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Should we trust the verdicts and other decisions in criminal proceedings under Art. 205 of the CC of Ukraine?

12 December, 2018 Newsletters

As for the verdicts and other decisions in criminal proceedings regarding officials of enterprises-counterparts under art. 205 of the Criminal Code of Ukraine (hereinafter referred to as CC of Ukraine) in tax disputes on so called “void transactions”: regardless of long-term debates and active discussions in legal community, attitude on verdicts and other decisions in criminal proceedings still remains controversial. And there are substantial grounds for such attitude “under question mark sign”.

Therefore continuing on the topic of our newsletter «On the issue of possible tactics and updating approaches to court proceedings regarding «void transactions», we invite you to distance from legal arguments and fix on actual “grounds” of advent of verdicts and other decisions in criminal proceedings under art. 205 of the CC of Ukraine, that in our opinion can also determine the level of permissible trust to information indicated in such decisions.

In particular, seems interesting and to some extent indicative the development of events, that took place in several criminal proceedings under art. 205 of the CC of Ukraine, where decisions in tax disputes on so called “void transactions” come to fore very often.

For instance, “Toreniya” LLC (EDRPOU Code 38091691) is pretty much all over, that is mentioned, according to the search in Unified State Register of Court Decisions, in more than 600 court decisions. At the same time, the references to “Toreniya” LLC in tax disputes are reduced to references to the fictitious activity of this enterprise, given the existing decree on release from criminal liability regarding its director.

If you refer to the text of the Decree of Kyiv Administrative Court of Appeal as of January 17, 2017, which is available in the Unified State Register, then we see that the director of “Toreniya” LLC is exempted from criminal liability under p. 1 of Art. 205 of the CC of Ukraine in criminal proceedings No. 32014100000000036 by this Decree in connection with the expiration of the limitation period for prosecution for such a crime. In particular, because the composition of the crime, provided by p. 1 of Art. 205 of the CC of Ukraine is a crime of minor gravity of offence, the limitation period for such a crime is 2 years from the date of the commission of the crime.

It is interesting to note, that original qualification of actions of the Director of “Toreniya” LLC on the stage of pre-trial investigation of such criminal proceedings was much more grievous. Thus, according to the public data of the Unified State Register of Court Decisions, criminal proceeding was initiated based on grounds of criminal offenses provided for in p. 3 of Art. 212 and p. 2 of Article 205 of the CC of Ukraine:

“In particular, the Act of tax audit states that pre-trial investigation materials No. 32014400000000036 on tax evasion in particularly in large amounts and fictitious business activity on the grounds of criminal offenses provided for p. 3 of Article 212 (tax evasion) and p. 2 of Article 205 of the Criminal Code of Ukraine (fictitious business activity)”(quotation from the Decree of the Kiev Administrative Court of appeal as of January 17, 2017 in the case No. 810/5645/14) are in the proceedings of the second department of criminal investigations of the Investigative Department of Financial Investigations of the Ministry of Internal Affairs in Kyiv”

Having regard to penalties, envisaged by p. 3 of art. 212 and p. 2 of art. 205 of the CC of Ukraine, such crimes referred to crimes of moderate offence and grievous offence, where art. 49 of the CC of Ukraine envisages limitation period of 5 and 10 years respectively from the date of the commission of the crime. That is, the exemption from criminal responsibility based on limitations period could not be possible in case of consideration of criminal proceeding in court under original qualification.

Such requalification from p. 3 of art. 212 and p. 2 of art. 205 to p. 1 of art. 205 of the CC of Ukraine, which under the limitation period for criminal liability has been expired, obviously has certain “grounds”. That is we do not rule out that abovementioned requalification may serve as a proof of investigation party’s attempt to “make an arrangement” on admission of guilt through suppression on director of the enterprise and creation of evidentiary basis regarding allegedly fictitious activity of enterprise for usage by tax authorities in disputes with other taxpayers (not necessarily by plea agreement, but at least presumed – inasmuch as release from responsibility based on the expiration of limitation period is possible only if the crime is committed, otherwise from which responsibility one should be released?).

As appears, as well as from similarity with other decisions from public data of Unified state register of court decision, such suppositions are likely not groundless. For instance the Decision of Supreme Court in case No. 816/809/17 as of 27.03.2018 among other things states:

“… in the course of pre-trial investigation the materials were obtained (protocols of witnesses’ interrogation)”, which testify to non-involvement of officials of “Komspetztrade” LLC (Person_4) and “Atlant-Media” (Person_5) in conduction of financial and economic activity. Besides, the tax authority indicates, that the said persons denied in interrogation protocols, that they provided explanations set out in notarized statements, that they held positions of directors of mentioned enterprises and conducted financial and economic activity”.

As one can see, there are two documents (interrogation protocols, obtained within the framework of criminal proceeding and notarized statements), which contain completely opposite statements of the same directors of counterparts: in one instance on their non-involvement to the activity of counterparts, and in another one – on involvement (on holding of position of directors of counterparts).

Such matter with opposite testimonies of the same individuals is likely to be, to a certain extent, “an arrangement”, especially since the criminal proceeding was opened under rather “grievous” articles. In particular, as one can see from the text of mentioned Decision of the Supreme Court in case No. 816/809/17 as of 27.03.2018, the criminal case was initiated under p. 3 of art. 212, p. 366, p. 2 of art. 382 of CC of Ukraine. So, obviously, such “admitting” testimonies were provided by officials of counterparts with expectation of further requalification to “fictitious activity” with less severe punishment.

Events of changes of testimonies by officials with further requalification (as a “reward” of investigation authorities for correct testimonies) are not uncommon. For instance, see Decision of Vinnytzkyi district administrative court in case No. 2a/0270/1262/12 as of July 18, 2018  and Decision of Dnipropetrovskyi district administrative court in case No. 804/2236/16 as of September 29, 2016.

Therefore, the relevant factors of possible inducement to “correct” testimonies and “admission of guilt” must necessarily be considered when assessing such materials in administrative tax disputes on “void” of economic relations with respective counterparts. Considering the possible factual grounds for appearance of verdicts and other decisions in criminal proceedings under art. 205 of CC of Ukraine, such decisions in criminal proceedings can not be considered as sufficient indisputable proof of the presence of grounds to suspect fictitious activity of enterprises.

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.

Kind regards,

© WTS Consulting LLC, 2018

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