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Statistics of criminal proceedings on taxes for 2019

31 January, 2020 Newsletters

Last year was generous enough for legislative changes, especially in the tax and related fields: decriminalization of fictitious business, changes in the issue of financial monitoring and the main “icing on the cake” for all tax advisers – already announced in 2020, the notorious draft law No. 1210  “On Amendments to the Tax Code of Ukraine on Improving Tax Administration, Removing Technical and Logical Mismatches in the Tax Legislation”.

However, another equally important task has not been accomplished – the status of a pre-trial investigation body with the jurisdiction of tax-related crimes hasn`t yet been resolved.

On the contrary, it seems that the “ghost” of the tax police receives a certain “matter”: at first, the news in the media about the alleged restoration by the Government of the tax police, where actually the resolution of the Cabinet of Ministers of Ukraine as of September 25, 2019 № 846 is mentioned, then delaying the adoption of the new Law on the Bureau of Financial Investigations of Ukraine for an indefinite period.

Therefore, one way or another, the pre-trial investigation continues to be carried out by such a body.  Thus, according to official statistics of the Prosecutor General`s Office of Ukraine, 1,228 criminal proceedings for tax evasion were registered in 2019. However, the increase was more or less equal throughout the year:

It is worth noting that such index is a quarter less (25.6%) than the number of criminal proceedings registered in 2018.  However, such a reduction in opened criminal proceedings is a consequence of the adoption of the Law of Ukraine “On Amendments to the Criminal Code of Ukraine and the Criminal Procedure Code of Ukraine on Reducing Pressure on Business” as of September 18, 2019 No. 101-IX (“the Law No. 101-IX”), rather than a revision of the work methods of law enforcement.

Thus, as we informed in our newsletter “Decriminalization of Art. 205 of the Criminal Code of Ukraine and changes to Art. 212 of the Criminal Code of Ukraine – increasing of taxes non-payment thresholds that may lead to criminal prosecution: What are the practical implications for current cases?” the qualifying thresholds of criminal liability for tax evasion have been revised, which accordingly affected the number of criminal proceedings opened and the number of proceedings which are in the process of closure and/or exemption from criminal liability.

In particular, when it comes to closing criminal proceedings, in 2019, a total of 262 criminal proceedings were closed in phase of pre-trial investigation, 259 of which were closed due to the absence of a criminal offense.

As regards criminal proceedings, the number of court decisions has decreased slightly compared to 2018 levels. Thus, for the results of the past year, the Unified State Register of Court Decisions contains information on 18 verdicts only, namely: 10 guilty verdicts, of which only 3 – on the basis of plea agreements, and 8 verdicts of not guilty.

In general, the last three years have been followed by a steady decrease in the number of criminal proceedings brought to sentencing and the prosecution of perpetrators, as seen in the following infographic:

In general, when comparing the number of criminal proceedings initiated with the number of actually confirmed and examined in the courts, one can see that the percentage of the latter still remains insignificant, in other words, criminal tax evasion proceedings remain only as means of pressure on business, which neither pursue the purpose of justice nor have any compensation effect.

By the way, about economic compensation of losses caused to the State as a result of tax evasion: in total for 2019 UAH 10 762 517 were awarded for compensation, but the losses caused to the State amount to UAH 27 988 197,1.

That is, the sums awarded do not compensate for the damages incurred, and this even does not take into account the expenses for police maintenance.

It should also be noted that based on factual circumstances, the tendency is the same – most cases are related to “non-commodity transactions”, often with additional qualifications under Art. 366 of the Criminal Code of Ukraine («the CCU»). For convenience, a detailed description of all the verdicts for 2019 is brought to your attention in the Addition.

Along with that, in 2019 there were also sentences that should be considered separately.

Thus, in Case No. 296/2891/191 guilty verdict was issued against the head of the enterprise on grounds of the unjustified use of the customs processing regime, which resulted in tax evasion. In particular, as established by the court, the head of the enterprise issued a customs declaration, in which the importation of a civil aircraft was declared for its repair purposes.

However, during the investigation it was found that the latter’s actions were in fact aimed at getting benefit from the sale of spare parts of the aircraft and not from carrying out its repair and re-export as it was stated by the convicted person during customs clearance under Ukrainian customs regime of inward processing.

By the way, another tax case, which we commented on KM Portal, is related to the issues on Ukrainian customs regime of inward processing (see materials «What is happening around the «Philip Morris» Settlement Agreement on tax despite resolution? What question arise and why? Why this is important for other taxpayers? » and «What else is happening around the «Philip Morris» Settlement Agreement on tax despite resolution is, it worth taking for granted the statements on legislation compliance and what is to be done in this case?»

So, is this trend becoming “hot” as a whole for tax evasion investigations?

All verdicts are available by the link.

Instead of the conclusion it should be noted that to date trends in tax evasion investigations, unfortunately, remain unchanged and require complex and institutional changes. Therefore years have passed and we are still waiting for a whole new approach to investigation of tax evasion crimes.

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:

1In the Unified State Register of Court Decisions by the link.

Kind regards,

© WTS Consulting LLC, 2020

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