Are the steps on reducing amount of criminal proceedings upon results of tax audits effective?

17 October, 2016 Newsletters

This year in July the moment of initiation of criminal proceedings upon results of audits was changed, specifically: it is introduced that materials of audit should be transferred to the investigating unit of financial investigations only after reconciliation of tax liabilities, accrued upon results of such audits.

The respective provisions were approved by the amendments into the Guidelines on the procedure of interaction between units of STS of Ukraine when organizing, conducting of audits as well as implementation of materials of tax audits of the taxpayers1 (hereinafter – “The Guidelines”). For more details follow the material “The steps to decrease the number of criminal proceedings upon the results of tax audits“.

Let us analyze whether the changes are in fact efficient on practice upon results of the III quarter of this year, when the relevant amendments to the Guidelines were introduced.

On the web-site of General Prosecutor’s Office the statistical information is already available on criminal proceedings registered within July-September 2016 and the results of their prejudicial inquiry, including the information regarding criminal proceedings under Article 212 of the Criminal Code of Ukraine, which are the results of tax audit with regard to criminal area.

Let us find out whether the amendments regarding the moment of initiation of criminal proceedings upon the results of tax audits are actually working on practice:  are there any changes towards decrease of number of opened criminal proceedings and towards increase of number of closed ones?

Thus, based on the data of General Prosecutor’s Office of Ukraine (for convenience the data for June-September 2016 could be found in Table 1, Table 2, Table 3 and Table 4):

table_Review of the statistical data for II and III quarter (eng)

Apparently, some positive movement towards decrease in terms of opened criminal proceedings could be traced. However it is difficult to clearly assert about the reason, since it could also be factors of summer vacation period.

If however to summarize the data for the whole III quarter, in total during July-September 2016 400 criminal proceedings were opened, and 127 – were closed5.

It is interesting to compare with results for the II quarter of the current year, what are the statistics results before the amendments to the Guidelines under consideration were introduced:

Table_2 and 3 quarters_eng

As you can see the number of opened criminal proceedings decreased negligibly – by 12 units. Meaning that the number of criminal proceedings didn’t decrease much and the tendency for automatic opening of criminal proceedings remains. It cannot be excluded that only “seasonal movements” are taking place, including those which are connected with main vacation period.

However we should bring our attention towards the percentage ratio of closed and opened criminal proceedings. Thus, in July, 25% of criminal proceeding opened within the month were closed, while in August this index was 35% and 36,7% in September.  In total, this index for the III quarter is 31,8%, while for the II quarter it was only 21%.

Implicitly we may come to the conclusion, that the number of opened proceedings in comparison with closed under steady circumstances7 should be bigger. Meaning that in practice there are positive movements and one may talk of definite weakening of pressure on business, as well as of the fact, that in some part the amendments regarding the moment of initialization of criminal proceedings began to work.

In the meantime, we unfortunately can’t uphold that the amendments definitely work and work “in full strength”. Thus, in order for such steps introduced by the Guidelines to be a 100% efficient (for all controlling authorities and in respect of all taxpayers), the consolidation of such steps at the level higher than the guidelines is necessary. As such, regarding possible ambiguous practice  on application of this provisions in the Guidelines we already noted in infoletter “The steps to decrease the number of criminal proceedings upon the results of tax audits” as of August 22, 2016.  That’s why we contiue to insist that such amendments should be introduced into the law. We should remind, that legislative regulation of this issue is proposed in draft law No. 3448 (for more details follow the material on our site).

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.

Footnotes:

1Order of SFS of Ukraine as of July 18, 2016 No. 633 that introduced the amendments into the Order of SFS of Ukraine as of July 31, 2014 No. 22.

2Thus, based on data by the end of June 2016 838 criminal violations were registered, under which the decision wasn’t made, while in July 2016 994 criminal proceedings were registered. Thus, within the month 156 criminal proceedings were opened. Similarly, within the period January-June 115 criminal proceedings were closed, while within the period January-July 154 criminal proceedings were closed, that is 39 criminal proceedings were closed in July.

3Thus, based on data by the end of July 2016 921 criminal violations were registered, under which the decision wasn’t made, while in August 2016 1037 criminal proceedings were registered. Thus, within the month 116 criminal proceedings were opened. Similarly, within the period January-July 115 criminal proceedings were closed, while within the period January-August 195 criminal proceedings were closed, that is 41 criminal proceedings were closed in August.

4Thus, based on data by the end of August 2016 954 criminal violations were registered, under which the decision wasn’t made, while in August 2016 1082 criminal proceedings were registered. Thus, within the month 128 criminal proceedings were opened. Similarly, within the period January-August 195 criminal proceedings were closed, while within the period January-September 242 criminal proceedings were closed, that is 47 criminal proceedings were closed in September.

5The results were obtained by adding the number of opened proceedings in July, August, September 2016.

6The results were received by adding the number of opened proceedings in April, May and June 2016. For convenience the data for June-September 2016 could be found in Table 1, Table 2, and Table 3.

7We don’t observe substantive changes in statistics of the State Fiscal Service of Ukraine on challenging tax notifications-decisions.

 

Kind regards,

© WTS Consulting LLC, 2016

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