Criminal proceedings for tax evasion in 2016: verdicts, trends and statistics

17 January, 2017 Newsletters

In 2016 the courts delivered in all 53 verdicts in criminal proceedings for willful tax evasion (Art. 212 of the Criminal Code of Ukraine),of which there are 19 acquittals, 22 guilty verdicts and 12 court judgments approving the plea agreement. This is the actual information upon the search results in the Unified State Register of Court Decisions; now there is no official statistics of courts of the first instance for the second half of 2016 published on the official web portal of the judicial authorities of Ukraine.

That is the number of verdicts delivered upon the results of consideration of criminal proceedings on the merits in 2016 (i.e. except the approval of plea agreements) constitutes 41 verdicts, 22 of which are delivered in the first half of 2016 and 18 – in the second half. If compare with 2015 (for more details please read our newsletter “Statistics on criminal proceedings under Article 212 of the Criminal Code of Ukraine or what kind of year was 2015 for the taxpayers?”), the total number of verdicts is decreased up to 20%1, but it is rather a consequence of the total decrease of the criminal proceedings number (for more details please read the same newsletter). The number of the guilty verdicts decreased to 42%2, and the number of the acquittals increased up to 36%3. We can see both positive and negative component in this correlation: as a positive change regarding the objectivity of the criminal proceedings investigation in the courts or as deterioration of the pre-trial investigation efficiency and quality.

The detailed overview of statistics and court decisions on tax evasion in the first half of 2016 we published in our newsletter “Criminal proceedings under Article 212 of the Criminal Code of Ukraine for the first half of 2016: statistics, verdicts and trends?”. Therefore in this part of overview we offer to consider more detail the court decisions for the second half of 2016.

Due to the verdicts analysis, we make a conclusion that similar to the previous periods the charges related to the so called “sham transactions” keep the leadership.

Below we provide a selection of the most interesting verdicts in cases when court considered the charges on the merits (i.e. except cases with approval of plea agreements).

There is interesting decision on criminal liability of the director of agricultural enterprise concerning the unlawful stay in a special regime of taxation due to absence of the state registration of land sublease agreement. So, the court determined that the absence of the state registration of land sublease agreement or joint-cooperation is not a reason for enterprise to lose the right on fixed agricultural tax application. Also the court took into account that the special regime of taxation was not repealed for enterprise and noted that the committed act principally can be considered as tax (financial) offence only, because the existence of intent for tax evasion is obligatory to qualify it under Art. 212 of the Criminal Code of Ukraine.

In other case also related to the unlawful application of tax preferences by the agricultural enterprise, charge was based on the fact that the production of the enterprise is not agricultural. However, the court took into account that mentioned dispute was related to the legal classification of the production itself, which was agricultural and gave the right to apply preferences. In addition the court took into account, that this issue was examined within the administrative case on appeal of the tax notification-decisions which upon consideration results were recognized as unlawful and were canceled. On these grounds the court delivered the acquittal. The aforementioned decision on case No. 362/4372/13-k is available on our website in section of useful documents. 

Similarly in other decision the court during case consideration took into account the fact of the tax notification-decision cancellation. In particular, the court noted that the actual underpayment of the funds to the budget is an obligatory indication of crime under Art. 212 of the Criminal Code of Ukraine. However, taking into consideration the tax notification-decision cancellation, the court had found that in this case there was no underpayment. Therefore, there was no crime component (objective aspect) in actions of accused person, due to which court delivered the acquittal. The aforementioned decision on case No. 362/4372/13-k is available on our website in section of useful documents.

Among guilty verdicts it should be noted that they delivered due to the providing false information in tax accounting accompanied by forged primary and other documents.

So, it is pointed out in the court decision concerning the director of enterprise that during customs clearance and importing vehicles he declared the false information and supporting documents regarding the year of manufacture and the first registration of vehicles in the electronic customs declaration. In decision the court determined the fact of understatement of liability on excise duty and VAT, and also admission of the guilt of accused person. The aforementioned decision on case No. 307/1681/16k is available on our website in section of useful documents. 

Similarly in other decision the director of enterprise was convicted on VAT evasion and import duty by underestimating the cost of fabric during import. The aforementioned decision on case No. 712/13146/16k is available on our website in section of useful documents. 

Everything is more or less understandable and expected concerning the results of criminal charges consideration in the court. Still litigation on materials of pre-trial investigation in cases on tax evasion is rather the exception, because most of proceedings are exactly the means of influence on taxpayers and they aren’t transferred to the court.

According to the statistical data published on the official web site of General Prosecutor Office of Ukraine, 1098 criminal proceedings on tax evasion have been registered in 2016. In turn, the number of verdicts delivered by the court in respect of the total number of criminal proceedings in 2016 as compared with 2015 is almost unchanged (4,8% in 2016 and 3,9% in 2015 respectively). As in the previous year the work of pre-trial investigation bodies is inefficient, and opened criminal proceedings are means of influence and pressure on taxpayers in order to “fill” the state budget.

At the same time it’s interesting to note the significant decrease of the number of criminal proceedings compared with 2015, (statistics of 2015 is available by the link and analysis of decisions in 2015 is available in material “Reasons for conviction on tax evasion in 2015?”). Particularly, the number of proceedings decreased to 34%4. In addition such decrease comes at the end of the second half of 2016 (at least for the III quarter it is traced slightly, for more details read in our newsletter “Are the steps on reducing amount of criminal proceedings upon results of tax audits effective?”. We assume that it can be connected with the changes made in Order No. 22 of the SFSU on July 31, 2014 on suspension of criminal proceedings initiation. However, to avoid the specific selectivity in their application (what can happen in practice because of their advisory nature) it is expedient to provide respective amendments to the law (for more details about this please read the material “The steps to decrease the number of criminal proceedings upon the results of tax audits” and the appropriate draft Law No. 3448.

So, on this optimistic note concerning comparative decrease of the number of criminal proceedings, we hope, that trend on conversion of tax disputes in criminal proceedings will change gradually.

Statistical data, presented in this newsletter, are available on the web site of the Prosecutor General’s Office of Ukraine, as well as are also available in pdf-file of table 1.

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:

1According to the Unified State Register of Court Decisions, during 2015 the courts delivered 66 verdicts, and during 2016 – 53. That is the difference in 13 verdicts, which is 16,69 % of the number of verdicts in 2015.

2According to the Unified State Register of Court Decisions, during 2015 the courts delivered 38 guilty verdicts, and during 2016 – 22. That is the difference in 16 guilty verdicts, which is 42,1 % of the number of verdicts in 2015.

3According to the Unified State Register of Court Decisions, during 2015 the courts delivered 14 acquittals, and during 2016 – 19. That is the difference in5 acquittals verdicts, which is 35,71 % of the number of verdicts in 2015.

4According to the statistic information available on the official web site of the Prosecutor General’s Office of Ukraine, in 2015 1665 criminal proceedings were opened under Art. 212 of the Criminal Code of Ukraine, and in 2016 – 1098. That is a difference in 567 proceedings, which is 34 % of the number of proceedings in 2015.

Kind regards,

© WTS Consulting LLC, 2017

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