It was Benjamin Franklin already, who declared that: “In this world, nothing can be said to be certain except death and taxes”. In this respect, the world has not changed in any way since the time the American statesman first uttered this sentence, because even now, the taxes represent a necessary source of income for a vast majority of state budgets. The Czech Republic is no exception and the collected taxes, customs duties and insurance represent more than three quarters of the total income of the state budget.

With regard to the above-mentioned, it is quite natural that the state protects collection of this income accordingly. One of the tools it uses to ensure fulfilment of tax duties is the imposition of sanctions in case of breach of obligations ensuing from the code of tax procedures. In these cases, we speak about the imposition of so-called tax accessories, the law defining (i) a fine, (ii) a penalty and (iii) a late payment interest.

The imposition of tax accessories is not the only tool for “motivating” people to paying taxes, however. Another option arises from the fact that failure to pay taxes or fiscal evasion may, according to the conditions set by the law, fulfil the characteristics of a criminal act, and in serious cases, the transgressor may even be punished by a prison sentence of five to ten years.

And the imposition of penalty with a simultaneous pursuit of prosecution for one transgression was the object of a ruling of the Supreme Administrative Court (further mentioned only as “SAC”) no. 4 Afs 210/2014 from November 24, 2015. SAC stated in its decision that: “A penalty according to section 37b of act no. 337/1992 Sb., on the administration of taxes and fees, in the version in force from January 1, 2007 to December 31, 2010 and in section 251 of act no. 280/2009 Sb., of the code of tax procedure, has the nature of a punishment; and article no. 40 paragraph 6 of the Charter of Fundamental Rights and Freedoms and articles 6 and 7 of the Convention for Protection of Human Rights and Fundamental Freedoms need to be applied to it.” 

In its decision, as to whether or not it is to possible to consider penalty a punishment, the SAC relied on the principles ensuing from the judicature of the European Human Rights Court. The SAC considered the most recent ruling of the European Court of Justice in the judgement of Lucky Dev against Sweden significant. In this case, the complaint was found guilty of incorrect account keeping, while at the same time being acquitted by the Swedish court in the matter of fiscal evasion. The imposed penalty of 40 % and 20%, respectively, of the income tax and VAT, was not cancelled, nonetheless. The European Court of Justice said in this matter that the imposition of a tax penalty assessed on the basis of a tax proceeding contains “criminal charges”, while at the same time it noted that the tax proceeding should have been suspended and the tax penalty cancelled, after the simultaneously conducted criminal proceeding in the matter of fiscal evasion was suspended. The European Human Rights Court closed the cases, stating that the imposition of a penalty, after the criminal proceeding was suspended, punished the complainant for an act, for which she was definitively acquitted.

Not only from the ruling of Lucky Dev against Sweden, but also from previous decisions of European courts of justice, it is clear that through the optics of European regulations, a penalty needs to be perceived as a punishment, within the meaning of article 6 paragraph 1 of the Convention of Protection of Human Rights and Fundamental Freedoms for a longer period of time already.

In its ruling, the SAC further added a comparison of a penalty and a late payment interest. The late payment interest derives from the REPO rate of the Czech National Bank, thanks to which its total height gradually increases as time passes. If the tax was not paid regularly and in time, the economic damage ensuing for the state is fully compensated by a late payment interest. A penalty, on the other hand, has been set as a fixed unchanging percentage. This serves for deterring tax subjects from attempts to lower their tax by providing incorrect data in their tax statement. 

The conclusion of the SAC in combination with the ne bis in idem principle, that is the right not to be tried and punished twice for the same act, open space for persons, on whom a penalty has already been imposed, but the potential penal proceeding is still in progress or is yet to begin. Because in such a case, with regard to the above-mentioned principle, the penal proceeding should be suspended. To conclude, it needs to be added that the above-mentioned only relates to persons, not to legal entities.

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