M.A.S. and M.B. (Taricco follow-up)

In compliance with the rule stated in Taricco judgment, the Italian Court of Cassation and the Court of Appeal of Milan, before which proceedings concerning serious fraud in relation to VAT were pending, considered they should disapply the limitation period laid down in the relevant provisions of the Italian Criminal Code and give judgment on the substance of the cases. Having doubts as to as to whether that approach is compatible with the overriding principles of the Italian constitutional order and with observance of the inalienable rights of the individual, they referred questions of constitutionality to the Italian Constitutional Court, which considers, in particular, that such approach is liable to interfere with the principle that offences and penalties must be defined by law, which requires that rules of criminal law are precisely determined and cannot be retroactive.

The Italian Constitutional Court specified that in the Italian legal system the rules on limitation in criminal matters are substantive in character, and consequently fall within the scope of the principle of legality referred to in the Italian Constitution, and that it called upon to decide whether the rule in the Taricco judgment complies with the requirement of ‘determination’ which, under the Constitution, must characterise substantive criminal law. In this context, the Italian Constitutional Court asked referred questions to the Court on the extent to which the national courts are required to fulfil the obligation, identified by the Court in the Taricco judgment to disapply, in pending criminal proceedings for infringements relating to VAT, national provisions on limitation period, forming part of national substantive law.

Building on the Taricco judgment, the Court recalled that it is for the competent national courts to give full effect to the obligations under Article 325(1) and (2) TFEU and to disapply national provisions, including rules on limitation, which, in connection with proceedings concerning serious VAT infringements, prevent the application of effective and deterrent penalties to counter fraud affecting the financial interests of the Union.

It also recalled that, in the Taricco judgment, the national provisions at issue were regarded as liable to have an adverse effect on the fulfilment of the obligations of the Member State concerned under Article 325(1) and (2) TFEU if they prevented the imposition of effective and deterrent criminal penalties in a significant number of cases of serious fraud affecting the financial interests of the Union, or provided for shorter limitation periods for cases of fraud affecting those interests than for those affecting the financial interests of that Member State.

The Court however noted that it is primarily for the national legislature to lay down rules on limitation that enable compliance with the obligations under Article 325 TFEU and that at the material time for the main proceedings, the limitation rules applicable to criminal proceedings relating to VAT had not been harmonised by the EU legislature. The Italian Republic was thus, at that time, free to provide that in its legal system those rules, like the rules on the definition of offences and the determination of penalties, form part of substantive criminal law, and are thereby, like those rules, subject to the principle that offences and penalties must be defined by law.

The Court also stressed the importance, both in the EU legal order and in national legal systems, of the principle that offences and penalties must be defined by law, as to its requirements concerning the foreseeability, precision and non-retroactivity of the criminal law applicable.

It then noted that the requirements of foreseeability, precision and non-retroactivity inherent in the principle that offences and penalties must be defined by law apply also, in the Italian legal system, to the limitation rules for criminal offences relating to VAT.

The Court found that it is for the national court to ascertain whether the finding, required by the Taricco judgment, that the provisions of the Criminal Code at issue prevent the imposition of effective and deterrent criminal penalties in a significant number of cases of serious fraud affecting the financial interests of the Union leads to a situation of uncertainty in the Italian legal system as regards the determination of the applicable limitation rules, which would be in breach of the principle that the applicable law must be precise. If that is indeed the case, the national court is not obliged to disapply the provisions of the Criminal Code at issue. In other words, if the national court were to come to the view that the obligation to disapply the provisions of the Criminal Code at issue conflicts with the principle that offences and penalties must be defined by law, it would not be obliged to comply with that obligation, even if compliance with the obligation allowed a national situation incompatible with EU law to be remedied.

The Court therefore concluded that Article 325(1) and (2) TFEU must be interpreted as requiring the national court, in criminal proceedings for infringements relating to value added tax, to disapply national provisions on limitation, forming part of national substantive law, which prevent the application of effective and deterrent criminal penalties in a significant number of cases of serious fraud affecting the financial interests of the European Union, or which lay down shorter limitation periods for cases of serious fraud affecting those interests than for those affecting the financial interests of the Member State concerned, unless that disapplication entails a breach of the principle that offences and penalties must be defined by law because of the lack of precision of the applicable law or because of the retroactive application of legislation imposing conditions of criminal liability stricter than those in force at the time the infringement was committed.