Criminal responsibility for tax evasion (Article 212 of the Criminal Code of Ukraine) – some aspects and amendments related to the new Criminal Procedural Code of Ukraine coming into force and respective amendments to the Tax Code of Ukraine

Newsletter

December 26, 2012

with updates as of May 28, 2013

On November 20, 2012 the new Criminal Procedural Code of Ukraine (hereinafter – “the new CPC of Ukraine”) came into force.

The new CPC of Ukraine considerably changes the procedure of criminal proceedings. Thus, in particular, the order of the pre-trial investigation has considerable been changed: the stage of initiating the criminal case and bringing the charge was cancelled whereas the stage of notifying of suspicion was introduced etc.

Unfortunately, the risks of initiating the criminal proceedings against the officials of the taxpayers do not decrease with the new CPC of Ukraine, which replaces the Criminal Procedural Code of Ukraine of the year 1960 (hereinafter – “the old CPC”). Thus, practically every dispute with the tax authorities at a considerable amount may result in initiating the criminal proceedings against the officials of the taxpayers. Moreover, the new CPC of Ukraine diminishes the possibilities of the defence team to appeal against the actions of the investigating authorities.

In this respect we draw your attention to the following aspects:

1.

The stage of initiating the criminal case has been cancelled due to the new CPC of Ukraine coming into force. Previously such stage of the criminal process has been a certain barrier between the pre-investigation check of the application/notification of the crime (within the term to 10 days) and carrying out the pre-trial investigation. Besides, previously initiation of the criminal case could be appealed. Such opportunity was an effective instrument for protection and stopping “the investigative actions” against the person and the pressure on the legal entity at the very beginning of such actions. Now, the situation is more favorable for using of criminal cases for pressure on business and officials of the taxpayers.

With the new CPC coming into force, the stage of initiating the criminal proceedings is changed to the stage of registering the data in the Unified Register of Pre-trial Investigations (hereinafter – “the URPTI”). From now on after receiving every application or notification of the crime the investigator or the prosecutor are obliged to register the respective data in the URPTI during 24 hours and start the investigation. Refusal to accept or register the application or notification is not permitted. Nobody will be informed about registering the data in the URPTI or initiating the proceedings, since URPTI has the limited range of users (para.1.11 of the Order of the General Prosecutor Office of Ukraine No. 69 of August 17, 2012). That is, the taxpayer/the official (in the absence of conducting the public investigations thereof, such as, for instance, search or seizure) may find out about the criminal proceedings initiated against them only by receiving the notification of suspicion.

Thus, in our opinion, one of the biggest drawbacks of the new CPC of Ukraine is the absence of possibility of the defence to appeal against registering the data in the URPTI and, respectively, initiation of the investigation. In other words, the defence has almost no possibility to prevent the investigation until its completion and bring of the bill of indictment to the court. Moreover, under the following provisions of the new CPC another “danger” is concealed: namely, criminal proceedings may “hang” in the URPTI during all the possible term of bringing to criminal responsibility (e.g. 10 years under part 3 of Article 212 of the Criminal Code of Ukraine). So, until the notification of suspicion, the investigator or the prosecutor, investigating the case, are unlimited in terms of such investigation (except for the general terms of limitation for bringing to criminal responsibility for particular crimes), that is during this time you can “wait for guests” from law enforcement authorities who may unexpectedly “come with questions,” for example with questions regarding the conclusions of the tax audit which was conducted by tax authorities more than a year ago.

The next stage of the process will be notifying the person of suspicion. The investigator will have the right to notify the person of suspicion “with the sufficient evidence for suspicion of the person in committing the criminal violation”. From the moment of notification of suspicion the person receives the status of suspected and only from this moment possesses the rights and warranties envisaged by the new CPC. Before notifying of suspicion the person has almost no procedural rights or ways of defence. Therefore, after registering the data in the URPTI, the person will receive the status of the witness and will possess the minimal rights for defence, whereas the investigator and the prosecutor will have the possibility to conduct the investigation “in full scope”.

After notifying the person of suspicion the investigator has two months for conducting the investigation. After expiration of this time (if the term was not extended by the prosecutor), the investigator has either to close the case or to bring it to the court with the bill of indictment.

The scheme of pretrial investigation under the new CPC is the following:


(in case that starting from registering the data in the URPTI the criminal proceedings was not further dismissed)

chart_1_en

2.

Due to the new CPC coming into force, the Tax Code of Ukraine (hereinafter- “the TC of Ukraine”) has also been amended, in particular, para. 56.22 of Article 56 of the TC of Ukraine, according to which in case of appealing the decision of the controlling body in the order of administrative appeal to the higher controlling bodies and/or to the court, notification of suspicion in commission of crime envisaged by Article 212 of the Criminal Code of Ukraine cannot be grounded on such decision of the controlling body till the end of the procedure of the administrative appeal or till the final solution of the case by the court.

Thus, if the accusation of a person under Article 212 of the Criminal Code of Ukraine is grounded on the tax audit act, then up to the end of the administrative appeal of the decision of the tax authority made upon the results of such audit act and/or up to the decision of the Higher Administrative Court of Ukraine (in some cases up to the decision of the Supreme Court of Ukraine) not in favor of the taxpayer, the person may not be presented with the notification of suspicion.

In our opinion, the administrative or the court appeal of the decisions of the tax authorities will probably be the only effective way to protect the enterprises’ officials from bringing them to criminal responsibility.

It shall be mentioned that the rule of para. 56.22 of Article 56 of the Tax Code of Ukraine may not be applied if the notification of suspicion is based not only on the decision of the controlling body, but is also confirmed by the additionally collected evidence. Such evidence may be, for instance, the protocol of interrogation of the witness and/or the conclusion of the expert.

Moreover, the investigation authorities of the tax service have already “got used” to such rule and initiate the proceedings under the other reasons than the tax audit act or the tax notifications-decisions made on its basis.

Therefore, it is possible that after registering the data in the URPTI, the person will be informed about the suspicion. Such scenario results in serious negative consequences for the officials of the taxpayers, which will be covered further.

3.

We draw your attention to the quantitative restrictions envisaged by Article 212 of the Criminal Code of Ukraine (hereinafter –“the CCU”), according to which tax evasion may result in criminal responsibility):

  • Part 1 of Article 212 of the CCU envisages criminal responsibility for the intended tax evasion if the respective actions resulted in the actual non-receipt of funds to the budget or to the state trust funds in a considerable amount (under the considerable amount one shall understand the amount of taxes, charges and other obligatory payments which exceed the prescribed by the legislation tax-free minimum incomesin thousand or more times).
  • Part 2 of Article 212 of the CCU envisages criminal responsibility for the same actions, carried out by the previous concert of the group of people, or if they resulted in the actual non-receipt of funds to the budget or to the state trust funds in large amounts (under the large amount one shall understand the amount of taxes, charges and other obligatory payments which exceed the prescribed by the legislation tax-free minimum incomes in three thousand or more times).
  • Part 3 of Article 212 of the CCU envisages responsibility for the actions envisaged by part 1 and 2 of this Article, carried out by a person, who was previously sentenced for the tax evasion or if they resulted in the actual non-receipt of funds to the budget or to the state trust funds in particularly large amounts (under the particularly large amount one shall understand the amount of taxes, charges and other obligatory payments which exceed the prescribed by the legislation tax-free minimum incomesin five thousand or more times).

The notion of the tax-free minimum incomes is disclosed in the Tax Code of Ukraine. Thus, according to systematic interpretation of para. 5 of subsection 1 of Section XX, para. 1 of Section XIX, subpara. 169.1.1 of para. 169.1 of Article 169 of the Tax Code, the tax-free minimum incomes (for qualification of crime purposes) till December 31, 2014, will be equal to 50% of the poverty line for the employable person (per month), which is prescribed by the Law as of January 1 of the relevant tax year.

Therefore, considering the calculation of the poverty line for the employable person and the tax social benefit, qualification of responsibility under Article 212 of the Criminal Code of Ukraine for the 2013 shall be carried out in the following way:

chart_2_en

4.

It shall be mentioned that besides the new CPC, considerable amendments were made to application of Article 212 of the CCU due to adoption of the Law of Ukraine “On amendments to some legislative acts of Ukraine regarding humanization of responsibility for violations in the sphere of economic activity”.

Thus, since January 17, 2012 (when this law became effective) only fine and deprivation of the right to occupy some posts or engage in certain activity for the term up to 3 years are the main punishments for tax evasion.

For your convenience we offer the table of the current sanctions envisaged by Article 212 of the CCU:

chart_3_en

* – according to part 2 of Article 53 of the CCU, the fine under the part 3 of Article 212 of the CCU may not be lower than the property damage, occurred as a result of crime or received income as a result of crime. In practice such property damage is the amount of the tax liabilities accrued by the tax authorities. While calculating of the property damage, caused by tax evasion, only the amount of unpaid taxes (according to the decision of the tax authorities) is taken into consideration, not the penalties and fines.

It shall be noted that if a person sentenced under the part 3 of Article 212 of the CCU, doesn’t pay the fine, determined by the sentence, then the court substitutes the unpaid fine by deprivation of freedom in the order prescribed in the part 5 of Article 53 of the CCU, Article 537, 539 of the new CPC of Ukraine.

The unpaid amount of the fine will be substituted by deprivation of freedom: one day of deprivation of freedom for eight tax-free minimum incomes. In other words, UAH 136 of fine will be substituted by 1 day of deprivation of freedom.

In general, the fine set under the part 3 of Article 212 of the CCU, may be substituted by deprivation of freedom at the rate from 5 to 10 years.

5.

To continue with the question of tax evasion, one should take a notice on the statute of limitations for bringing to criminal responsibility. In criminal law it is a time limit, after which one is relieved from criminal responsibility for convicted crime.

In case that is stated in p.1 and p.2 of Article 212 of the CC of Ukraine (tax evasion in considerable and large amounts accordingly), which is considered to be a minor crime, the statute of limitations is 2 years. Respective statutes of limitations are set in Article 49 of the CC of Ukraine.

In other words, one is relieved from criminal responsibility for tax evasion in considerable and large amounts (p. 1 and p. 2 of Article 212 of the CC of Ukraine), when from the moment of the crime conviction to the entry of judgment into legal force two years had passed.

At the same time for tax evasion in particularly large amounts regarding part 3 of Article 212 of the CC of Ukraine, which is considered to be a felony offence, the statute of limitations for bringing to criminal responsibility is 10 years.

It should be mentioned that relief from criminal responsibility due to the expiration of the statute of limitations for crime conviction is not applying automatically. Thus, accordingly to the regulations of the CPC of Ukraine in case of existence of the grounds for relieve from criminal responsibility the court gives a determination about the cessation of the criminal proceeding.

On the stage of the pre-trial investigation the question of relief from criminal responsibility is decided by the court on the ground of the respective petition of prosecutor on a non-objective basis from the side of the suspected/prosecuted person. On a stage of the court hearing any of the sides of the process, including the defendant, has the right to apply for relief of the person from criminal responsibility through one’s petition in regard to expiration of the statute of limitations for prosecution.

6.

On the issue of peculiarities of exemption from criminal responsibility under part 4 of Article 212 of the CCU according to the new CPC please see the newsletter of October 31, 2012 – “Peculiarities of the exemption from criminal liability under Part 4 of Article 212 of the Criminal Code of Ukraine, according to the New Code of the Criminal Procedure of Ukraine: improvement of legislation on criminal proceedings through implementation of the definition of “brining to criminal liability” or “improvement” for “unconscious elements who are resisting to the bitter end”.

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.

Kind regards,

© TOV «KM Partners», 2012