Tax Fraud: Deceit or Honest Mistake?

The owner of a private security company faced prosecution in the federal district of General Roca on counts of tax evasion. Specifically, the defendant was charged with evading Value Added Tax by omitting sales on the company’s tax declaration.

The defendant alleged defective professional counsel, claiming that the company accountant mistakenly advised that the sales in question were exempt from the relevant tax.

The First Instance Judge dismissed the complaint in the understanding that the defendant’s actions did not meet the requisite elements of tax fraud. In this sense, the Judge held that insofar as the company invoiced all relevant sales, the tax authority was not barred from knowing the taxpayer’s true and complete economic situation.

The Court of Appeals upheld the decision and the Attorney General appealed before the Federal Court of Criminal Cassation.

In this context, the third division of the Federal Chamber of Criminal Cassation reversed the decision and ordered the Court to continue with the investigation.

Firstly, the Court of Cassation dismissed the defense based on defective counsel, considering the defendant´s experience in the industry and longstanding registration with the tax authority. In this context, the Court of Cassation held that the defendant’s profile was incompatible with such a basic mistake.

The Court of Cassation further held that invoicing and/or recording all relevant transactions does not exclude per se the possibility of deceiving the tax authority. In this case, the Court highlighted that the relevant omissions were not discovered in the context of basic or routine controls, but in the course of a complex audit triggered by different reasons. Therefore, the tax authority was required to make a considerable effort to note the inconsistencies in the defendant’s declarations, which -according to the Court- could reasonably amount to the requisite deceit.

The precedent sets valuable guidelines for the distinction between the simple failure to pay taxes and the crime of tax fraud.

Federal Criminal Court of Cassation, Section III, FGR 1838/2020/CFC1 “M.D.N. s / cassation appeal”.