Prohibition to deliver a notification on suspicion of tax evasion before final resolution of tax dispute: why does it not work in practice and what should one do with it?

24 December, 2013 Exclusive

The situation when a tax dispute for material amount is accompanied also by a criminal proceeding under Article 212 of the Criminal Code of Ukraine is already almost a triviality for large taxpayers. A prohibition to deliver a notification on suspicion of tax evasion should be a shield from criminal prosecution of such taxpayer’s official till final resolution of tax dispute in court.

Such prohibition is stipulated in para. 56.22 of Article 56 of the Tax Code of Ukraine (hereinafter – “the TC of Ukraine”): “If a taxpayer challenges a decision of a controlling authority by administrative means and/or in court, a notification to a person on suspicion in committal of a criminal violation on tax evasion cannot be based solely on this conclusion of a controlling authority before close of a procedure of administrative challenge or before final judgment on the case by court“. What concernsbasic aspects of application of this provision, it was discussed in our Newsletter as of December 26, 2012. In this Newsletter we would like to dwell on procedural matters.

At the same time, it is often the case when tax dispute still lasts and the court did not give its last word but officials of a taxpayer already are brought to criminal responsibility. Thus, a final judgment on administrative case regarding challenging the tax notification-decision in practice is often dragged out for three years or more. Unwilling to hold on a criminal proceeding, the pre-trial investigation authorities deliver a notification on suspicion in spite of prohibition of para. 56.22 of Article 56 of the TC of Ukraine long before ending of tax dispute. Disregard of this provision is justified by an investigator/public prosecutor with the fact, that para. 56.22 of Article 56 of the TC of Ukraine is a part of tax legislation, while within criminal proceeding they are guided solely by provisions of the Criminal Code of Procedure of Ukraine (hereinafter – “the CCP of Ukraine”).

Such position of law enforcing bodies contradicts with provisions of the CCP of Ukraine themselves. Thus, according to p. 2 of Article 1 of the CCP of Ukraine criminal procedural legislation is not limited solely by the CCP of Ukraine, but also includes inter alia other laws:

“Criminal procedural legislation of Ukraine consists of respective provisions of Constitution of Ukraine, international agreements, recognized as binding by the Verkhovna Rada of Ukraine, of this Code and other laws of Ukraine“.

However a question arises, to whom and within which procedure the respective arguments and objections should be provided, when the notification on suspicion is already delivered. However, the notification on suspicion is not included in comprehensive list of cases of p. 1 of Article 303 of the CCP of Ukraine, which are to be challenged at the pre-trial stage.

Accordingly, a person who was delivered a notification on suspicion of tax evasion in contradiction to provisions of para. 56.22 of Article 56 of the TC of Ukraine can’t react on-the-fly on such unlawful actions by challenging it. The conclusion given is also confirmed with the provision of p. 2 of Article 303 of the CCP of Ukraine:

“Claims on other decisions, actions or inactions of an investigator or public prosecutor are not reviewed during the pre-trial investigation and can be a matter of consideration during preparatory proceeding in court according to the rules of Articles 314-316 of this Code”.

In other words, the mechanism of defense from the illegal notice of suspicion appears only then when a criminal proceeding is directed to the court. And only during preparatory proceeding in the court a person accused in tax evasion obtains a right to challenge actions of an investigator/public prosecutor on delivery of the notice on suspicion.

At the same time, even upon successful challenging of such actions of an investigator/public prosecutor an accused person would hardly feel a direct positive effect of such decision. As a criminal prosecution of such person in form of a full court hearing would proceed. The stage of pre-trial investigation is another matter, when recognition of delivery of notification of suspicion as illegal would returned a status of a witness for taxpayer’s official with elimination of negative consequences connected with bringing to criminal responsibility.

Thus, a widening of a list of decisions, actions or inactions of investigators/public prosecutors stipulated in p. 1 of Article 303 of the CCP of Ukraine, which are to be challenged already at the stage of pre-trial proceeding, through it complement with the possibility to challenge of delivery of notification on suspicion seen as appropriate. 

Besides, with the purpose of interception of neglect from the side of pre-trial investigation institutions of prohibition of para. 56.22 of Article 56 of the TC of Ukraine to deliver a notification of suspicion in tax evasion till final resolution of the tax dispute, respective prohibition should be transferred to provisions of the CCP of Ukraine itself, or a reference to this provision of tax legislation should be made in appropriate chapter of the CCP of Ukraine.

Thus, for transformation of provision of para. 56.22 of Article 56 of the TC of Ukraine from almost “dead” provision into an active mechanism of defense for taxpayer’s officials a number of amendments to legislation or inner will of pre-trial investigation institutions and of public prosecutor’s office regarding direct application of provisions of this norm is necessary.

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", 2013

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