Private: Limits of criminal liability in tax optimisation

Criminal liability for taxes

Under Slovak tax law, not every illegal tax optimisation fulfils the elements of one of the tax offences. Similarly to the identification of what is and what is not lawful in reducing tax or levy liability, the boundaries between criminal and administrative law supervision (Tax optimisation – domestic and foreign options) in the commission of tax offences are not clearly delineated.

Unfortunately, Slovak tax law does not know of many cases where courts or prosecutors have looked in detail at identifying more precise boundaries. From a business point of view, it is not at all comfortable not to be able to foresee the penalty for a tax offence committed. In this context, imprisonment (in conjunction with the penalty of forfeiture of property) is certainly the most serious interference with human integrity.

The case of Andrej Kiska’s KTAGis a case in which a critical part of Slovak entrepreneurs can see themselves. From the perspective of the requirements of the rule of law, it is not so much the fact that the case may have been a criminal offence of tax and premium evasion that is problematic, but the fact that the previous practice of tax administrators and law enforcement authorities did not in any way suggest pushing the criminal threshold to this level. The latter affects a huge number of entrepreneurs who are thus ultimately exposed to the potential arbitrariness of the State.

Our services

We provide our clients with comprehensive tax advisory and tax optimization services (Tax optimization – domestic and foreign options). This includes, in addition to technical advice, legal analysis with an emphasis on the analysis of potential criminal risks.

These services are used by clients as standard in the following business process situations:

• transactional advisory services, which also include tax advisory services;
• when assessing an already existing tax and legal structure;
• in setting up the client’s business with an emphasis on tax efficiency;
• when representing a client before the tax authorities or courts.

Examples from practice

Example 1: A firm makes a profit. However, it does not pay the profit to the shareholder as a dividend, but gives it to the shareholder as a gift and thus avoids dividend tax. The legislation does not formally prohibit such action. We can consider it as:

• legal tax optimisation (avoiding tax on dividends);
• illegal tax optimisation, with the only penalty being a tax fine and a fine;
• illegal tax optimisation, which is also a criminal offence of tax and premium evasion.

Example 2: A well-known athlete moves to Monaco and becomes a Monegasque tax resident. However, he spends a large part of the year in Slovakia for various marketing events, sleeping in his Bratislava apartment or in hotels. If he does not pay taxes on his worldwide income in Slovakia, it is

• legal tax optimisation (avoiding Slovak taxes);
• illegal tax optimisation, with the only penalty being a tax fine and a fine;
• illegal tax optimisation, which is also a criminal offence of tax and premium evasion.

Example 3: An entrepreneur has bought a family car on which he has deducted 100% of the VAT and treats 100% of the depreciation of the car as a tax expense. However, he uses the car exclusively for family transfers. This is

• legal tax optimisation;
• illegal tax optimisation, with the only penalty being a tax fine and a fine;
• illegal tax optimisation, which is also a criminal offence of tax and premium evasion.

Example 4: An entrepreneur owns two companies. Before the end of the calendar year, preliminary results showed that one company was expected to make a profit of 1 000 and the other a loss of 500. Therefore, the entrepreneur decided to invoice 400 from the loss-making company to the profitable company for marketing services. He thus reduced his tax liability. This is

• legal tax optimisation;
• illegal tax optimisation, with the only penalty being a tax fine and a fine;
• illegal tax optimisation, which is also a criminal offence of tax and premium evasion.

Example 5: An entrepreneur has set up a company on a Caribbean island with a 0% tax rate and from which he invoices his IT services to Slovak clients. However, the entrepreneur is mainly located in Slovakia when performing the services. These are:

• legal tax optimisation;
• illegal tax optimisation, with the only penalty being a tax fine and a fine;
• illegal tax optimisation, with the only penalty being a tax fine and a fine;