Since the income from the proceeds of crime are taxed in the year in which it is earned and the deduction of a many years later irrevocable confiscation order is only deductible at the time of payment, the levying of taxes on criminal income (apart from a fine yet to be imposed) and subsequently ‘confiscating’ leads to a debt to two components of the same government; confiscating and taxing leads to being caught twice! In its entirety, both go way beyond the actual income generated from crime. Despite that the intention is that taxation and confiscation do not accumulate. Because losses, so also those resulting from the deductibility of a paid confiscation, are only deductible one year behind and from there on forwards, the deductibility of a slightly hefty confiscation order is the only solace for a criminal with a (continuous) high income. The question is whether the provisions of the new AAFD (Reporting and Processing Tax Offences) protocol for coordination between the tax authority and the Public Prosecutor provide a solution for this problem.
New AAFD protocol
As of 1 July 2015 a new protocol came into effect on the reporting and processing of tax offences. My colleague Vanessa Huygen van Dyck wrote in her blog of 2 July last year that possible criminal alternatives for the confiscation could lead to more than the earnings being creamed off. A problem that has existed somewhat longer is that the Supreme Court does not allow a provision to be implemented for a confiscation order that has not been paid yet, nor enforceable so that based on the (old) policy effective cooperation takes place. I discussed this problem in detail in 2013 in two articles on the policy on this issue, and the ruling in European perspective.
While much of the text is comparable to older decisions the coordination is worded as follows:
‘This protocol primarily provides for the coordination between the Tax Authority and the Public Prosecutor on (the prevention of) concurrence between administrative and criminal settlement. A comparable form of accumulation arises with the confiscation of the proceeds from crime. Article 74 of the AWR provides for a univocal anti-accumulation provision for confiscation with respect to criminal offences under the Tax Act. However, no comparable regulation is stipulated for confiscation in respect of other offences. It is therefore necessary that the Tax Authority and the Public Prosecutor coordinate on those cases with respect to the enforcement efforts.
Confiscating criminal assets is a valuable means in combatting crime. The Public Prosecutor has established rules for the judicial confiscation of financial profits obtained from criminal activities. One of these rules is that coordination takes place with the Tax Authority. Proceeds obtained in social and economic life are in principle liable to taxation. It is no different when the proceeds are obtained by criminal activities. It should be prevented that the taxation of proceeds from crime and the judicial confiscation of those proceeds do not interfere with each other in an undesirable way. That is why the Public Prosecutor has agreed that the Tax Authority cause as little interference as possible to the criminal sanctioning and confiscation of proceeds from crime.
To prevent the suspected/convicted person from being confronted with a tax levy on the proceeds of crime, after a confiscation measure has been imposed, or a settlement or transaction with a confiscation component is agreed, the Public Prosecutor coordinates with the Tax Authority on the intention to confiscate when the estimated proceeds are at least € 5,000.’
Will it work?
Coordination was already prescribed. Experience shows, however, that the coordination either never took place, or seemed to focus on informing one another so that not only one or the other occurred. Therefore not focused on preventing accumulation, but on bringing it about.
Opinions on not interfering with each other in an undesirable way with regard to taxation and confiscation may vary. I understand from the text that more creaming off than earned with crime is an undesirable action, which should be avoided by means of coordination. After all, the aim of confiscation is to restore the criminal to the income and assets position that he held before his crime. It is not intended as additional punishment. Income that is not ultimately enjoyed (on account of confiscation, or repayment to the victim) does not have to be taxed, unless you would only confiscate the result after tax (which is not the point of departure at present, confiscation pertains to the gross amount). However, I know many public prosecutors, inspectors and tax collectors, not to mention politicians and even the odd colleague, that are of the opinion that action is only undesirable if there is a risk that the tax levy or the confiscation will not be fully effected. From that point of view, coordination is informing each other!
Honestly speaking, I cannot imagine the tax authority obstructing the confiscation. The instruction that the tax authority is not to obstruct confiscation was also included in the previous regulations. Should the tax collector wait to collect an assessment that is based on criminal earnings, so that the payment thereof does not interfere with the payment of a confiscation order? That would be great, certainly if the tax collector would wait until after the confiscation is paid before going after his claim. In practice, I have not experienced any implementation of this instruction.
As was the case in the previous regulations, the new ones also state that it should be avoided that the suspect is confronted with a tax levy on the confiscated proceeds, after a confiscation measure has been imposed. In the past, similar wording always resulted in the coordination being interpreted such that nothing had to be done before the confiscation measure was in place. The problem, however, lies in the fact that coordination after is no longer relevant, by then the ‘harm’ has already been done.
The tax authority has in and around 5 years the time, from the year in which the criminal income is earned, to impose an assessment pertaining to that income. Even if the offence would be discovered soon after it was committed, the time that is – apparently – needed for completing a criminal investigation, going to trial and the completion of the financial investigation, is, in fact, always too long for establishing coordination afterwards.
Comparison with Section 74 of the Criminal Code
The clear parallel with Section 74 of the Criminal Code offers hope. The section is, after all, a clear ban on confiscation in tax cases. So, no retrospective coordination, no ineffective ‘obligation to undo,’ just a transparent provision that aims to prevent getting caught twice. Based on that parallel it can be made clear that the income taxes in combination with a confiscation do not go hand in hand. It is one or the other, not both!
While it is still unclear whether the court will alter its course based on this amended instruction, the current text in any case (again) offers more points of departure to advocate that ‘advance’ concurrence by way of coordination should have been avoided. The fight against ‘double confiscation’ can even be picked up with renewed energy in ongoing cases. That is a small ray of hope in an otherwise barely renewed, but assuring, new protocol.
 The hyperlink leads to AG IJzerman’s conclusion. The Supreme Court dismissed the relevant means based on Ground for Decision, Article 81.