Pay the fine, don’t do the time

The title of this piece may sound like a play on words but the Court of Magistrates (Gozo) has shed light on the consequences of a tax amendment introduced last year. In the judgment delivered by Magistrate Jean Paul Grech on 24 August 2026 in the case of the Republic of Malta vs Maria Angela Bonnici and Joseph Bonnici.

Act XXX of 2025, controversially introduced a special mechanism which allows taxpayers to reach an out-of-court agreement with the Commissioner for Tax and Customs. The stated aim of the reform was to strengthen the commissioner’s investigative and settlement powers, improve the recovery of outstanding taxes and support the fight against fiscal evasion and financial crime. This mechanism requires the taxpayer to settle the amounts due and pay an additional penalty which can range from €10,000 to €1 million.

Had the amendment stopped at that, there would be perhaps little extraordinary about it. The state has an obvious interest in recovering unpaid tax without necessarily spending years litigating over it. But the amendment went further. Under Article 52A of the Income Tax Management Act, once an agreement falling within that provision is concluded, criminal liability is extinguished not only for the underlying tax breach, but also for any “connected breach” relating to the act covered by that agreement.

The breadth of the phrase ‘connected breach’ is immediately apparent. It can include separate criminal offences committed to facilitate the tax breach, to ensure impunity for it, or through the apparently legitimate use of the proceeds arising from it.

In the judgment under review, both accused were facing money laundering charges over alleged conduct between 2011 and 2019. Maria Angela Bonnici was additionally charged with knowingly making a false declaration with undeclared income and with the misappropriation of more than €5,000. The prosecution had also sought a freezing order up to the value of €3.5 million. That figure represented the amount which the prosecution sought to have covered by the seizure and freezing order, and was not a judicial finding that the amount had been laundered.

During the proceedings, the two accused asked to reach an agreement with the Commissioner for Tax and Customs under Act XXX of 2025. When the case returned before the Court of Magistrates (Gozo), Magistrate Grech had a representative of the commissioner before him confirming under oath that an agreement had been reached and that the two accused had paid all the taxes and penalties due.

What followed is perhaps the most significant sentence in the judgment.

Ordinarily, criminal proceedings brought before a court culminate in a determination of the charges according to the evidence and the applicable law. In this case, however, the court never reached that determination. Instead, the magistrate held that: “In terms of Act XXX of 2025 and by application of the same act, the Court is obliged to declare the proceedings extinguished in respect of both accused.” The word “obliged” is the most important word in the judgment.

It goes to the heart of what the amendment has changed.

Article 52A states that where criminal proceedings are already pending and the court is satisfied that the charges concern breaches covered by the settlement mechanism or connected breaches, the court shall declare the criminal action extinguished. The provision applies also on appeal, provided that no judgment has yet become final.

It is only fair to acknowledge that the court does enjoy and retains an important threshold function. It must satisfy itself that the offences genuinely fall within the scope of the statutory settlement. Once the threshold is crossed, the discretion largely disappears.

The court cannot ask whether the gravity of the alleged conduct warrants the continuation of the prosecution. Neither is the court invited to consider whether extinguishing a money laundering case remains in the public interest despite the recovery of the tax. The amendment does more than give the commissioner greater powers to settle tax disputes. It simultaneously removes a corresponding degree of discretion from the court.

The mechanism begins with the taxpayer. The taxpayer makes a written request and adjusts previous declarations. If the commissioner accepts that those adjustments have been correctly made, the commissioner issues a draft agreement. That agreement sets out the breaches, the amounts to be paid, the additional penalty, the payment period and any other conditions. That gives the commissioner considerable influence over whether the statutory mechanism is ultimately activated.

And herein lies an unusual imbalance.

The commissioner has a choice whether the requirements for an agreement are satisfied and whether to conclude that statutory arrangement. Once the agreement is reached, the court does not enjoy an equivalent choice over whether a qualifying criminal action should continue. The decision which can effectively determine the survival of criminal proceedings is therefore substantially shaped outside the courtroom.

In the case at hand, the consequence was immediate. Having been informed of the agreement and payment, the court declared the proceedings against both accused extinguished and revoked the seizure and freezing order.

This is where the amendment risks placing the court itself in handcuffs. Not because the judiciary has been removed from the process altogether. It has not. The court must determine whether the charges fall within the scope of the definition. Once they do, the court loses its discretion to determine whether a separate criminal allegation is serious enough to deserve determination on its merits even when the connected proceedings concern money laundering.

Let’s be clear, money laundering is not simply another label for unpaid tax. It is a separate criminal offence aimed at dealing with the conversion, transfer, concealment or use of property derived from criminal activity. Yet Act XXX of 2025 allows the consequences of an agreement reached with the tax authorities to extend beyond the fiscal breach itself.

The court can hardly be criticised. Magistrate Grech applied the law. Nor can the accused be criticised for using a legal procedure expressly made available to them. The issue lies in the architecture of the amendment.

There are legitimate reasons for allowing tax settlements. Indeed, the bill itself described the reform as one intended to improve revenue collection while deterring financial crime, with additional penalties designed to be comparable to fines which might otherwise be imposed in financial-crime proceedings, but settling the state’s fiscal claim and extinguishing the state’s criminal case are not necessarily the same thing.

The more difficult question is why an agreement concluded with an administrative authority should deprive a criminal court of the discretion to decide whether an alleged connected offence should still be tried. Perhaps, more importantly, whether that power should rest so heavily in the hands of the Commissioner in the first place.

A year after the amendment was introduced, that question is no longer theoretical.