Update Post: November 28, 2023 10:37 am
The Treaty on the Functioning of the European Union-TFEU provides (Article 325.1): “The Union and the Member States shall combat fraud and any illegal activity affecting the financial interests of the Union by means of appropriate measures in accordance with the provisions of this article, which must have a deterrent effect and be capable of offering effective protection in the Member States and in the institutions, bodies and agencies of the Union. This article is directly effective in each and every one of the territories of the Union.
Currently, the Union’s revenue budget is funded by contributions from the Member States. The highest amount – around 70% of the total – is the sum of transfers from States linked, through the application of a stable percentage, to their National Income. Another item – approximately 10% – is also contributed by the States through their VAT collection. Regarding this second source of financing, the CJEU ruling of December 21, 2021 obliges Member States to apply a uniform rate to the accumulated VAT base.
As the European Union does not have its own administration to manage its tax resources, it depends entirely on the States (hence the requirements of article 325 TFEU), which must be efficient and put all their efforts into collecting their regional national taxes, a good part of which will end up in the coffers of Brussels. The lack of financial autonomy of the Union forces it to “embed” national authorities, a stainless steel imposition that sometimes forces States to cut or even destroy some of the fundamental rights of citizens. In this sense, the ruling of July 24, 2023, issued by the Grand Chamber of the CJEU, is transcendental.
The ruling (Section 3) requires each Member State to adopt the necessary measures to transfer to domestic criminal law the provisions that ensure compensation from European budgets. Administrative violations, yes. Major criminal offences. These infractions must be punished (E. 4) with “effective criminal sanctions.” […] being mandatory, in cases of serious fraud, penalties of deprivation of liberty.”
The principle of effective punishment can erode the basic freedoms of citizens, guaranteed by their national constitutions. Given the primacy of Union Law over the legal systems of the States, the damage to individuals can be unavoidable and monumental. Let us think, without going any further, of our 1978 Constitution. Its article 9 guarantees the principle of legality and also the retroactivity of the sanctioning provisions favorable to the citizen. Furthermore, the Spanish State recognizes taxpayers’ right to have their tax debts prescribed (linked to the constitutional right to legal certainty) if the appropriate requirements are met. However, Union law prevents the application of this right if it hinders the protection of your financial interests (CJEU ruling of December 5, 2017).
Regarding the principle of retroactive application of the most favorable criminal law, the ruling of July 24, 2023 maintains (E. 121) “that it may aggravate the systemic risk that violations of serious fraud that affect the financial interests of the Union escaped any criminal sanction, violating article 325 TFEU.”
The basic freedoms of citizens take a second place. “National authorities and courts continue to be “empowered” to apply national standards for the protection of fundamental rights, provided that their application does not affect […] prevention, unity and effectiveness of Union Law.” (E. 117).
Well, the ruling of the judgment of July 24, 2023 contains, among others, this high-caliber artillery pronouncement: “Article 325 TFEU, paragraph 1, must be interpreted in the sense that the courts of a Member State are obliged to leave inapplicable a national standard of protection related to the principle of retroactive application of the most favorable criminal law (‘lex mitius’) that allows questioning, also in the context of appeals against final sentences, the interruption of the limitation period of the criminal liability in such procedural matters carried out before the determination of disability.”
And this other explosive bomb: “The principle of primacy of Union law must be interpreted in the sense that it precludes national legislation or practice by virtue of which the ordinary national courts of a Member State are bound by the resolutions of the constitutional court and by those of the supreme court of that Member State and cannot, for this reason […] leave inapplicable ex officio the jurisprudence resulting from its resolutions, even when it considers, in the light of a ruling of the Court of Justice, that this jurisprudence is contrary to provisions of Union Law of direct effect.”
Underneath these pronouncements lies the Union’s imperative need not to open the slightest loophole to the impossibility of convicting those accused of committing tax fraud. Any constitutional norm, such as the one that provides for the criminal retroactivity of the most favorable law, is contrary to the superior law of the Union if its application leads to the dismissal of a criminal case that has already been initiated (E. 88).
However, not all criminal offenses must be subsumed in the doctrine of the Grand Chamber that we have just stated. The ruling of July 24, 2023 will only apply when there are “numerous issues affected” (E. 89) and impunity constitutes a “systemic risk” (E.91). For example, if the proceedings instructed by the judges are of such complexity that they require a longer instruction than usual. This risk “is incompatible with article 325 TFEU” (E. 92).