In 2017, a recycling company paid just over €1 million to two private limited companies for the supply of cocoa husks and scaffolding materials. The FIOD suspects that no goods were actually supplied and that money laundering was involved. The criminal court acquitted the company. Nevertheless, the tax inspector issued a supplementary tax assessment. Is this permitted following an acquittal? And what does the acquittal mean for the administrative fine?
Notable transactions
The recycling company forms part of a tax group for corporation tax purposes. In 2017, the company issued credit notes to two private limited companies: €325,000 for cocoa husks and €753,280 for scaffolding materials. The company paid these amounts to the two private limited companies and claimed them as deductible purchase costs. The FIOD conducts an investigation. The two private limited companies turn out to be holding companies with no activities in the recycling sector. Weighing slips, consignment notes and other documents supporting the deliveries are missing. The director and major shareholder states that he does not know who the goods came from and that he has no contact person at either of the private limited companies.
Acquittal on charges of money laundering and forgery
The recycling company is being prosecuted for money laundering and forgery. The criminal court acquits the company. Whilst there are indications that a flow of goods is missing, there is insufficient legal and convincing evidence that the invoices are false. Nevertheless, the inspector imposes an additional tax assessment of over €1 million on adjusted profits, plus an administrative fine of €129,785.
Tax court rules independently
The court rules that the acquittal in criminal proceedings does not preclude the issue of a supplementary tax assessment. The tax court forms its own independent judgement on the facts and is not bound by the judgement of the criminal court. The burden of proof regarding the purchase costs rests with the company. The company has failed to meet this burden. The credit invoices were drawn up by the company itself and are not supported by supporting documents or a credible explanation. Given that the cost item amounts to over €1 million, it is reasonable to expect that it can be substantiated with objective and verifiable data.
Fine overturned on the grounds of the presumption of innocence
A different regime applies to the administrative fine. The inspector must convincingly demonstrate that there was intent. He relies solely on the findings of the criminal investigation and has not conducted any additional investigation. The court ruled that the inspector had therefore failed to meet his burden of proof. The fine essentially accuses the company of having used false invoices. Following the acquittal in the criminal proceedings, this premise is contrary to the presumption of innocence. The court therefore quashes the fine.