Understanding Criminal Law and VAT in Switzerland: Preventing Tax Offences

Taxation is a complex field, and value added tax (VAT) is no exception. In Switzerland, criminal law related to VAT has evolved significantly since the law was revised in 2010, gaining autonomy while remaining integrated into the general criminal framework. This article aims to shed light on the essential aspects of this legal field, with an emphasis on the prevention of tax offenses.

Legal framework and competent authorities

Criminal law relating to VAT is mainly governed by articles 96 to 106 of the Federal Value Added Tax Act (LTVA). These provisions are articulated with the Swiss Criminal Code (CP) and the Federal Act on Administrative Criminal Law (DPA), forming a coherent but complex legal framework.

The Federal Tax Administration (AFC) is the main authority on VAT matters, while the Federal Customs Administration (AFD) handles import tax issues. These institutions play a crucial role in the application and interpretation of tax laws.

Offences and sanctions

The LTVA defines several types of offenses, the main ones of which are:

1. Tax evasion (art. 96 LTVA): It consists in unduly reducing the tax claim, for example by declaring too low taxable income or by overvaluing prior tax deductions. Penalties can range up to 400,000 CHF in fines, or even 800,000 CHF in certain aggravated cases.
2. Tax withholding (art. 99 LTVA): This offense concerns those who help to evade tax or take advantage of it.
3. Violation of procedural obligations (art. 98 LTVA): This includes failure to file an application, failure to comply with reporting obligations, or obstructing a tax audit.

It is important to note that the attempt to evade tax is also punishable, in contrast to withholding tax or violating procedural obligations that require an effective commission.

Prevention and regularization

The law provides mechanisms for taxpayers to regularize their situation:

1. Finalization work: Taxable persons can correct their VAT returns for a fiscal period within 240 days following the end of the fiscal period (art. 72 LTVA).
2. Spontaneous denunciation: After this period, a spontaneous complaint can avoid criminal proceedings if the taxpayer helps the authority to establish the tax and makes an effort to pay the amount due (art. 102 LTVA).

Special features and recent developments

The practice of AFC has evolved in recent years. Previously, criminal proceedings were systematically initiated based on CHF 10,000 of VAT subtracted over the control period (generally 5 years). This approach has been criticized as potentially unfair, and alternatives such as the “3% rule” (based on gross turnover) have been proposed.

A notable aspect of Swiss criminal tax law is the possibility for the authority to renounce sanctioning natural persons in favor of fines imposed on the company, when individual investigations would be disproportionate (art. 100 LTVA). This provision is intended to make procedures more efficient.

Conclusion and recommendations

The complexity of the VAT system and the principle of self-taxation place a heavy responsibility on businesses. To prevent tax offenses, it is crucial to:

• Maintain accurate and transparent accounting.
• Keep up to date with legislative developments and AFC practices.
• Perform regular internal checks.
• Consult experts when in doubt about the interpretation of tax rules.
• Use regularization mechanisms (finalization work, spontaneous denunciation) if errors are discovered.

By taking a proactive approach and staying vigilant, taxpayers can significantly reduce the risks of tax offenses and their potentially serious consequences.