Recent Finnish Supreme Court ruling confirms the need for a holistic assessment when reviewing tax fraud charges against individuals
Insights|June 7, 2024
On 31 May 2024, the Finnish Supreme Court issued a welcome ruling confirming that courts cannot simply presume the existence of criminal intent when assessing criminal tax fraud charges brought against individuals for failing to report income. The Supreme Court ruling offers helpful guidance to lower courts following a recent trend of the Finnish Tax Administration (FTA) pursuing criminal claims against individuals who have failed to report foreign income on their annual tax return.
In the case at hand, an individual had inherited an investment account in a Swiss bank from her late husband. She had failed to report the taxable income from the investment account to the FTA in 2010–2013. After having been informed by her advisors that the income should be declared, the individual reported the income to the FTA on her own initiative and paid all unpaid taxes. The FTA, however, submitted a police report following which a prosecutor brought charges against the individual for aggravated tax fraud.
The individual was convicted of tax fraud by the Helsinki District Court, but the ruling was overturned by the Helsinki Court of Appeal. Following a 3–2 vote, the Supreme Court upheld the Court of Appeal’s decision not to convict the individual.
The Supreme Court noted that, as with most tax fraud cases, there was no direct evidence available that could be used to make a determination as to whether the individual had simply neglected to report her foreign income or whether she had sought to actively evade taxes. The Supreme Court therefore emphasized that a case-by-case evaluation of all available circumstantial evidence was necessary in assessing criminal intent.
In its application of the facts, the Supreme Court held that, while the individual was aware of the investment account and had even had meetings with the Swiss bank regarding it, she was able to point to a number of circumstances that indicated that she had not acted willfully. For instance, the individual had never managed her own financial affairs and had mistakenly thought that the Swiss bank would report her income to the FTA. The Supreme Court therefore concluded that there was reasonable doubt as to whether she had deliberately sought to evade taxes and dismissed the charges.
The new precedent is a helpful addition to the pre-existing case law on tax fraud, as lower courts have previously convicted individuals of tax fraud even in cases where there has been clear circumstantial evidence that the failure to pay taxes was a result of negligence rather than criminal intent.