the court imposed deadline left Mr Farrugia vulnerable to an effective prison term. He was denied a Presidential pardon and meanwhile, the Registrar of Courts applied to the Court of Magistrates so that daily penalties imposed by the first court would be converted into an effective prison term. This was agreed upon however in the meantime Dr Attard, on behalf of Mr Farrugia, filed a Constitutional Case which suspended any other decisions on prison terms by the first court.

The Constitutional Court, going contrary to the Court of First Instance, held that all previous judgments in the Criminal Courts with respect to ne bis in idem rule be annulled.

It also held that there had been a violation on the right to property, and overturned the judgment of the Court of First Instance where it declared that the tax penalty system did not infringe the right to property. The Constitutional Court declared that tax imposed had to be mitigated, and ordered that tax penalties calculated in terms of the tax rules drawn up between 1999-2009 had to be re-computed to consider the favourable rules introduced in 2009. Such rules provide for ‘controlled’ rates which incorporate capping.

A copy of this judgment was ordered to be sent to Parliament, which could mean that major amendments to tax laws will have to be passed.

In terms of proportionality of the administrative and punitive fines, the Constitutional Court concluded that the penalty system exceeded what was reasonable and proportionate. It held that the Maltese legislator had placed an excessive burden on the tax payer.

The court declared that the Prime Minister was ‘non-suited’, meaning it effectively declared that he is not liable and should not be part of the proceedings.

Separate criminal proceedings, which could lead to jail time, effectively means that an individual is being tried twice for the same crime