Background
M.G.D., a company director, is prosecuted for tax evasion by making available false invoices for fictitious purchases between May 2012 and January 2014, causing VAT loss of approximately EUR 36,142. Romania’s Court of Appeal closed the proceedings after finding the limitation period expired, applying Decision No 67/2022 of the Romanian High Court of Cassation and Justice (ICCJ), which treats limitation period rules as substantive criminal law subject to the lex mitior principle (retroactive application of more lenient law).
The Public Prosecutor appealed, arguing that the prior Court of Justice judgment in Lin (C-107/23) required Romanian courts to disapply the ICCJ’s national standard to protect EU financial interests. However, the ICCJ issued conflicting decisions (Nos 37/2024 and 16/2024) stating that the Lin judgment conflicted with Romania’s constitutional prohibition on applying lex tertia (combining provisions from multiple successive laws) and Article 7 ECHR (no retrospective criminal liability).
The High Court referred preliminary questions to the CJEU asking whether it must maintain the obligation to disapply national protections despite these constitutional conflicts and whether systemic risk of impunity must be demonstrated.
The Court’s Holding
The Court reaffirmed that Article 325(1) TFEU and Article 2(1) of the PFI Convention require Member States to adopt effective deterrent criminal penalties for fraud affecting EU financial interests. The judgment clarifies that national courts must not apply national standards that would shield fraud prosecutions from this obligation, particularly where a systemic risk of impunity exists.
Critically, the Court addressed whether VAT fraud can be “serious” despite falling below the EUR 50,000 threshold when national law lacks a fixed minimum threshold. The Court held that aggravating circumstances specific to the crime (such as the continuous nature of the offence) may establish seriousness independently of the monetary threshold, preventing circumvention of EU law through purely quantitative criteria.
The judgment reconciles EU obligations with national constitutional principles by holding that while lex mitior protections apply, they cannot be weaponized to create a blanket exemption from EU fraud-protection requirements. The principle of legal certainty requires that limitation period rules be clear and foreseeable, but this does not permit Member States to use lex tertia restrictions to nullify EU law compliance.
Key Takeaways
- Member States must adopt effective criminal penalties for fraud affecting EU finances; national constitutional doctrines cannot override this obligation in a manner creating systemic risk of impunity.
- Seriousness of fraud is not determined solely by monetary value; other aggravating factors (e.g., continuous/ongoing nature) may establish seriousness even below statutory thresholds.
- The lex mitior principle (retroactive application of more lenient law) applies, but cannot be construed as a blanket shield against EU law compliance requirements.
- National courts must balance EU law fidelity with Article 7 ECHR guarantees; however, this balance requires substantive compliance with EU financial protection, not formal evasion through narrow constitutional readings.
Why It Matters
This case reinforces the supremacy of EU law in protecting the Union’s financial interests while acknowledging legitimate national constitutional concerns about retroactive criminal liability. For tax authorities and prosecutors across the EU, it permits flexible assessment of fraud seriousness beyond rigid monetary thresholds, facilitating prosecution of complex schemes involving multiple transactions. The judgment signals that member states cannot hide behind constitutional principles like lex tertia to systematically evade EU obligations, yet requires courts to apply rules clearly and foreseably in accordance with Article 7 ECHR.
The decision has particular impact on VAT fraud prosecution in Eastern European member states where Constitutional Courts have constrained criminal law application. It establishes that while lex mitior protections remain valid, they must be applied in substance, not as procedural obstacles that nullify EU law effectiveness. National courts must now actively interpret their rules of legal concurrence in light of EU law requirements rather than using constitutional rigidity as justification for non-compliance.