The right to defence and evidence and the consequences of unlawfully obtained evidence; retroactive effect of tax assessments annulled in court and the right to a trial without undue delay (I)

Manuel J. BaezaDíaz-Portales
Magistrate of the Higher Courts of the Valencian Community. President of the Administrative Litigation Division
Dr Ana Isabel González González
Senior Lecturer of Financial Law at the University of Oviedo
Dr Aurora Ribes Ribes
Professor of Financial Law at the University of Alacant
Dr Gabriel Casado Ollero
Profesor of Financial and Tax Law at the Complutense University of Madrid. Lawyer

The configuration and efficacy of the right to effective judicial protection

The right to effective judicial protection of Article 24 EC is not only consecrated on a domestic level but is also internationally recognised in Article 47 of the Charter for Fundamental Rights of the European Union and in Article 6 of the European Convention of Human Rights. The undeniable relevance of this precept in the constitutional sphere is evident from the fact that it is the most frequently invoked decision of the EC and the precept that has led to the highest number of Supreme Court decisions, especially in appeals for constitutional protection (amparo). However, this relevance contrasts with the occasional unsatisfactory protection of taxpayers’ interests, thus leading to a reflexion on the virtuality of this right in the tax area, specifically in the context of tax administration actions when evidence of possible offences against public finances is found.

This Title VI of the LGT is the result of the reform of the LGT by Law 34/2015, the purpose of which was to bring the provisions of the LGT into line with the provisions of article 305.5 of the CP, which, in turn, had been reformed by Law 7/2012. It reversed the system previously in force, which was based on article 180.1 of the LGT and which provided for the paralysis of administrative proceedings and the transfer of the testimony of proportional blame to the criminal judge. From that moment forward, the system has been reversed and not only does it allow for parallel proceedings, but it also gives the administration the possibility or the power of a double settlement, depending on whether or not the elements of the tax liability are linked to the possible offence. According to the legislator's explanatory memorandum, there are two reasons for this reform:

Ensure effective recover of unpaid tax obligations.
Overcome the differential treatment of alleged offenders as opposed to juvenile offenders.

1.The new configuration of the dual procedure: article 250.1 of the LGT

Within the framework of article 250.1 of the LGT, this is precisely the precept that establishes this procedural parallelism and contrasts with the non bis in idem principle, which is applicable in the area of tax penalties. This does not signify that the administration cannot transfer the testimony of proportional blame to the criminal jurisdiction or refer the case to the Public Prosecutor’s Office, but it does mean that proceedings are postponed to a later point in time when the proceedings, investigation and corresponding settlement will be completed. In this regard, the SC issued Ruling 1246/2019 of 25 September, by which it annulled Article 197.bis Section 2 of the General Inspection Regulations, which allowed this referral to be made at practically any time, not only during the processing of the inspection procedure, but also when the tax debt has been paid or a sanctioning procedure has been opened, and even when the procedure has been concluded. In other words, this possibility of reopening at any time without legal authorisation was contrary to the principle of legitimate expectations and the principle of non bis in idem, and the SC was sensitive to the situation of helplessness in which the taxpayer could find himself, having been subjected to an inspection procedure with a sanction without any criminal charge and, having paid the sanction or appealed against it, suddenly faced with the opening of criminal proceedings.

On the other hand, this does not change the SC's doctrine on the nature that should be given to the settlement, which is now included in the criminal proceedings. This settlement will be nothing more than a more comprehensible proof, but in any case subject to the debate between the parties and the subsequent consideration or assessment by the judge. With regard to this obligation to settle, there are 3 exceptions that have been criticised by the doctrine. For example, the case in which the administration must refrain from settling if the investigation of the offence could be prejudiced, which is a case of great vagueness and gives the administration wide powers; or the second case, which is when, as a result of these investigative measures, it has not been possible to determine the exact amount or the object, so that it is also surprising that at this stage of the proceedings it has been possible to establish that there is evidence of an offence without having been able to establish these two aspects mentioned above.

In any case, the administrative decision not to settle must be justified. The debtor is not heard, the judicial authority is notified and the administrative procedure is suspended until a decision is made and the case is dismissed or the proceedings are archived. In the case where simultaneous proceedings are appropriate (as 250.1 of the LGT also presents a nuanced difference with the provisions of the PC), it is literally stated that “the settlement of the elements of the tax obligation shall be issued”, which seems to have an imperative tone, whereas 305.5 of the PC simply states that it is an administrative power or faculty that “the settlement may be issued”.

2.Dual procedure; dual settlement but different processing

Here there is a second parallel. It is important to note that these two settlements are treated differently and are also subject to a different appeals regime. Obviously, there will be cases where it is not possible to distinguish between elements that are criminal and those that are not. On other occasions, everything will be considered to be affected by fraud and therefore double settlement will not be feasible. It is also noteworthy that two parts of the same tax debt can be based on a different nature and be subject to an administrative assessment in relation to the elements not related to the offence, through the ordinary procedure of issuing the control report, and the assessment in relation to the elements related to the offence, which can be considered of a different character or nature and we can subject them to a special regime.

In the settlement of the offence. In the first instance, a settlement proposal is issued, which must be justified and notified to the taxpayer, who is granted a 15-day hearing, and no inspection report is formalised. There is also a worrying paragraph stating that, once the allegations have been examined, the competent body will issue an administrative settlement if it considers that the relevant regulation reveals the existence of a possible offence against public finances. This administrative control of the consistency of the allegations should already have been carried out and has been criticised by some authors. The taxpayer is informed if the complaint or accusation is accepted and the criminal judge is informed, which would mean that the procedure would go back to the moment before the proposal for assessment was issued, in this case the formalisation of the control report.

3. Infringement of taxpayers' rights

The first harm in this context stems from the different treatment of these two settlements. Specifically, the administrative settlement relating to the elements of the offence. The legislator seems to refer to a double basis or a double reason for this difference in treatment. On the one hand, it can be reasoned that this settlement concerning the elements linked to the offence is of a collective nature, while on the other hand, it is no less true that it is subject to the judge's decision in the criminal judgment. The result of all this is that this administrative settlement cannot be challenged in administrative proceedings and, what is more serious, because there is a possible violation of the right of defence, it cannot be challenged before the contentious-administrative jurisdiction. The rule of non-appealability, introduced by the third final provision of Law 34/2015 amending the LGT, is based on Article 3 of the Law on Contentious-Administrative Jurisdiction, which states that all matters expressly attributed to the civil, criminal and social jurisdiction do not correspond to the contentious-administrative order, even if they are related to the activity of the public administration.

This aspect has been unanimously criticised by the doctrine, and we could distinguish two doctrinal positions: a more aggressive one, which speaks of an open and flagrant violation of Article 34 of the EC Treaty and even refers to other provisions of the constitutional text, and in this respect it is true that the TC has taken a position and has defined on numerous occasions what it considers to be the necessary content of the right to defence, pointing out that it is necessary that the judicial body competent to hear the case be established beforehand and in a legal norm. Based on this premise, his position is more in line with a second school of doctrine, which points not so much to an open, frontal breach of Article 24 EC, but rather to a possible undermining of the guarantees granted by this provision, and specifically in the aspect of the right to a natural judge. If we go back to the wording of the constitutional provision, we find that it does not really speak of the right to a natural judge, but of the right to an ordinary judge designated by law. Therefore, there is no such lack of protection, but it is no less true that a competence that belongs to the contentious-administrative jurisdiction is taken away and attributed to a jurisdiction that is not competent for the subject matter.

From this point of view, he considers that there could be a weakening of the right of defence in that aspect of the right to an ordinary judge which is provided for by law on the basis of the subject-matter. In his opinion, there are two possible reasons for the legislator's decision to establish the inviolability of the administrative settlement before the contentious jurisdiction. The first would be to achieve this agility and speed in the collection of tax debts; this reason would not be sufficiently valid, since this purpose should be secondary to the primary one, which is respect for the legal guarantees that should govern the legal tax system, the guarantees of the taxpayers; the second reason could be the legislator's fear of contradictory rulings by different judicial bodies. This reason does not seem to be valid either, since it is based on a misunderstanding of the prohibition of two legal truths.

If this primacy or priority is attributed to the criminal order, this criminal preliminary ruling is exclusively for the purpose of repression, i.e. to determine whether or not a crime has been committed, but not to carry out this control of the legality of the administrative act. The review of the legality of the administrative act is the responsibility of the contentious-administrative jurisdiction, which is specialised in this matter. This aspect has not gone unnoticed by the Council of State, which, in its opinion on the preliminary draft law, denied that there was a violation of the right to effective judicial protection, on the understanding that this protection is provided in these cases by the criminal judge. Even in the hypothesis that the judgement did not find the essence of the offence, in such cases it would be possible to appeal against the settlement, which would no longer be linked to the offence in question. Nevertheless, he acknowledged the desirability of establishing a prior administrative channel to combat any procedural irregularities that might arise. Its position would be to go one step further and provide for such a channel not only for procedural or formal defects, but also for substantive defects.

The second violation that could occur in this area, also within the right of defence but in a different form, is the right not to testify against oneself. This right is also internationally recognised and, assuming that the admission of certain facts cannot be transferred from the previous tax inspection procedure to the subsequent tax penalty procedure, the prolongation of the procedural phase that the current system generates could potentially violate the right not to incriminate oneself. In this respect, the taxpayer should cooperate with the AEAT, on the understanding that in this pre-litigation phase the tax administration will use all its powers to obtain information, under penalty of infringement of article 203 of the LGT.

From this point of view, there could be a violation of this right. Measures have been proposed to resolve this issue and to ensure that this right is not emptied of its content. In its report on the preliminary draft law, the CGPJ expressly pointed out that when administrative proceedings are so closely linked to criminal proceedings, the persons concerned should be granted all the rights they have or enjoy in criminal proceedings. It also pointed out that this right should be recognised as soon as evidence of a possible offence is found. The doctrine has also provided various solutions of greater or lesser intensity, suggesting that any evidence, data or information obtained under duress or under threat of sanctions cannot be used in subsequent proceedings and that failure to adopt measures in this sense could also have violated this right or this aspect of the right of defence.

Specifically, it would be a violation of the consolidated doctrine of the ECtHR, which, since 1993 with the Funke case, has maintained a very clear thesis recognising, inter alia, the taxpayer's right not to plead guilty. This right applies not only to criminal proceedings, but also to tax proceedings that result in a penalty, and later, in 1996, in the Saunders case; the refusal of the TC in the STC of 26 April 1990 (STC 76/1990), and indirectly the ECHR, tends to extend this right not to incriminate oneself to the tax audit phase, preventing this information or data obtained under duress from being transferred to a subsequent penalty proceeding, and should be arbitrated in Title VI measures. This consistent doctrine has always been coherent and consolidated in subsequent judgments (JB v. Switzerland in 2001).

In conclusion, the much-criticised Title VI of the LRT also contains light and not only shadow, but if we look at it strictly from the point of view of the right of defence, it could pose serious problems in relation to these two aspects of the right to effective judicial protection.

4.Preliminary questions for the analysis of the current problems

What constitutional power, other than that of Article 133 of the EC Treaty, does the legislator use to impose a non-tax levy, that is to say, a patrimonial advantage designed to finance public expenditure that is not earmarked for specific expenditure, as the Tribunal has acknowledged in STC 2019, which rejects the appeal of the parliamentary groups supporting the government, which were the authors of the bill? This is not a benefit justified by Article 31.2 of the EC Treaty, nor is it a reduction in public expenditure because it is affected by overspending, but it is an injection into the public purse. What constitutional power does the legislator use, then, without recourse to the power of taxation in Article 133 of the EC Treaty and without recourse to the power of expropriation in Article 33.3 of the EC Treaty, in order to create a patrimonial advantage of a restrictive and dissipative nature?

Academic doctrine does not take itself very seriously. As far as dialogue between courts is concerned, the courts of the European system for the protection of fundamental rights do not seem to be in dialogue with each other. Dialogues between courts do not exist, and it is better that they do not exist, because it would be an overlapping of self-referential monologues; the debate should be between courts and academic doctrine. A collaboration between courts and doctrine as the best of the amicus curiae that jurisprudence can draw on. The reality of the application of taxation, if we start from the assumption that taxation is a law that materialises the realisation of taxation, which translates into the applicability of tax laws, unfolds in a triple framework:

Legal and infra-legal texts regulating taxation.
The doctrinal tradition: a corpus of legal concepts and categories, historically shaped by those who have gone before us, of which we are heirs and which we must enrich with the doctrine of authors and scholars.
That of a jurisprudence with the authority to concretise the legal text in the specific case by means of dogmatics.

They must work together harmoniously, not only to solve the case, but also to pacify the conflict. That is to say, they must foresee not only the consequences of the solution of the concrete case, but also the consequences of its consequences, they must do justice in the concrete case and make the solution of the case reasonable and just. In the exercise of their judicial power, judges and magistrates are subject only to the rule of law, but they are also subject to judicial control of the legality of administrative action and to the ends that justify it. This power of declaring the law in a given case can only be exercised with authoritas if its foundations are based on the argumentative basis of dogmatics, which we must enrich and transmit, not just inherit.

5. The problem of terminological uncertainty: the key to dogmatics

The problems that arise from the lack of clear concepts are that we end up not solving them because we do not have clear concepts, which the legal community does not have either, and the vices of form, substance, single shot or double shot; uncertainty leads to a lack of legal certainty. Doctrine must take itself seriously and not just solve problems. This dialogue with the courts takes place through doctrinal interventions in the debates, but a dialogue focused only on the retrospective is not in itself constructive; it would also be interesting for the doctrine to look more to the future and to articulate mechanisms that enrich the tax dogma and do not constitute a vacuum. In the same way, jurisprudence cannot be created without being based on clearly established dogmatic concepts.

And this is where the fundamental role of doctrine comes in. At this stage, the concept of the motivation of acts is fundamental and should be clarified as soon as possible, as it is a structural pillar of the process itself. Verdejo said that the law is not only what the courts say it is, nor is it the law that emerges from the constitution, from the reasoning of the judge or the interpreter; when it comes to specifying the meaning of a concept, it is always necessary to rely on what is known about it. And here academic doctrine has an undeniable responsibility. In other words, it is all very well to criticise the past by looking at the solutions given by the legislator, but it is necessary to know beforehand what the problems are, because jurisprudence illuminates the problems of applying the law to the specific case; doctrine must clarify these problems in collaboration with jurisprudence, and bridges and links must be built between the two disciplines.

6. Effective protection prevails over multilevel protection

The lawyer's perplexity lies in the multi-layered protection of the taxpayer's fundamental rights, which ultimately turns into a multi-layered lack of protection of the courts and judicial bodies themselves. How is it possible that, when we speak of fundamental rights as the foundation of the legal system and recognise the structural nature of the rule of law, so many levels of protection are needed? The answer is obvious: because of the different regulatory frameworks and legal spaces in which different sources govern, but the jurist must bear in mind that what counts is not the rights, but their guarantees; what counts is not the multi-level proclamation of fundamental rights in the Spanish Constitution, the Charter or the Convention, but the effectiveness of the protection of these fundamental rights. The doctrine does not criticise with sufficient force the level of protection of the TC through amparo, which is null and void due to the low rate of admissibility of constitutional protection.

There has been a constitutional mutation through the LOTC of 2007, when the appeal for protection against the violation of fundamental rights referred to in 161.1.b EC has been transformed into an appeal in which the violation of the fundamental right is a necessary but insufficient condition. The key is the special constitutional transcendence; if it does not exist, the legal system does not provide any kind of protection that the TC understands as lacking special constitutional transcendence.

As far as the level of protection offered by the ECtHR is concerned, what matters is not so much the density of the violation or the seriousness of the fundamental right violated, but rather the informative density of the case.

In other words, if the case is newsworthy, the ECtHR has a certain sensitivity and inclination to admit the appeal without communicating its refusal in two lines by means of an ordinary letter, as the TC usually does in its inadmissibility decisions. What is the point of so much hyper-protection of this reiteration of the protection of fundamental rights if, when it comes down to it, the system of guarantees does not work?

If we look at some of the fundamental rights that are so strongly protected, such as ne bis in idem, they have been 'decaffeinated' and it is no longer the duplication of proceedings for the same facts, but what they prohibit and what they protect is excessive punishment, which is a rather malleable legal concept. There is a 'fading' of ne bis in idem, as is the case with jurisprudence, especially with regard to the jurisprudential line established after the Falcianni list. To what extent do fundamental rights have different levels of protection, even within the same court?

Depending on the nature of the offence, i.e. whether it is an economic tax offence, the State's interest in collecting the tax prevails, which, according to case law, is based on the taxpayer's awareness of the need to pay the tax and the principle of economic and social solidarity. SSTS 184 and 76/90 are judgments that have been criticised by the doctrine, but they have been established as trend-setting. STC 74/2022 rejects the question of unconstitutionality raised by the SC on the grounds of disproportionality in the application of certain sanctioning provisions, citing the need to combat tax fraud. Looking at the EC, and ignoring the interpretation of the TC, control mechanisms are established for the public authorities; no constitutional provision grants the administration exorbitant powers when it comes to the Tax Agency. The administration has made the control of individuals the raison d'être of its existence, establishing a relationship with taxpayers (a controversial term because the counterpart in the tax relationship is that of the obliged, but it is also the administration that is obliged to respect the obligations of taxpayers). It is worth substituting more neutral terms.

In the end, all this leads to chaos; this jurisprudence of the TC means that there is now no self-respecting tax law that does not refer to tax fraud, placing illegality above the need to collect taxes, since taxes are an instrument for collecting revenue, but also for satisfying public expenditure.