While this is not a VAT case, banning cash payments may be measure to combat VAT fraud.
On October 6, 2021, the ECJ issued the decision in the case C-544/19 (ECOTEX BULGARIA).
Context: Reference for a preliminary ruling – Art. 63 TFEU – Free movement of capital – Directive (EU) 2015/849 – Scope – National regulation according to which payments that exceed a certain amount must be made exclusively by transfer or by depositing in a payment account – Art 65 TFEU – Justification – Combating tax evasion and avoidance – Proportionality – Administrative sanctions of a criminal nature – Article 49 of the Charter of Fundamental Rights of the European Union – Principles of legality and proportionality in relation to criminal offenses and penalties
Facts
- The main activity of Ecotex, a trading company incorporated under Bulgarian law, consists in the wholesale of production machines and their installation. KS, a Greek national residing in Greece, is the managing director and sole shareholder of this company.
- At the general meeting of this company on March 14, 2018, it was decided that the undistributed profit of 100,000 BGN (approx. 51,110 euros) minus corporation tax would be paid out to the sole shareholder, KS, in the form of dividends. It was also decided that this sum would be paid out to him in cash from the company’s coffers by means of disbursement permits.
- On the occasion of a tax audit, inter alia determined that, according to the resolution of the General Meeting of March 14, 2018 on the distribution of dividends in the period from March 14, 2018 to March 22, 2018, an amount of 95,000 BGN (about 48,550 euros) by means of nine payment authorizations for cash payments of BGN 10,000 each (around EUR 5,110) and an amount of BGN 5,000 (around EUR 2,555) was paid out in cash to KS by means of a disbursement authorization.
- On June 5, 2018, the competent tax authority announced the initiation of administrative criminal proceedings against Ecotex and, on June 26, 2018, recorded a protocol in which the existence of an infringement of the provisions of the ZOPB was established on the grounds that Ecotex was based on the resolution of the Annual General Meeting on March 14, 2018, to distribute dividends of BGN 100,000 to KS, on March 14, 2018, by means of a payment authorization, I paid out an amount of BGN 10,000 to KS in cash.
- On July 10, 2018, Ecotex filed an objection to this protocol, claiming that the payment of BGN 10 000 made on March 14, 2018 reduced the ZOPB restriction on cash payments by only BGN 0.01 (approximately BGN 0.005 Euro) and the infringement is therefore “minor” within the meaning of Art. 28 ZANN.
- On September 3, 2018, on the basis of this protocol, the competent tax authority issued a decision against Ecotex in accordance with Art. 5 Para. 1 ZOPB regarding the imposition of a fine and justified this by stating that this company would make a cash payment on March 14, 2018 in the amount of I paid BGN 10,000 to KS. The order for reference shows that each of the payments of 10 000 BGN to KS was regarded as an “infringement” within the meaning of Art. 3 Para. 1 No. 1 ZOPB, so that nine administrative sanctions in the form of fines under Art. 5 Para. 1 ZOPB were imposed. According to Bulgarian regulations, each fine was 5,000 BGN, half of the amount paid in cash.
- By judgment of 14 December 2018, the Rayonen sad Petrich (Petrich Rayon Court, Bulgaria) dismissed Ecotex’s action against this decision by the competent authority. Ecotex then appealed in cassation to the referring court, the Administrativen sad Blagoevgrad (Blagoevgrad Administrative Court, Bulgaria).
- Before that court, Ecotex essentially reiterates the arguments set out in paragraph 27 of this judgment and states that, given the minority of the infringement, a fine of half the total cash amount received appears disproportionate. Ecotex also asserts that the company’s right to receive dividends is not a business or contract and therefore does not fall under the term “payment” within the meaning of Art. 3 Para. 1 No. 1 ZOPB.
- The competent tax authority asserts that the term “payment” within the meaning of Art. 3 Para. 1 No. 1 ZOPB is to be understood as denoting every payment or financial transaction, regardless of whether it is a dividend distribution or whether it is based on a contractual or non-contractual relationship or on a membership relationship.
Questions
In this connection, it is to be examined, with regard to the company’s responsibility, whether a general national legislative provision which restricts cash
payments, regardless of whether they constitute remuneration for a counterperformance, is admissible and whether the restriction of the cash payment of a share in undistributed profits under Article 3(1) No 1 ZOPB is covered by the scope of Directive (EU) 2015/849; if such a provision is admissible, this raises the
question of whether it is left to the Member States to fix the threshold value for cash payments at an amount below EUR 10 000.
If this is found to be the case, it is to be examined to what extent a national legislative provision such as that of Article 5(1) ZOPB, which provides for a
financial sanction at the fixed level of ‘50 per cent of the total amount of the payment made’ for legal persons in respect of all financial transactions, is
admissible with regard to the proportionality of the penalty pursuant to Article 58(1) and the circumstances pursuant to Article 60(4) of Directive (EU)
2015/849 and whether it does not constitute a breach of the principle of effective judicial review in light of the prohibition regulated in Article 27(5) ZANN on the court reducing the sanction below the minimum level provided for in Article 5(1) ZOPB.
AG Opinion
1.National provisions such as those at issue in the main proceedings, which, with the aim of combating tax evasion and tax avoidance, prohibit natural and legal persons from making domestic cash payments that reach or exceed a threshold and require them to do so that they make a transfer or a payment to a payment account do not fall within the scope of Directive (EU) 2015/849 of the European Parliament and of the Council of May 20, 2015 on preventing the use of the financial system for the purpose of money laundering and terrorist financing, amending Regulation (EU) No. 648/2012 of the European Parliament and of the Council and repealing Directive 2005/60 / EC of the European Parliament and of the Council and Directive 2006/70 / EC of the Commission.
2. Article 63 TFEU is to be interpreted as meaning that it does not conflict with national provisions such as those at issue here, which are justified by the need to combat tax evasion and tax avoidance, if they are capable of ensuring that this objective is achieved and not go beyond what is necessary to achieve it.
The referring court will have to examine whether these conditions are met, taking into account:
– These rules can only really achieve the stated objective if they are accompanied by measures in favor of private individuals’ access to banking services. In that regard, the referring court should in particular ensure that persons in need of protection without an account have the opportunity to open a bank account with basic functions under more favorable conditions than the other consumers, as is the case in Article 18 (4) of Directive 2014/92 / EU of the European Parliament and Council of 23 July 2014 on the comparability of payment account fees, switching payment accounts and access to payment accounts with basic functions. Furthermore, the referring court should ensure that those rules are accompanied by special or derogations in favor of persons
– These rules may constitute a measure contrary to the principle of proportionality in so far as they provide that the amount of the fine to be imposed on natural and legal persons in the event of a breach of the rules on cash payment restrictions is a fixed percentage of the total amount payment made in breach of these provisions is calculated, and exclude any adjustment of the amount of this fine according to the circumstances of the specific case.
Decision
1. A regulation of a Member State which prohibits natural and legal persons from making a domestic payment that reaches or exceeds a specified threshold in cash and requires them to make a transfer or deposit into a payment account does not fall within the scope of Directive (EU) 2015/849 of the European Parliament and of the Council of May 20, 2015 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, amending Regulation (EU) No. 648/2012 of the European Parliament and of the Council and repealing Directive 2005/60 / EC of the European Parliament and of the Council and Directive 2006/70 / EC of the Commission.
2. Art. 63 TFEU in conjunction with Art. 49 (3) of the Charter of Fundamental Rights of the European Union is to be interpreted as meaning that it does not preclude a regulation of a Member State which it has with regard to the fight against tax evasion and -Circumvention on the one hand, prohibits natural and legal persons from making a cash payment in Switzerland, the amount of which reaches or exceeds a specified threshold, and requires a transfer or payment to a payment account, even if the dividends of a company are to be distributed, and which, on the other hand, introduces a system of penalties in order to penalize an infringement of this prohibition, in which the amount of the fine that may be imposed is calculated on the basis of a fixed percentage of the total amount of the payment made in breach of this prohibition, without ever incurring this fine a differentiation can be made according to the specific circumstances of the individual case, provided that this regulation is suitable to ensure the achievement of these goals,and does not go beyond what is necessary to achieve them.
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