Criminal proceedings on tax evasion: summary statistics for 2017
In 2017, as in previous years, criminal proceedings under Article 212 continue to be an integral part of tax audits, even in spite of the tax police as the previously unified authorized body to conduct pre-trial investigation under Article 212 of the Criminal Code of Ukraine is divested of its authorities since the beginning of 2017.
According to official statistics data, which is available on web-site of the General Prosecutor’s Office of Ukraine 838 criminal proceedings on tax evasion were registered during 2017. In terms of quarters of 2017 these statistics look as follows:
It means, that as compared with results of the third quarter, the number of criminal proceedings in the fourth quarter has decreased by more than 40%1.
If compared with the previous year, the total number of registered criminal proceedings has decreased by 24%2. Turning to the quarterly results the same thing has happened only in comparison with the first half of 2016-2017.
It is interesting to keep watch over statistics of closure of criminal proceedings. Same as before, criminal proceedings have being closed actively at the end of the year. Thus, from total of 239 criminal proceedings closed in 2017, 139 criminal proceedings were closed in the fourth quarter. It is interesting to settle upon comparison of rates of registered and closed criminal proceedings within this particular quarter:
Obviously, while analyzing rates of the fourth quarter, there are many questions concerning the advisability of pre-trial investigation under Article 212 of the Criminal code of Ukraine (if such investigation has actually no results) including actual purposes of such criminal proceedings.
Besides, on the results of the year it appears, that effectiveness of pre-trial investigation is rather low. Thus, in 2017 nothing but 29 indictments were submitted to the court, that by the way corresponds to rates of 2016.
As concerns results of consideration of criminal cases in the court, it should be noted, that according to data from the Unified State Register of Court Decisions 54 verdicts in total were delivered in 2017, half of which accounts for plea agreements (25).
In general, the most bright trend of 2017 is change of accusation approaches to formation of elements of a crime in “sham” transactions. Thus, along with the main article on tax evasion, bringing to responsibility is conducted under elements of a crime, that accompany tax evasion (Article 205, 364, 366 of the Criminal Code of Ukraine, etc.). For instance, in the fourth quarter of 2017 such a “comprehensive approach” of delivering verdicts is observed on a more common basis (in 3 verdicts from the total amount and 3 verdicts based on plea agreements), where prosecution “looks farther” and takes into account forgery of documents.
Please find hereby some of the most useful decisions delivered within the last quarter of 2017.
Among guilty verdicts there is one more verdict (in case No. 520/12933/17) regarding several criminal proceedings on “scheme” of illegal use of the processing customs regime. For more details please see our newsletter “Criminal proceedings for tax evasion in the first half of 2017: “ghost” of tax police and “efficiency” of the court“. As appears from text of court decisions, under this scheme the total loss incurred to the budget of Ukraine exceeds UAH 8 billion. Herewith, the total amount of the fine imposed on guilty persons didn’t exceed UAH 1 million.
The verdict in case No. 766/6333/17 regarding charity fund Director on the matter of unlawful use of preferential custom and VAT rates while import of humanitarian aid, which was subsequently released to common sale is also worth noticing.
Besides, there is a noteworthy verdict in case No. 642/3994/16-к on PIT evasion due to nonreflecting of income, received due to provision of interest loans in foreign currency.
For the last quarter of 2017 there is only one acquittal in case No. 759/7094/17 regarding Director of Representative Office of foreign company, which was accused of land tax evasion (due to incorrect entry of information to application on conducting regulatory and monetary estimation of the land plot, i.e. functional use ratio, that has led to understatement of rent as payment for land) and forgery of documents. While assessing actions of RO Director, subject of court investigation was functional use ratio, manipulation with which has become a manifestation of Director’s criminal intent in tax authorities’ view.
When considering the case, the court pointed, that while determining a functional purpose ratio, the foreign company has act under individual tax advice on absence of necessity in adjusting the ratio, which was issued by a controlling body. Therefore, there is no point to refer to any intention in tax evasion.
Besides, in this acquittal the court has also noted on inadmissibility of such evidence as a tax audit act, if such evidence was gathered following a tax audit, which was appointed under petition of investigator within criminal proceedings, in absence of the initiation and appointment procedure of such an audit.
A short description of other verdicts delivered by the courts in 2017 is provided in Annex 1 to this newsletter.
Summing up results of 2017, a significant reduction in the pressure on business is not observed at least from the statistics data, while previous years trends regarding criminal proceedings on tax evasion are still ongoing, despite application of high-ranking public officials on unacceptability of pressure on business, which is being placed by law enforcement bodies.
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.
1Compared with 254 criminal proceedings registered during the third quarter of 2017.
2According to official statistics data, which is available on web-site of the General Prosecutor’s Office of Ukraine, in 2016 there were 1098 criminal proceedings under Article 212 of the Criminal Code of Ukraine, in 2017 – 838. That is, the difference was 260 proceedings, which is almost 24% of the number of proceedings for 2016.
Thresholds of criminal liability under Art. 212 of the Criminal Code of Ukraine in 2019