Hit me baby one more time: does ‘ne bis in idem’ apply when company and representative are sanctioned for same offence?

ECJ judgement of April 5th 2017

Two Italian companies did not pay their VAT debt which amounted to over a million euro. In addition to a tax penalty for the companies, their legal representatives were prosecuted in their personal capacity on the ground that they failed to fulfill their responsibility to pay the VAT. The representatives protested, arguing that this would breach the ne bis in idem-principle, guaranteed by article 50 of the Charter of Fundamental Rights of the EU.

The ne bis in idem-principle precludes that persons are criminally sanctioned twice for the same offense. For ne bis in idem to apply, the following three conditions need to be cumulatively met: (i) the person on whom a penalty is imposed is the same person who received a previous penalty; (ii) there should be two distinct procedures and (iii) the acts being judged are the same in both procedures (see no. 32 of the AG’s opinion).

The ECJ’s fourth chamber pointed out that in the case at hand the first criteria was not satisfied (see no. 22 of the judgement). The tax fine was charged to the company, while the legal representatives were prosecuted in their personal capacity. The conclusion of the court is that, as the punishments concerned two distinct persons, ne bis in idem does not apply.

The judgement is consistent with the case law of the European Court of Human Rights (ECtHR) on the ne bis in idem-principle, also guaranteed by Article 4 of Protocol No.7 to the European Convention of Human Rights. In 2014 the ECtHR held in Pirttimäki v. Finland that the imposition of penalties does not consist a breach of article 4 if they concern legally distinct persons (see no. 51 of the judgement).

While the ECJ’s conclusion sounds logical, in practice, assuming that the representatives are shareholders of the company, they are hit twice by the sanctions. First indirectly, due to a drop in value of their shares and then directly, due to being fined in their personal capacity. With other words, from the perspective of the net worth of the representatives, the two separate proceedings do indeed constitute a double sanction for the same acts.

Intuitively, it seems still correct that the court did not find ne bis in idem applicable. While the court reasons in terms of distinct legal personalities, it might have more to do with the fact that the company in the case at hand had limited liability.

The loss in value of the shares surely has an economical impact on the representatives, yet it is too indirect to be considered a sanction in the context of ne bis in idem. Critically, it affects a shareholder only up to the amount it has invested in the company. This may completely deprive the sanction of its repressive nature if the sanction is much bigger than the amount invested. Rules that hold shareholders personally accountable when they fraudulently represent the company are nothing but essential to avoid abuse of the limited liability.

That it might be problematic to only reason in terms of distinct legal personalities instead of limited liability, can be illustrated by the following hypotheses.

What if a tax penalty is given to a company that has legal personality, yet no limited liability? In Belgium, the V.O.F is such company type. This situation would mean that the shareholders can be held personally liable for the tax penalty.

Say that a shareholder of such company is also a legal representative, could he also be fined in its personal capacity? This would mean that the shareholder’s assets are directly affected twice by two different sanctions, which suddenly brings ne bis in idem much closer.

Does it still matter that the first sanction in theory concerns the company’s legal personality, when it is the shareholder who completely and directly bears both sanctions in its personal capacity?

Wouter-Jan Leys

Author: Wouter-Jan Leys

Research Master in Law student at KU Leuven and Tilburg University

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