Petar Dzivev and Others

On 17 January 2019, the Court of Justice (Fourth Chamber) delivered its judgement in case C-310/16 on the interpretation of Article 325 TFEU and its impact on national rules concerning investigations of VAT fraud.

Mr. Dzivev was under investigation for leading a criminal gang that committed VAT fraud. Some interceptions were ordered during the proceedings and they would represent crucial evidence to prove the criminal liability of Mr. Dzivev. However, due to some irregularities, they could not be used at trial according to Bulgarian law. The competent national court thus wonders whether such law preventing national authorities to rely on illegally obtained wiretapping is compatible with EU law. In particular, the referring court mentions Article 325 TFEU on the protection of the Union’s financial interests, the Convention on the protection of the European Communities’ financial interests (‘PIF Convention’) that, as interpreted by the Court of Justice, requires the Member State to criminalise VAT fraud, and Article 47 of the Charter on the right to an effective remedy.

Unlike its judgement in Kolev, the Court rules against the disapplication of national law in such circumstances. The reasoning of the Court develops through four main steps. First, the Court notes that matters connected to the gathering of evidence within criminal proceedings fall within the competence of the Member States. Second, it recalls a principle that it has often restated in recent case law (see, for instance, Fransson, Taricco), namely that according to which there is a direct link between the collection of VAT revenue in compliance with the EU law applicable and the availability to the EU budget of the corresponding VAT resources, since any lacuna in the collection of the first potentially causes a reduction in the second. Hence, VAT-related issues fall within the field of application of EU law. Third, Article 325 TFEU requires the Member States to counter fraud and any other illegal activities affecting the Union’s financial interests through effective deterrent measures. Such measures shall be adopted by the national legislator. If necessary, they may also be of criminal nature, as it is the case of for serious cases of VAT evasion, for which the PIF Convention requires criminal sanctions.

However, and here it comes the fourth and last step, the effective collection of the European Union’s resources does not dispense national courts from the necessary observance of the fundamental rights guaranteed by the Charter and of the general principles of EU law, given that the criminal proceedings instigated for VAT offences amount to an implementation of EU law, within the meaning of Article 51(1) of the Charter. In the field of criminal law, those rights and principles shall be respected already during the stage of the preliminary investigation, from the moment when the person concerned becomes an accused. In the case of Mr. Dzivev, the principle of legality and the rule of law come into consideration. They imply that the exercise of the power to impose penalties cannot take place outside the legal limits within which an administrative authority is authorised to act in accordance with the law of its Member State. Furthermore, as the issue under analysis concerns interception of telecommunications, the Court points out that such an interception amounts to an interference with the right to private life, enshrined in Article 7 of the Charter. In accordance with Article 52 of the Charter, any interference with fundamental rights must abide by some criteria, including that of being provided by law. In that regard, the Court argues, it is common ground that the interception of telecommunications at issue in the proceedings against Mr. Dzivev was authorised by a court which did not have the necessary jurisdiction. Hence, it must be regarded as not being in accordance with the law.

The Court thus concludes, agreeing with the view of the Advocate General, that Article 325(1) TFEU, as well as the other relevant provisions of the PIF Convention, interpreted in the light of the Charter of Fundamental Rights, do not preclude a national court from applying a national provision excluding, from a prosecution, evidence such as the interception of telecommunications requiring prior judicial authorisation, where that authorisation was given by a court that lacked jurisdiction, in a situation in which that evidence alone is capable of proving that the offences in question were committed.