Criminal liability for rulemaking, which leads to decrease in tax revenues
As a rule, when the criminal liability in the field of taxes in Ukraine is mentioned, Art. 212 of the Criminal Code of Ukraine (hereinafter – the Criminal Code) is occurred first concerning tax evasion.
It is primarily related to the perception of the tax as an obligation to carry out a “mandatory, unconditional payment to the appropriate budget”1. On the other hand, tax revenues constitute the actual basis of budget revenues. For example, the draft State Budget for 20182 implies that more than 85% of the state budget revenues are to be tax earnings3.
That is why the state is obliged to provide tax revenues to the State Budget represented by its bodies and officials. At the same time, such a duty is realized not only by bringing to the responsibility of taxpayers who have not paid the tax but also by self-control over their own actions regarding the establishment of taxes.
The control of the state over its own actions regarding the establishment of taxes to some extent is ensured by the criminal liability established for reducing budget revenues. So, regarding the decrease in budget revenues Art. 211 of the Criminal Code of Ukraine provides as follows:
“Article 211. Making of regulations or directives that decrease budget revenues or increase budget expenses contrary to the procedures prescribed by law.
1. Making of regulations or directives by an official, which decrease budget revenues or increase budget expenses contrary to the procedures prescribed by law, where large amounts of budget funds are involved <…>”.
As we see, the criminal liability for the decrease of budget revenues is provided under both Art. 212 and 211 of the Criminal Code. However, while the criminal liability of the taxpayer for his own actions/inaction is provided under Art. 212 of the Criminal Code, the responsibility of state officials, for making of regulations or directives that reduce revenues to the State Budget, is established by Art. 211.
Let’s try to consider the criminal liability for the decrease of budget revenues committed by government officials in more detail.
To begin with, we will identify the officials for the purposes of Art. 211 of the Criminal Code. Specific definition for the purposes of Art. 211 of the Criminal Code is absent. Therefore, we shall refer to the general definition provided for in part 3 of Art.18 of the Criminal Code:
Adoption of rerulatory acts is action that is criminally prosecuted under Art. 211 of the Criminal Code. Regulatory act is:
In other words, personal and one-time use acts are not regulatory. Thus, Art. 211 of the Criminal Code does not cover the issuance of such acts. This conclusion also derives from the previous edition of the article included responsibility for the adoption of administrative acts5.
Art. 211 also provides that the publication of a regulatory act must be “contrary to the procedures prescribed by law”. That means that the adoption of a new act shall be simultaneously contrary to law and lead to decrease in budget revenues in order to be qualified as a crime.
It should be paid attention to that the adoption of normative legal act that decrease budget revenues can only be the basis for the criminal liability if the subject of such actions were budget funds, at least in the large amount of 800 000 UAH (1000 times of tax-free minimum incomes, according to Note 1 to Art. 210 of the Criminal Code).
What is in practice?
Considering rules of examination provided for in part 5 of Art. 216 of the Criminal Code, the criminal proceedings under Art. 211 of the Criminal Code are investigated by detectives of the National Anti-Corruption Bureau of Ukraine.
Nevertheless, according to official statistics of the General Prosecutor’s Office of Ukraine as of September 2017, there is only 1 criminal proceeding under Art. 211 of the Criminal Code.
It is also observed from the Unified State Register of Court Decisions that during last few years the courts considered only granting permits for the conduct of proceedings and appealing against actions/inactions6 concerning the criminal proceedings under Art. 211 of the Criminal Code7.
As we see, there was no prosecution for the violation of this article in essence, as, in addition; court decisions in the Unified State Register of Court Decisions and public information on the Internet8 with regard to this matter are absent.
So, the practice of bringing to the criminal liability under Art. 211 of the Criminal Code do not actually exist. Why? Because such occasions that would fall under Art. 211 do not exist at all? Or because law enforcement bodies are one-sided and contentious only toward taxpayers? As someone says, one sees the speck in another’s eye and ignores the log in his own.
For example, how shall we consider the Order of the Ministry of Agrarian Policy and Food of Ukraine as of November 25, 2016 No. 489, which approved a new Order of normative monetary valuation of the lands within settlements, from the standpoint of Art. 211 of the Criminal Code9?
As a result of adoption of the legal act mentioned, in a number of cases, the tax revenues payment substantially decreased for land under shopping centers, financial institutions, hotels, restaurants. This was due to the imposition of lesser coefficient of functional use of land from 2.5 to 2 (for land not properly registered or lacking data under a new classifier of land use types in the cadaster) used in the determination normative monetary valuation of land, which in turn is the basis of taxation of land tax and land rent (more in our newsletter “New regulation on normative monetary valuation of lands within settlements: a hidden threat”).
Obviously, as a result of the adoption of the Order No. 489 dated November 25, 2016, there was a significant decrease of tax revenues in the budget, in particular, in terms of collection of land tax and land rent.
Moreover, such a decrease occurred contrary to the procedures prescribed by law, because there are a number of issues, such as authority of the Ministry of Agrarian Policy and Food of Ukraine and procedure of adopting appropriate amendments, as well as the inconsistency of the Order with the Tax Code of Ukraine and the Land Valuation Law of Ukraine. Details of the arguments set forth in our newsletter “[Unlawful] significant land fee payments, which are not under the Tax Code”. In addition, the adoption of this Order created corruption risks. For example, if a proper code of land plot is absent in the cadaster, the fee for land will be less. It encourages to “get rid” of existing code in the cadaster for reduction of tax burden.
However, the Order simultaneously increased land fee payments for the other category of land, i.e. for industrial enterprises due to the actual increase of the functional coefficient from 1,2 to 2. The question is what final consequences we shall expect from such interference by the ministry into local budgets? According to preliminary estimates (for instance, the ratio of “commercial” and “industrial” lands in Kyiv), the balance may not be in favor of the budgets due to the new regulatory enactment.
So the question is why there is no practice under Art. 211 of the Criminal Code: either because there are no such cases, or there is no real control over the actions of the state bodies? In our opinion, the second option is more feasible. So, the state treats its officials much more tolerantly in comparison with taxpayers that are massively prosecuted under Art. 212 of the Criminal Code.
The above commentary present the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.
1Definition of the tax from art. 6.1 of the Tax Code of Ukraine.
3UAH 747 572 333 500 (tax revenues)/UAH 877 042 755 700 (all revenues) х 100 = 85,24 %.
4Definition is provided in para. 1.4 (5) of the Procedure for Submission of Normative Legal Acts for State Registration to the Ministry of Justice of Ukraine and Their State Registration, approved by the Order of the Ministry of Justice of Ukraine dated April 12, 2005 No. 34/5 by the reference.
6Decision of the Zhovtnevyi District Court of Dnipropetrovsk dated June 29, 2016 in case No. 201/9312/16-k, in the USRJ by the reference; Decision of the Solomianskyi District Court of Kyiv dated 02/23/2017 in the case No. 760/3548/17-k, in the USRJ by the reference; Decision of the Ivano-Frankivsk City Court dated February 6, 2007 in the case No. 9-42 / 2007, in the USRJ by the reference; Decision of the Kotovskyi City District court of the Odessa region dated January 19, 2016 in the case No. 505/4288/16-k, in the USRJ by the reference.
7Attention was not paid to decisions under Art. 211 of the Criminal Code, which concerned the increase of budget expenses (since in this review we analyze the article in terms of decrease of revenue) or from the content of which it was impossible to determine the actual circumstances of the offense.
8Summary of judicial practice under Art. 210 and Art. 211 of the Criminal Code of Ukraine of the Boryspil City District Court of the Kyiv region by the reference. Summary of judicial practice under Art. 210 and Art. 211 of the Criminal Code of Ukraine Court of Appeal of Kiev by the reference.
Verdicts in criminal proceedings for tax evasion in the first half of 2017
Tax police: courts finally determining the absence of authority
Legalization of [unlawful] tax audits within criminal proceedings?
E-declaration – the way to the criminal case?