CRIMINAL LAW DIVISION
Tax offences are among the criminal offences that generate the greatest uncertainty and concern for taxpayers under investigation, not only because of the social stigma they entail, but also because of the genuine risk of imprisonment. The penalties provided for in Article 305 of the Spanish Criminal Code can reach up to six years’ imprisonment in aggravated cases, and the common accumulation of several tax years in respect of which fraud has allegedly been committed significantly increases that risk. However, the criminal legal system itself provides, at different stages of the proceedings, mechanisms for avoiding or mitigating imprisonment. This article reviews these procedural avenues and the conditions applicable to each of them.
The first issue to consider is the range of custodial sentences associated with tax offences, as defined in Articles 305 et seq. of the Criminal Code: from one to five years’ imprisonment in the basic form of the offence and from two to six years in aggravated cases — including, among other circumstances, cases involving fraud exceeding €600,000. These are therefore serious penalties and, combined with the fact that proceedings commonly involve several tax years in respect of which fraud has allegedly been committed, they increase the risk of actual imprisonment. Without going into greater technical detail and, by way of simplification, it can generally be said that convictions resulting in a prison sentence exceeding two years — whether for one or several cumulative offences — may lead to actual imprisonment.
However, the first mechanism provided by the Criminal Code for granting what might be described as a “legal pardon” to a taxpayer who has committed tax fraud is the regularisation of their tax position, systematically regulated in paragraphs 1 and 4 of Article 305. This mechanism involves the full acknowledgment and payment of the tax debt before the Tax Administration has notified the taxpayer of the commencement of verification or investigation proceedings aimed at determining that debt, or before a criminal complaint has been filed on those grounds.
In such cases, the Criminal Code rewards the taxpayer’s voluntary action, taken before they become aware that a complaint has been filed, by providing that the exemption from criminal liability also extends to any accounting irregularities or instrumental acts of falsification that may have been used to facilitate or conceal the fraud. In other words, from the perspective of the criminal legal system, the offence is treated as never having existed if the taxpayer has regularised their position.
Where regularisation is no longer possible — because, for example, a tax inspection is already under way — criminal law provides a further mechanism for mitigating the punitive consequences. Article 305.6 of the Criminal Code allows for a sentence to be reduced by one or two degrees, provided that, within two months of being summoned before the court as a suspect, the taxpayer pays the tax debt and formally acknowledges the facts before the court.
A reduction in the sentence by one or two degrees can take the offender outside the range in which an immediate custodial sentence becomes likely. The resulting sentencing ranges may therefore be reduced to six months to one year in the basic form of the offence, or from one to two years in aggravated cases.
If, for reasons of financial inability or legal strategy, neither of the above options is pursued, the remaining avenues for mitigating the consequences are those generally available in relation to all criminal offences: seeking mitigating circumstances that reduce the sentence or obtaining a suspension of a custodial sentence imposed by the court.
As regards mitigating circumstances, particular reference should be made to “reparation of the damage”, provided for in Article 21.5 of the Criminal Code. In order for this mitigating circumstance to apply, the taxpayer must pay at least a substantial part of the tax debt, taking into account their financial means. Such payment must be made before the trial takes place, rather than afterwards, since the benefit arising from reparation is a circumstance affecting criminal liability and must therefore be reflected in the judgment.
As regards its effect on sentencing, the court should impose the penalty in the lower half of the applicable range and may even reduce it by one degree if, in the particular circumstances of the case, the mitigating circumstance is considered to be particularly significant.
Finally, as mentioned above, following a conviction it may be possible to obtain a suspension of the custodial sentence, provided that the sentence, or the aggregate of the sentences imposed, does not exceed two years’ imprisonment. Even where the aggregate exceeds two years, however, if none of the individual sentences imposed for each separate offence exceeds two years, there may be an exceptional possibility of suspension, taking into account, among other factors, the convicted person’s efforts to repair the damage caused.
Does this require full reparation of the damage? The Criminal Code does not go that far. It should be remembered that this possibility applies to all types of criminal offences and therefore covers a wide variety of offenders and circumstances. The Code merely refers to “effective reparation of the damage or compensation for the harm caused, according to the offender’s physical and financial means.”
Nevertheless, experience shows that, in cases involving tax offences, the convicted person must make a substantial effort to repair the damage. This also requires complete transparency before the court regarding their financial situation, so as to provide sufficient reassurance as to the seriousness of their commitment to make reparation and to enable the court to assess the extent of the effort made.
In any event, although several options are available depending on the stage of the proceedings at which action is taken, all of them ultimately require the financial capacity to make reparation for the damage caused.
