Challenges of tax procedural law and criminal tax law

Case: Tax evasion and subsequent tax proceedings 

1. facts (part 1)

Anna Muster is the owner of Treuhand und Revisionen AG, which is named after her. The company's headquarters and offices are located on the first floor of the detached house in Spiez, where Anna Muster lives with her husband, Bernd Muster. Anna Muster is Chairwoman of the Board of Directors. Another member of the Board of Directors is lawyer and tax expert Jaël Meier. Together with her, Anna Muster shares additional business premises in Thun.

In August 2016, Anna Muster sold some of the shares in Anna Muster Treuhand und Revisionen AG to Jaël Meier, leaving her with 46% of the share capital. Anna Muster sold a further 46% of the shares to Boring AG, which is controlled by Herbert Kriegelstein. As a result, Anna Muster still held 8% of the share capital of Anna Muster Treuhand und Revisionen AG. She remained Chairman of the Board of Directors.

Two years later, a dispute arose between Anna Muster and the governing bodies of Boring AG, who claimed at the Annual General Meeting of Anna Muster Treuhand und Revisionen AG held in the summer of 2018 that they had acquired the remaining 8% of shares from Anna Muster and thus the majority of shares. As a result, Anna Muster resigned from the Board of Directors on September 22, 2018.

Following an audit carried out at Anna Muster Treuhand und Revisionen AG, the tax authorities of the Canton of Bern opened additional and penalty tax proceedings against Anna and Bernd Muster for the tax years 2010-2015. It justified this by stating that Anna Muster had received non-cash benefits from Anna Muster Treuhand und Revisionen AG for several years by withdrawing funds for private purposes through untruthful bookkeeping. In addition, she had clearly booked private expenses as business-related. After the tax authorities had requested and received documents from Anna Muster several times, they drew up a provisional calculation of the fine and a list of the monetary benefits in question. In order to preserve her right to be heard, Anna Muster was able to comment on this, which she did in detail - now represented by lawyer Fred Huber.

Subsequently, on December 3, 2019, the tax authorities issued Anna and Bernd Muster with a single fine ruling in the tax evasion proceedings for the tax years 2010-2015, taking partial account of the comments submitted, and at the same time issued a joint supplementary tax ruling. A detailed list of the monetary benefits paid to Anna Muster was part of the fine order.

1.1 Question 1 (Joint disposition to spouses)

The tax authorities have imposed the fine on Anna and Bernd Muster jointly in a single ruling and imposed it jointly on the spouses. What problems arise here?

1.2 Question 2 (separation of procedures)

How would the Tax Appeals Commission have to decide if the tax administration were to concede in subsequent appeal and complaint proceedings that the joint fine order was wrongly issued and requested that the Tax Appeals Commission separate the proceedings?

1.3 Question 3 (reformatory or cassatory decision)

In the example just explained, will the Tax Appeals Commission make a reformatory decision, i.e. decide on the matter itself, or will it overturn the decision, i.e. set it aside, and refer it back to the lower court for a new assessment?

2. facts (part 2)

In his objection, the representative Fred Huber requested a reduction in the monetary benefits offset. Alternatively, he applied for the tax evasion proceedings to be suspended until the legally binding conclusion of the subsequent tax proceedings and requested access to the files. Two years later, the tax administration granted the representative access to the files and informed him that it was sticking to the imputed monetary benefits, but was prepared to reduce the penalty factor to 0.75 due to the delay in granting access to the files and the long duration of the proceedings. In its ruling, the tax administration had set the penalty factor at 1.5, based on the standard 1.0, which had been increased by 0.5 due to Anna Muster's many years of experience in the fiduciary and auditing sector.

In his subsequent statement, the representative maintained the reduction of the imputed monetary benefits already applied for. The tax administration rejected the objection on May 8, 2023, but reduced the penalty factor to 0.75 as announced.

2.1 Question 4 (Inspection of files)

In the present case, the files comprise 15 federal folders. Anna Muster's representative requests that all files be sent to his office for inspection. The tax administration, however, takes the view that the volume of files is too large and that the files can only be inspected on site. Is the lawyer entitled to have the files delivered to his office?

3. facts (part 3)

On June 2, 2023, the representative, Fred Huber, lodged an appeal and complaint with the Tax Appeals Commission of the Canton of Berne and demanded that the objection decisions be set aside with costs and compensation. He justified this by arguing that the subjective offense of tax evasion was not fulfilled. The tax administration's offsetting was based on the fact that Anna Muster had not been able to submit detailed receipts for the disputed bookings. However, this was neither intentional nor negligent, but was due to the fact that the new owner of Anna Muster Treuhand und Revisionen AG, Boring AG, refused to provide Anna Muster with the required documents.

Once again, the representative of Anna Muster requested that the tax evasion proceedings be suspended until the post-tax proceedings had been concluded. The fines were then to be recalculated. Due to the long duration of the proceedings, the very late inspection of the files and the gross violation of procedural rules, the fine factor should be reduced to 0.33, provided that monetary benefits were still being offset at all. Anna Muster was unable to provide the exonerating evidence through no fault of her own, which should be reflected in the reduction of the fine factor.

3.1 Question 5 (Suspension of the evasion proceedings)

How is the Tax Appeals Commission to decide on the suspension request?

3.2 Question 6 (Appeal against suspension)

How does the Tax Appeals Commission decide on the suspension request? Can Fred Huber appeal against the rejection of his suspension request?

4. facts (part 4)

As part of the instruction procedure, the Tax Appeals Commission established that the representative of Anna Muster had not been granted access to two federal folders containing files relating to the present proceedings by the Tax Administration. The Tax Appeals Commission therefore sent the two federal files to the representative's office for inspection. In the subsequent exchange of correspondence, the Tax Administration requested that the appeal and complaint be dismissed with costs. The representative confirmed his position.

4.1 Question 7 (Incomplete file inspection)

What are the consequences of the fact that the tax administration did not grant the representative access to all files? How does the Tax Appeals Commission proceed?

5. facts (part 5)

During her hearing on October 27, 2023, Anna Muster pointed out that all of the governing bodies of Anna Muster Treuhand und Revisionen AG had resigned in the meantime. The public prosecutor's office had opened criminal proceedings against these persons, who had managed Anna Muster Treuhand und Revisionen AG after their resignation. As evidence, it submitted two decrees from the public prosecutor's office of the Canton of Bern, which showed that Boring AG had presented forged share certificates at the Annual General Meeting in summer 2018 in order to obtain the election of the persons it had proposed at the Annual General Meeting of Anna Muster Treuhand und Revisionen AG. The public prosecutor's office judged the actions taken by the persons elected at the Annual General Meeting held in summer 2018 to be legally invalid and revoked the status of Anna Muster Treuhand und Revisionen AG and Boring AG as private plaintiffs in the criminal proceedings. Anna Muster also stated at her hearing that civil proceedings were still ongoing concerning the reversal of the sale of shares, which had been ordered by the court but had not yet been implemented. On the other hand, the civil proceedings conducted by Boring AG against Anna Muster had ended with a decision not to intervene. The criminal proceedings against Anna Muster are still at the criminal investigation stage.

The representative of Anna Muster waived the subsequent opportunity to submit a statement on the minutes of the hearing.

5.1 Question 8 (Personal interview)

Why did the Tax Appeals Commission conduct an interview with Anna Muster in this case?

6. facts (part 6)

On November 3, 2023, the Tax Appeals Commission informed the representative that it was considering amending the objection decision regarding tax evasion in the tax periods 2010-2015 to the disadvantage of Anna Muster and increasing the penalty factor from 0.75 to 1.5 (so-called reformatio in peius).

The representative responded within the deadline and maintained his previous comments.       

6.1 Question 9 (Announcement reformatio in peius)

What does the Tax Appeals Commission have to pay particular attention to when announcing a reformatio in peius?

6.2 Question 10 (Withdrawal of appeal and complaint)

How would the Tax Appeals Commission react if the representative of Anna Muster declared the withdrawal of the appeal and complaint due to the announced reformatio in peius?

7. facts (part 7)

On December 11, 2023, the Tax Appeals Commission will reach a decision on the tax evasion proceedings for the tax years 2010-2015. The tax administration issued the penalty orders on which the tax evasion proceedings are based on November 6, 2020.       

7.1 Question 11 (Limitation period)

What is the situation in this case with regard to the statute of limitations?

7.2 Question 12 (Requirements for completed tax evasion)

What requirements must be met for the Tax Appeals Commission to confirm that tax evasion has been completed?

7.3 Question 13 (Criteria for monetary benefits)

What criteria does the Tax Appeals Commission use to examine whether there has been a tax evasion in the present case because Anna Muster Treuhand und Revisionen AG has distributed hidden profits to Anna Muster or Anna Muster has received non-cash benefits from Anna Muster Treuhand und Revisionen AG by withdrawing funds from the company for private purposes through untruthful bookkeeping?

8 Facts (Part 8)

In the present case, hidden profit distributions have already been established in the legally concluded subsequent tax and evasion proceedings of Anna Muster Treuhand und Revisionen AG. As can be seen from the offsets commented on in detail, Anna Muster disputes a considerable part of the offsets carried out by the tax authorities. Her representative also argues that Anna Muster is in a state of evidentiary distress, as she has handed over all the documents underlying the disputed entries to the new executive bodies of Anna Muster Treuhand und Revisionen AG. After Anna Muster left the company, they had contacted the tax authorities and accused her of tax evasion. Now they were deliberately not handing over all the receipts to the tax authorities in order to harm her. Therefore, she should not suffer any disadvantage as a result. During her interrogation, Anna Muster once again referred to her missing receipts and also expressed the suspicion that the bookkeeping might have been manipulated by the organs of Anna Muster Treuhand und Revisionen AG, which were hostile to her. It is also clear from the files that there are considerable disputes between Anna Muster and Anna Muster Treuhand und Revisionen AG and Boring AG (see also the criminal and civil proceedings that are pending or have already been concluded in some cases).

8.1 Question 14 (Burden of proof in criminal proceedings)

Who bears the burden of proof in these criminal proceedings?

8.1 Question 15 (Subjective facts)

What criteria does the Tax Appeals Commission use to examine the subjective offense of completed tax evasion? Should Anna Muster be sentenced for intent or negligence?

8.2 Question 16 (amount of fines)

What criteria does the Tax Appeals Commission use to determine the amount of the fines and does it review the appropriateness of the fines imposed by the tax administration?

8.3 Question 17 (procedural costs and party compensation)

Who does the Tax Appeals Commission impose the procedural and party costs on? Does it award compensation to the parties?

9. facts (part 9)

Now that the decision regarding tax evasion in the tax periods 2010-2015 has been concluded, the Tax Appeals Commission is examining the proceedings regarding additional tax in the tax periods 2010-2015.

9.1 Question 18 (first procedural steps)

Which two procedural steps will the Tax Appeals Commission take first?

9.2 Question 19 (Requirements for additional tax)

What conditions must be met for a supplementary tax to be levied?

9.3 Question 20 (Differences between additional tax and penalty tax)

To what extent will the decision of the Tax Appeals Commission regarding subsequent tax proceedings differ from the decision regarding tax evasion proceedings?