17 December 2021
Financial investigation in taxation matters is regulated by Art. 100 of the Financial Administration Act (ZFU). An investigation under this provision concerns the implementation of acts, measures and procedures under the ZFU and the Tax Procedure Act (ZdavP-2), when there are grounds to suspect that an act has been committed that violated tax regulations or other regulations within the competencies of the financial administration. An investigation shall be initiated by issuing an investigation order stating
(1) the circumstances giving rise to the suspicion, (2) the acts and measures to be taken, (3) the circumstances to be investigated and (4) the entities to be investigated. If there are grounds for suspicion of insufficiently calculated mandatory duties or the existence of other irregularities, pursuant to the ZFU a tax inspection may be carried out as part of the financial investigation. A tax inspection begins when the tax inspector performs any act due to the performance of inspection control. After the financial investigation has been carried out, the official draws up a final investigation report. The financial administration shall keep records of financial investigations, which shall contain information on the
place, time and other circumstances of the financial investigation, persons, means of transport and other facilities under financial investigation, and on the course and findings of the financial investigation. Since the financial investigation is initiated to prevent, investigate and detect the most serious violations of tax regulations, it is unusual that the Slovenian acquis regulates this important institute very sparingly (in only one article of the ZFU), vaguely and inconsistently. In our opinion, from the ZFU it is not clear which of the powers listed in Art. 14 of this same act are covered by „acts, measures and procedures” which – as stated in Art. 100 – are exercised in a financial investigation. In addition to inspectors, customs officers, controllers and debt collectors, the Act also lists investigators among the officials who are supposed to have powers under this Act, but does not specify which (if any) of the listed powers are to be exercised by investigators. If this means that, unlike other officials, investigators are supposed to exercise all the powers of officials specified in the law, the confusion that arises is that some powers are by their nature such that they do not fall within the scope of a financial investigation. It is even less clear which „acts, measures and procedures” are to be carried out in the investigation from the set of authorizations, actions, measures and procedures under the ZDavP-2 (this act does not mention financial investigation).
The ZFU does not stipulate that the financial investigation is initiated in secret and that certain actions and measures are carried out without the knowledge and information of the liable party. Furthermore, it is not clear from the ZFU how long the investigation may take. The law is also silent on possible restrictions on the rights and (procedural) legal guarantees that taxpayers have in the tax procedure and in the tax inspection procedure. And perhaps most problematically, the ZFU does not stipulate that the financial investigation procedure, in contrast to the tax procedure and the tax inspection procedure, is not an administrative procedure by its legal nature.
If the legislator wanted to take away the nature of the (special) administrative procedure from the financial investigation procedure, in our opinion, it should have explicitly specified this and regulated such a procedure properly. The above applies all the more to possible restrictions on the constitutional and legal rights of taxpayers against whom an investigation is initiated. It follows from the ZFU that both the financial investigation and the tax inspection are initiated for the same reason and under the same condition: due to suspicion that mandatory duties were insufficiently calculated or due to other irregularities and violations of regulations within the competence of the financial administration. In our opinion, the question that arises in the light of such a diction of the law is the following one: If a financial investigation and tax inspection are initiated for the same reason and with the same standard of proof, then why do we need both?
From a real case we were acquainted with, we learned that the Financial Administration of the Republic of Slovenia (FURS) is of the opinion that the financial investigation procedure is a „pre-procedural (investigative) phase in which the tax inspection procedure has not yet begun.” According to the FURS’s interpretation, „the rights, obligations and legal benefits of the taxpayer have not yet been decided at this stage”, so the investigation does not have the nature of an administrative (tax) procedure and documents issued (or obtained) at this stage are not documents of administrative nature. Consequently, according to the FURS, the person under investigation does not have the right to inspect these documents, and does not have other constitutional and administrative procedural rights and guarantees until the potential commencement of the tax inspection procedure.The above presented positions of the FURS were confirmed by the Administrative Court of the Republic of Slovenia. The court dismissed the lawsuits filed by the investigated taxpayers who were denied access to the file by the FURS and thus denied them the right to be informed in the proceedings. The court reiterated the position of the FURS that the financial investigation is “a pre-procedural phase before the formal start of the tax inspection”. Based on the results of the investigation, in the opinion of the court, the financial administration body does not issue a decision deciding on the rights, obligations and benefits of the taxpayer, but makes a decision on the implementation or non-implementation of tax inspection. According to the court, before initiating the tax inspection procedure, the taxpayer does not have the right to inspect the file and inform
in the procedure under the ZFU and the General Administrative Procedure Act (ZUP), neither as a party nor as a third person. In our opinion, a legal interpretation that in the absence of an explicit legal basis deprives the financial investigation procedure of the legal nature of a (special) administrative procedure and deprives taxpayers of their legal subjectivity during the investigation, is arbitrary, illegal and unconstitutional. According to the fourth paragraph of Art. 100 of the ZFU, a tax inspection may be carried out „as part of the financial investigation”. In our opinion, according to the linguistic and logical interpretation of this provision, financial investigation cannot be a pre-procedural phase of a tax inspection if the later can be carried out „as part of the financial investigation”. In our view, according to the wording of the ZFU, both can form a more or less homogeneous procedural whole. By arbitrarily interpreting and implementing Art. 100 of the ZFU, the FURS not only violates the general constitutional principles of the rule of law and legality and the constitutional and statutory (procedural) rights and guarantees of taxpayers (i.e. the right to participate in the proceeding and receive information), but also tramples on the principles, which are determined by Arts. 4, 5 and 6 of the ZFU (principles of giving explanations to taxpayers and principles of predictable and public action of the financial administration). These violations are all the more obvious in the light of the fact that the ZFU does not limit the duration of the financial investigation at all and that, in practice, some investigations take a disproportionate length of time. Any unjustified and illegal financial investigation or even individual illegal actions of the financial administrative body can destroy the taxpayer’s good name and cause him huge and irreparable economic and business damage. These consequences could also be caused by a disproportionately long investigation, in which, after all, tax inspection might not have taken place at all. In such a case, the person under the investigation would find him or herself in circumstances of great legal uncertainty and insecurity. This could be legally sanctioned only if the person under the investigation would have had (administrative) legal subjectivity during the course of the investigation and at least the minimum administrative and constitutional guarantees and rights, in order to effectively challenge and prevent irregularities or abuses in the investigation.
In our opinion, Art. 100 of the ZFU is also unconstitutional per se, due to uncertainty and inconsistency of its wording and due to the existing arbitrary implementation of the article. We believe that either the FURS should change the interpretation and manner of implementation of Art. 100 of the ZFU, or the legislator should change this provision. If the lawmakers intended to regulate the financial investigation as a sui generis procedure, they should, in our view, enshrine this in law and impose restrictions on the legal status and rights of the investigated person. They should also provide safeguards to protect the investigated taxpayer from possible unlawful invasions of privacy and other fundamental rights during the course of the investigation.
