​Approximately four years after the deadline for the transposition of Directive 1371/2017 on the fight against fraud against the financial interests of the European Union, and more than a year after the European Commission initiated a lawsuit against Romania for incomplete transposition of the relevant directive, the national legislator adopted the Law 125/2023 on the completion of Law no. 241/2005 on preventing and combating tax evasion, which entered into force on May 25, 2023.

However, the preamble of Directive 1371/2017 explains that the concept of serious violations of the general value added tax (VAT) system, as established by the VAT Directive 112/2006, refers to the most serious forms of VAT fraud, in particular carousel fraud, VAT fraud shell companies and VAT fraud committed within the framework of a criminal organization, which poses a serious threat to the overall VAT system and therefore to the Union budget.

The new law aims to complete the transposition of the directive by criminalizing new actions that affect “resources of the European Union budget”, namely any actions or omissions committed as part of fraudulent cross-border schemes that lead to a reduction in European Union resources. of the Union budget by at least ten million euros in national currency equivalent through methods such as: using or providing false, incorrect or incomplete VAT declarations or documents; non-disclosure of VAT information, if this information is subject to disclosure in accordance with the law; submitting correct VAT returns for the purpose of fraudulently concealing non-payment or establishing illegitimate rights to a VAT refund.

Methods of fraud covered by the new legislation

However, the newly adopted law does not specify what “resources of the European Union budget” means as a social value to be protected, so this phrase should be interpreted with reference to the definition of the financial interests of the European Union (EU). provided for by the directive, therefore all revenues, expenses and assets that are included, collected in the EU budget or owed to the EU budget, to the budgets of the EU institutions, bodies, offices and agencies created under the Treaties, or to budgets managed or controlled directly or mediated by them.

The amount of damage, at least ten million euros in national currency may seem very high at first glance, but since one case can take into account several crimes, several physical documents and several persons involved, it will actually be easily reached.

As regards the material element, the act or omission incriminated must be committed within the framework of “fraudulent schemes of a cross-border nature”, a concept which, again, is not defined by the national legislator in the body of the regulation.

Thus, when establishing the fraudulent nature of some actions or omissions, the provisions of the directive, which aims to unify European legislation on actions or omissions that qualify as fraud, and which provides in the preamble that there is a cross-border nature of an act recognized as a criminal proceeding, will also be relevant , when actions or omissions are related to the territory of two or more member states.

At the same time, the Department of Anti-Fraud (DLAF) and the European Anti-Fraud Office (OLAF) will have to play an important role in establishing the nature of the “fraudulent cross-border scheme”, which will support the prosecution authorities in uncovering and destroying cross-border fraud networks of European funds .

As for the form of guilt, in order to be considered a crime, the act must be committed with direct intent, qualified by purpose, i.e. to have the purpose of obtaining an undue benefit from the pan-European VAT system. The conclusion is based on the provisions of the directive, the preamble of which mentions that the offenses are committed in a structured manner with the very purpose of obtaining undue benefit from the VAT system. However, these provisions were not explicitly included in Law 125/2023, an aspect that would have been desirable to ensure compliance with the principle of the legality of the crime and the legality of the punishment.

At the same time, it is important to remember that from the point of view of VAT, one should also take into account the case law of the Court of Justice of the European Union (CJEU), which has analyzed VAT fraud in many cases. However, analyzing the provisions of criminal and fiscal legislation, as well as European directives or the case law of the Court of Justice of the EU, at the moment it remains unclear what the interpretation will be, for example, of the method of reducing the resources of the EU budget by not disclosing VAT information, when this information should be disclosed according to of the law (an aspect that until now was mainly covered by Law 207/2015 on the Fiscal Procedure Code). However, in the absence of a specific provision in the legislation, which mentions a direct intention, qualified by purpose, the application of an erroneous tax regime may ultimately be subject to the legal rule, without the corresponding situation, which is the result of fraudulent behavior of the taxpayer.

On the other hand, it should be emphasized that non-fulfillment of all the conditions that define a new form of crime does not equate to the absence of a criminal nature of the facts. In this sense, depending on the specific circumstances of the case, other crimes may be preserved, for example, provided for by Law 241/2005, Law 78/2000 or the crimes of document forgery provided for by the Criminal Code.

What fines are provided by the new law?

Sanctions provided by the new resolution fall within the upper limit provided by Law no. 241/2005, namely deprivation of liberty from seven to 15 years and prohibition to exercise certain rights. To determine the amount of the fine, on the one hand, the significant amount of damage is taken into account, and on the other hand, the provisions of Art. 6 and 7 of the Directive, which obliges Member States to apply effective, proportionate and dissuasive criminal sanctions. The sanction can be applied to both individuals and legal entities, in which case it will consist of a criminal fine of between 24,000 and 2.1 million lei, according to the Criminal Code.

At the same time, in addition to compensation for damage caused by the commission of a crime, from the point of view of sanctioning, the provisions of the Criminal Code, which provide for the obligation to confiscate property acquired as a result of the commission of a crime, as well as the provisions of Law 241/2005, which establish insurance measures with the potential to block the activities of companies .

As for the prevalence of this crime in practice, the risk is obvious in the field of cross-border transactions with a high value or those that take place over a long period of time, so the participants of such transactions should pay close attention to the VAT regime, in order to establish the correct tax regime and comply with the relevant obligations.

Review by Alex Slujitoru, Partner, Cătălin Chibzui, Senior Associate, Reff & Associates| Deloitte Legal and Ana Săbiescu, Senior Indirect Tax Manager, Deloitte Romania