Criminal proceedings under Article 212 of the Criminal Code of Ukraine for the first half of 2016: statistics, verdicts and trends?

04 October, 2016 Newsletters

According to the statistical data published on the official web site of General Prosecutor Office of Ukraine, within the first half of the year 2016 994 criminal proceedings on tax evasion (Art. 212 of the Criminal Code of Ukraine) were registered. It is almost 60% of criminal proceedings registered in 20151.

Obviously, the trend of transforming tax disputes into criminal proceedings due to the automatic opening of the latter continues in the first half of 2016. Hope, that based on the results of the year 2016 the overall trend will be changed towards the decrease having regard to the latest changes in respect of postpone of the moment of initiation of criminal proceeding2. More on this in the article «The steps to decrease the number of criminal proceedings upon the results of tax audits» as of August, 22, 2016.

The effectiveness of investigation of criminal proceedings under Art. 212 of the Criminal Code of Ukraine still remains on the level of 20153. Thus, the notification on suspicions were delivered only in 71 criminal proceeding that is only 7% of the total number of criminal proceedings registered in the first half of the year 2016. Herewith only 154 criminal proceeding are closed that is significantly less than 2015 year rates4.

It seems that generally most of the criminal proceedings as earlier is merely a tool of pressure on the taxpayers and contains no factual basis. However, we expect that according to the results of 2016 and beginning of 2017 the situation will change given that the criminal proceedings will be initiated only after the tax audits with conclusions of tax authorities confirmed by the court decision in administrative proceedings which has entered into legal force.

According to the report of courts of the first instance, published on official web portal of judicial authorities of Ukraine the statistical data on the courts level are the following: 5 cases are heard, 5  of which are acquitted. We found some discrepancies between the statistical data and the actual number of court decisions in public access on the web site the Unified State Register of Court Decisions (probably doesn’t contain all the data because the statistics is mid-term).

We suggest relying on the actual court decisions that are available on the web site the Unified State Register of Court Decisions. Thus, within the first half of the year 2016 there are 11 acquittals, 12 guilty verdicts, 9 court judgments approving the plea agreement and 1 court decision on release from criminal responsibility due to the expiration of limitation period.

Based on the analysis of cases when the court examined the charges on the merits5 we can conclude, that trend of previous years continues i.e. the overwhelming majority of verdicts within the first half of the year 2016 is connected with the inclusion of  false information in the tax returns, in particular regarding so called “sham transactions”, etc. Still the majority of guilty verdicts are delivered on beneficial owners from so-called “sham transactions” and in few cases on beneficiary parties.

Among the court decisions that differ among typical “sham” ones are few verdicts we offer to discuss below.

Thus, one of the court decisions concerns criminal responsibility on unlawful use of VAT relief by agricultural producing enterprise. Thus, the official of enterprise was convicted due to the fact that for tax purposes while selling agricultural production he declared the latter as production of his own manufacture, but actually this production was purchased from other persons that caused VAT evasion in significant amount. The aforementioned decision  is available on our website.

Another decision concerns criminal responsibility on failure to declare obtained and unreturned repayable financial aid as income that caused personal income tax evasion in significant amount. The aforementioned decision  is available on our website.

As to acquittals it will be interesting to track the verdict in case connected with enterprise tax accounting of expenses on software after review of the case in the court of appeal. The aforementioned decision  is available on our website.

Interest in this decision is caused by the fact that while delivering the acquittal the court took into account positive court decision in administrative proceedings that were canceled in the second circle of consideration.

To make a conclusion, it should be noted that general trends in criminal proceedings under Article 212 of the Criminal Code of Ukraine essentially have not changed compared with 2015.

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.

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.

Notes:

1 During 2015 1 665 criminal proceedings on tax evasion were registered, more on this is available on our website.

2 Order of the State Fiscal Service of Ukraine # 633 as of July 18, 2016, that amended subpara. 2.5.1. of  Methodical recommendations on procedure for interaction between departments of state fiscal service authorities during organization, conduct and implementation on materials of audits of taxpayers, approved by the order # 22 as of July 31, 2014.

3 According to the results of 2015 rate is the same and makes 5,5% of total amount of criminal proceedings under Article 212 of the Criminal Code of Ukraine. In 2015 the notifications of suspicion were delivered in 142 criminal proceedings.

4 The rate of closed criminal proceedings in 2015 was at 1025, 408 whereof were closed within the first half of the year 2015.

Kind regards,

© WTS Consulting LLC, 2016

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