History of the Victory.
The Court of Appeal cancelled the Court ruling on appointment of the tax audit under subpara. 78.1.11 of the Tax Code of Ukraine (case of A. Zhurzhii)
Since October 2016 KM Partners began to raise the issue of illegality of the appointment of the tax audits within criminal proceeding under subpara. 78.1.11 of the Tax Code of Ukraine (hereinafter – “the TC of Ukraine”) by the investigating judges. Prior to that, no one ever had a doubt in the legality of the appointment of tax audits.
The appointment of such audits has become such a common court practice, that even in lawyers’ community there were lawyers and even whole known attorneys at law and law firms that have expressed the position of the absolute legality of such audits.
But we managed to get the ball rolling a bit at a time.
In particular, KM Partners issued the analytical material, which has justified the illegality of the appointment of tax audits within criminal proceeding under subpara. 78.1.11 of the TC of Ukraine, which establishes the right of the tax authorities on conducting of the tax audits in case when (quote):
Thus, neither rights of investigators/prosecutors to refer to the investigating judge with the petitions on the tax audit appointment within criminal proceeding, nor the rights and procedures for consideration, moreover satisfaction by the investigating judges of this kind of petitions are provided by the procedural law, which is the Criminal Procedure Code of Ukraine (hereinafter – “the CPC of Ukraine”) .
Accordingly, in the sense of p. 2 of Art. 370 of the CPC of Ukraine, which provides that the decision is legal when delivered by the court in compliance with the requirements to criminal proceeding provided by the CPC of Ukraine – no lawful decision on appointment of a tax audit within the criminal proceeding can be issued. Therefore, the decisions of the investigating judges on appointment of tax audits are illegal and groundless.
More legal arguments are presented in the analytical materials by links:
- “Tax audits within criminal proceeding: unlawfulness, inadmissibility, consequences”;
- “Amendments to subpara. 78.1.11 of the Tax Code of Ukraine – it would be better not to have changed it at all”.
We drew society’s attention to the mentioned issue at the various forums and seminars, in the Verkhovna Rada of Ukraine committees.
This issue drew attention of the deputy of Ukraine Andrii Valeriiovych Zhurzhii, who knows not on paper but in real life how much illegal pressure of the controlling authorities affects the business. In addition, Andrii Valeriiovych Zhurzhii is a lawyer with the huge experience, and upon the results of the research on this issue, he decided to join the struggle against the illegal appointment of the tax audits.
So, Andrii Valeriiovych sent a number of deputy requests to the Verkhovna Rada of Ukraine Committee on Legislative Support of Law Enforcement and to courts located in Kyiv, in which the issue on the appointment by the investigating judges of tax audits under subpara. 78.1.11 of the TC of Ukraine was highlighted, asking to consider the abovementioned issue at a meeting of judges and to express the position concerning the presence of the legitimate reasons for investigating judge to deliver decisions on the appointment of the documentary unscheduled audit in the criminal proceeding under the petition of the investigator, prosecutor.
In response to these deputy requests, the following documents were received:
- Letter of the VRU Committee on Legislative Support of Law Enforcement as of January 16, 2017 (is available by link);
- Letter of the Higher Specialized Court of Ukraine on Consideration of Civil and Criminal Cases as of December 27, 2016;
- Letter of the Kyiv Court of Appeal as of January 26, 2017;
- Letter of Solomianskyi District Court of Kyiv as of February 02, 2017;
- Letter of Sviatoshynskyi District Court of Kyiv as of January 31, 2017;
which provided the following:
- the specialized VRU Committee expressed the position, that “in court practice upon solution of these issues in the criminal proceeding one should be guided, first of all, by the provisions of the CPC of Ukraine which under Art. 1 of the Code are determinative in the assessment of the investigator’s actions. The order of the criminal proceeding, including procedural actions, is determined only by the Criminal Procedural Law of Ukraine”;
- courts expressed the position regarding the lack of proper regulation in the CPC of Ukraine of the issue of appointment of a tax audit within the criminal proceeding and the necessity for the legal removal of conflicts and non-conformity with the law.
However, such “well known” courts as Pecherskyi District Court of Kyiv and Shevchenkivskyi District Court of Kyiv by the Letter as of December 28, 2016 and Letter as of February 03, 2017 gave the formal replies to deputy request, stating that the mentioned issue is out of the area of issues considered at the general meetings of judges.
These complex actions produced their first results, whereas some investigating judges really started to deny the appointment of tax audits under the petitions of the investigators/prosecutors, for example: Court ruling as of January 19, 2017, Court ruling as of January 27, 2017, Court ruling as of January 05, 2017.
However, by a twist of fate, the tax audit of citizen Andrii Valeriiovych Zhurzhii was appointed under subpara. 78.1.11 of the TC of Ukraine by the investigating judge by the Court ruling of the Pecherskyi District Court of Kyiv as of February 28, 2017 in the case No. 757/11320/17k (hereinafter – the “Court ruling” in USRCD) for the period of 2013-2016, within criminal proceeding, which was closed in 2015.
But if life gives you a lemon, make lemonade, and Andrii Valeriiovych had so-called “personal” opportunity to become a pioneer in changing the court practice on this issue. Andrii Valeriiovych decided to appeal against the illegal Court ruling of the investigating judge on the appointment of a tax audit to the Court of Appeal.
As a support in this issue, taking to account joint elaborations regarding the illegality of subpara. 78.1.11 of the TC of Ukraine, the KM Partners Attorneys at law were involved in challenging of such Court ruling. It is always not so easy to be the first and appealing way was quite thorny from the beginning.
In particular, the sole fact of adoption by the Kyiv Court of Appeal to consideration of such appeal was a small victory. Thus, Art. 309 of the CPC of Ukraine, which contains a comprehensive list of investigating judges’ court rulings that can be challenged, does not include the court rulings on the appointment of a tax audit within the criminal proceeding. But our right to appeal, we justified by the following:
- the absence in Art. 309 of the CPC of Ukraine is caused by the fact that appointment of a tax audit by the investigating judge is not foreseen at all;
- the right to appeal is provided by Art. 24 of the CPC of Ukraine;
- the right on the appellate review is guaranteed by the new version of para. 8 of p. 2 of Art. 129 of the Constitution of Ukraine;
- the practice of the European Court of Human Rights (hereinafter – “the ECHR”) regarding Art. 6 of the Convention stipulates that the court did not oblige to create courts of appeal, but if they are present – the right of access to them should be provided (para. 22 of the Decision in the case “Sokurenko and Strygun v. Ukraine”).
And such arguments were accepted by the court of appeal – the case was taken into consideration and considered by the merits.
And we had a “bunch” of arguments concerning the essence of illegality of the Court ruling on the appointment of a tax audit, as follows:
- Art. 36, Art. 40 of the CPC of Ukraine does not provide rights/authority of the investigator/prosecutor to refer to the investigating judge with petition on appointment of a tax audit within criminal proceeding;
- the CPC of Ukraine in the meaning of Art. 19 of the Constitution of Ukraine does not contain any prescribed by the law statutory powers and method for the consideration, and moreover for satisfaction by the investigating judges of petition on the appointment of a tax audit;
- subpara. 78.1.11 of the TC of Ukraine provides the rights of the tax authorities, however, this provision is not procedural and does not specify any procedural powers of the investigating judge;
- the appointment of a tax audit by the judicial authority is the duplication of powers of the executive authorities, which is a violation of the constitutional principles;
- tax audit was appointed by the investigating judge with violation of the limitation periods, specified by p. 102.1 of the TC of Ukraine.
Upon the results of consideration, the Kyiv Court of Appeal satisfied by the Court ruling of as of April 11, 2017 the appeal and cancelled the Court ruling of Pecherskyi District Court of Kyiv as of February 28, 2017 in the case No. 757/11320/17k on the appointment of a tax audit stating that (quote):
“As regards the essence of the solution of the petition by the investigating judge, the court of appeal relies on the fact that, according to p.1 of Art. 370 of the CPC of Ukraine, the decision must be lawful, justified and motivated. Part 2 of this Art. indicates that decision is lawful when it is provided by a competent court under the provisions of substantive law in compliance with the requirements for criminal proceeding under this Code (the CPC of Ukraine). The decision challenged does not meet these requirements. Thus, in justification of the delivered decision, the investigating judge referred to Art. 78 of the TC of Ukraine according to which the documentary unscheduled tax audit shall be conducted in the presence of at least one of the following circumstances: subpara. 78.1.11 – of the court (investigating judge) decision on appointment of audit or resolution of authority which conducts investigative actions, investigator, prosecutor, delivered by them under the law, is received. So, indicated provision refers to the Law in accordance with which the mentioned decision should be obtained, and the procedural order is determined exactly by the CPC of Ukraine. However, taking decisions regarding the mentioned petitions by the investigating judge is out of the area of his authority, which should be fulfilled in a manner, provided by the procedural law, since such petitions relate neither to the enforcement measures of criminal proceeding, nor to the investigative actions, nor to covert investigative actions. Thus, the CPC of Ukraine does not provide the right of investigator, prosecutor to refer to the investigating judge with petition on appointment of a tax audit, moreover, there is no procedure for consideration of such applications in the CPC of Ukraine as well…
Thus, taking the abovementioned into account, the panel of judges came to the conclusion that the investigating judge having considered the petition of the prosecutor on appointment of a document unscheduled tax audit by the merits, in this case acted in manner not based on the requirements of procedural law“.
We consider such decision of the Kyiv Court of Appeal as a step to formation of a new court practice of cancellation of the illegal decisions of the investigating judges on appointment of tax audits within criminal proceeding and in the future, we hope, to formation of the practice of refusing by the investigating judges in satisfaction of such petitions of pretrial investigation authorities.
From our side, we encourage the legal community to support the tendency for challenging such illegal decisions, whereas the court practice is being formed now and by us. As the saying goes, water dripping day by day wears the hardest rock away.
Criminal proceedings on tax evasion: summary statistics for 2017
The Supreme Court: appealing of tax audits within criminal proceeding
The court ruling of the Supreme Court as of March 06, 2018