Criminal proceedings for tax evasion in the first quarter of 2017: verdicts, trends and statistics
According to the statistical data published on the official web site of General Prosecutor Office of Ukraine, 302 criminal proceedings on tax evasion were registered within the first quarter of 2017. It is 47% lesser than in the same period of 2016 when 569 criminal proceedings1 were registered. Probably, such a substantial decrease is a positive result of the changes adopted in respect of postponement of the moment of criminal proceeding’s initiation. Please read more about these changes in the article «The steps to decrease the number of criminal proceedings upon the results of tax audits».
At the same time, amount of closed criminal proceedings in the first quarter of 2017 reduced more than by half2 comparing with the same period of 2016. Thus, 7 criminal proceedings were closed in the first quarter of 2017, when in the same period of 2016 the amount of closed proceedings was 27. That is, amount of cases of closing criminal proceedings decreased by 74%3. It’s quite difficult to assess definitely the decrease of amount of closed criminal proceedings, because this fact may be evidence of decrease of amount of criminal proceedings initiated without a reasonable basis as well as continuation of negative trends of “dead-end” criminal proceedings.
However, tendencies of bringing criminal proceedings to the court still remain as before. In absolute terms, the amount of criminal proceedings brought to the court with the indictment almost did not change and equals 5 criminal proceedings in the first quarter of 20174. Thus, the efficiency of the pre-trial investigation still remains in a low level.
Regarding the results of trial of criminal proceedings, in the first quarter of 2017 a half of the court decisions are the verdicts on approval of the plea agreements. Thus, in the first quarter of 2017, the courts totally delivered 16 verdicts in cases of willful tax evasion, 4 of which are acquittal, 4 are guilty and 8 verdicts are based on confession of guilt. This is the actual data of the search results in the Unified State Register of Court Decisions. As we see, a half of the criminal proceedings in the first quarter of 2017 were not reviewed in essence, since the plea agreements were approved. However, it should be noted that such criminal proceedings (where the plea agreements were approved) concerned part 3 of Art. 212 of the Criminal Code of Ukraine and in the quantitative equivalent of the total amount of evasion for them equaled to UAH 157,805,351.42. Comparing with the total evasion rate, it can be stated that 97.6% of tax evasions were not even verified by the courts5.
Next, we propose a closer look at the analysis of court decisions in criminal proceedings made in the first quarter of 2017.
During the first quarter of 2017, the courts considered a number of criminal proceedings regarding the excise tax evasion scheme used by the group of gas companies and delivered number of guilty verdicts. Thus, in general, about 400 legal entities were involved in the scheme of excise tax evasion. Now there is public information about three guilty verdicts regarding the directors and founders of such enterprises, delivered on the basis of plea agreements. At the same time, taking into account the stated in verdicts, there should be 17 separate proceedings on this evasion.
Let’s try to assess separately whether the investigation of this evasion is effective in terms of providing revenue to the budget. So, as is evidenced by the available 3 verdicts, the total amount of tax evasion was more than UAH 137 million. At the same time, the total amount of fines was only UAH 714 thousand, which is only 0,5 % in proportion to the amount of evasion. Thus, as we see, the consideration of such a resonant tax evasion from the view of state budget replenishment is not effective. In addition, it is not only about inefficiency, but also about loss-making. The delivered decisions do not provide any compensation of budgetary losses caused by an evasion of UAH 137 million from the accused.
The abovementioned decisions on cases No. 641/9776/16-k, 614/9778/16-k, 641/9777/16-k are available on our website in section of useful documents.
Other criminal proceedings reviewed by the courts in the first quarter of 2017 concerned “sham transactions”, the failure to register as VAT payer and non-payment of individual income tax on debt release and salary payment. The decisions in these criminal proceedings may be found in section of useful documents. The description of these decisions is also available in the attached table.
In conclusion, we would like to return to the efficiency of the judicial investigation in the context of budget replenishment. The proportion of fines to actual evasion amounts remains at a very low level (about 0.3-5.3%6). Thus, the efficiency of the investigation of criminal offenses in general remains at the level of last year (more information about the efficiency of criminal proceedings under Article 212 of the Criminal Code of Ukraine in 2016 is available in our information letter by the link).
Thus, the reasonability of criminal proceedings on tax evasion is questionable in essence7. Comparing with tax revenues for the respective quarter of 2017, the amount of proceeds from criminal proceedings is less than 1%8. If the existence of such criminal proceedings (which do not have a justifiable economic effect) do not pursue an aim to create an additional burden for business, then it may be necessary to restrict the initiation of criminal proceedings only in case of non-payment of the agreed tax liability in due timeframes (in this regard, there is a draft law 3448 (d)).
The statistical data used in this newsletter are available on the websites of General Prosecutor Office of Ukraine and official web portal of judicial authorities of Ukraine, as well as in pdf-files of table 1 and table 2 regarding the first quarter of 2016 and 2017 respectively.
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.
1According to the statistical data published on the website of the General Prosecutor Office of Ukraine, 569 criminal proceedings under Art. 212 of the Criminal Code of Ukraine were recorded in the first quarter of 2016, and 302 in the first quarter of 2017. That is, the difference equaled 267 proceedings, which is 47% of the number of proceedings in the first quarter of 2016.
2According to the official statistics published on the website of the General Prosecutor Office of Ukraine, 7 criminal proceedings were closed in the first quarter of 2017. Thus, the proportion of closed proceedings to the number of proceedings recorded in the period equals 2%. However, in the same period in 2016, 27 criminal proceedings were closed, which equaled almost 5% of the total amount of criminal proceedings that were recorded.
3According to the statistical data published on the website of the General Prosecutor Office of Ukraine, 27 criminal proceedings initiated under Art. 212 of the Criminal Code of Ukraine were closed in the first quarter of 2016, and 7 – in the first quarter of 2017. That is, the difference was 20 proceedings, which equals 74% of the amount of closed proceedings in the first quarter of 2016.
45 criminal proceedings were brought to the court with an indictment in the first quarter of 2016, while 3 were brought in the same period in 2017.
5Thus, the amount of evasion for which the plea agreements were approved, is UAH 157 805 351.42 in the first quarter of 2017, while the total amount of evasion for which the verdicts were delivered is UAH 161 679 407.31.
7Except where there is a non-payment of agreed tax liability after the tax audit in timeframes provided by the laws.
8Thus, according to the SFS of Ukraine data, UAH 132 166 272.7 of taxes and fees were collected in the first quarter of 2017, while the proceeds from fines imposed in criminal cases amounted to UAH 1 133 900. Thus, the proceeds from fines make only 0,86% of total tax revenues to the budget.
Criminal proceedings for tax evasion in 2016: verdicts, trends and statistics
Verdicts in criminal proceedings for tax evasion in the second half of 2016
Verdicts in criminal proceedings for tax evasion in the first half of 2016
Verdicts in criminal proceedings for tax evasion in 2015
How to get off being “sick and tired” of criminal cases – draft law No. 3448 review
Thresholds of criminal liability for tax evasion (Article 212 of the Criminal Code of Ukraine) in 2016 – deceived expectations for increase of thresholds by half (as promised by law)
Necessity of legislative increase of thresholds
Tax disputes trigger criminal investigations – current threats for taxpayers
The tax authority clarifies its Methodological recommendations in the part of the changes of the moment of the initiation of criminal proceedings under Article 212 of the Criminal Code of Ukraine