Reasons for conviction on tax evasion in 2015?

04 March, 2016 Newsletters

According to the official statistics, published on the website of the Prosecutor General’s Office of Ukraine and on the website of the judicial authorities, in 2015 the courts have adopted 64 verdicts in cases on tax evasion, shares of which to the total number of criminal proceedings (2 697) is 2.4 % – detailed analytical review on the matter is available in 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?” as of February 23, 2016.

After the attempts to find the aforementioned judgments in the public access, using the internet resource Unified State Register of court decisions; we have finally succeeded, with minor discrepancies. Thus, according to the official statistics on the web site of the judicial authorities, in 2015 the courts have issued 64 verdicts in proceedings concerning tax evasion, 15 of which – with the approval of plea agreement. With relative deviation we actually found 14 judgments approving the plea agreement in the Unified State Register of court decisions.

Based on the statistics, there should be 49 verdicts1, which have been adopted by the courts under the results of consideration of criminal proceedings. In fact, according to the Unified State Register of Court Decisions, 14 of them are verdicts of acquittals and 38 – verdicts of guilty. As seen from the above, the actual number of verdicts, adopted under the results of consideration on the merits of the case, is actually a bit different and is bigger than in the statistics of 3 verdicts2. Such inaccuracy  may have been occurred due to the fact that at the time of reporting, statistical data from all those that are already available in the Unified State Register of court decisions have not been received yet. All verdicts adopted by the courts in 2015 in cases of tax evasion, are available on our web site by the link.

Let us analyze the reasons for conviction under Article 212 of the Criminal Code of Ukraine in 2015, when the court has examined the charges on the merits. That is, except for the cases of plea agreement approval.

Under the results of verdicts analysis, the vast majority of verdicts of guilty is related to inclusion of false data in the tax accounts, including the so-called “sham transactions” etc. It shall be noted that the vast majority of verdicts of guilt is adopted regarding the beneficiary of so-called “sham transactions”, and in rare cases – for person, who provided the benefit.

Among the general tendency of verdicts on so-called sham transactions, only several verdicts are notable.

Rather interesting is the decision on bringing to criminal liability under Article 212 of the Criminal Code of Ukraine, in which the rule of regular prices for tax purposes was applied. The court has established in its decision that the director of the company has committed sale of non-residential premises of the enterprise and reflected in the tax accounting under the price that is lower than the arm’s length (regular) price, leading to tax evasion on a significant amount. The aforementioned decision is available on our website by the link.

At the same time, in another case, also connected with application of regular prices when selling real estate, a verdict of acquittal was adopted. Such decision was taken with consideration of successful proof of groundlessness of audit conclusions and violation of the established procedure for determining the regular price by the supervisory authority within administrative proceedings. The aforementioned decision is available on our web-site by the link.

Another judgment, deserving special attention, is the verdict for failure to declare income received from interest for the loan granted. The aforementioned verdict is available on our website by the link.

One more interesting decision concerns bringing to criminal responsibility in connection with the failure of tax adjustments. Thus, based on audit materials, the court found that when returning the goods, despite the received adjustments to the tax invoices, an official of the company has not reduced tax credit of value added tax, which led to underestimation of VAT to a considerable amount. The aforementioned verdict is available on our website by the link.

Special attention shall be paid to the decision on bringing to criminal responsibility for illegal use of VAT relief by the official of the agricultural producer. The court has established in its verdict that the official of the company for tax purposes on the sale of agricultural products stated such as their own production, whereas in fact products were purchased from other persons, caused VAT evasion of a considerable amount. The aforementioned verdict is available on our website by the link.

As a summary on verdicts of guilty under Article 212 of the Criminal Code of Ukraine, it shall be mentioned that courts generally consider tax evasion more as actions aimed at false presentation of information in tax reporting, accompanied by a fake primary and other documents. At the same time, if a dispute concerns the right, when no concealment is available, the courts usually do not see of a criminal offense under Article 212 of the Criminal Code of Ukraine. Such approach is consistent with the normal understanding of ‘tax evasion’ crime around the world, as it was in particular considered in the report “Problems of vagueness of “tax evasion”. Thus, the only exception in 2015 was the only verdict, mentioned by us, related to regular prices application.

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:

1 The total number of 64 verdicts minus 15 verdicts approving plea agreement.

2 The actual number of verdicts under the results of consideration is 52, while judging from the official statistics, the number is 49.

Kind regards,

© WTS Consulting LLC, 2016

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