Who should pay taxes and penalties for exemption from liability under part 4 Article 212 of the Criminal Code of Ukraine?
As a follow-up to the series of publications and newsletters on criminal proceedings under Article 212 of the Criminal Code of Ukraine, let us dwell on relevant issue concerning exemption from criminal liability under part 4 of Article 212 of the Criminal Code of Ukraine.
In 2015 almost 49%1 of criminal proceedings on tax evasion (with notification on suspicion) were brought to court with the application for exemption from criminal liability. According to the report of the courts of the first instance and the data in the Unified State Register of Court Decisions, during 2015 41% of criminal proceedings were closed by the court on grounds of exemption from criminal liability under part 4 of Article 212 of the Criminal Code of Ukraine2.
Let us remind that exemption from criminal liability in accordance with provisions of part 4 of Article 212 of the Criminal Code of Ukraine is possible “[…] if he/she [person who committed an act] paid taxes, duties (compulsory payments) and indemnified the State for the damage caused by late payment (fiscal penalties, fines) prior to the prosecution”.
Proceeding from the letter of law, exemption under part 4 Article 212 of the Criminal Code requires payment of taxes and damages in the name of the person who committed an act. That is, under the classic scenario of criminal proceedings on tax evasion against the director and /or accountant of the taxpayer-legal entity, according to literal interpretation, the payment shall be done by the director or accountant of the tax payer.
But, how does it work in practice? Let us find out who actually pays taxes and penalties for exemption from liability under part 4 of Article 212 of the Criminal Code of Ukraine.
In this respect let us refer to the decisions on exemption from criminal liability under part 4 of Article 212 of the Criminal Code of Ukraine and the closure of the proceedings, which are available in public access in the Unified State Register of Court Decisions.
Under the results of the analysis of respective decisions of the courts3 passed during 2015, we managed to identify clearly:
- 46 decisions on exemption from criminal liability where the payment of taxes and penalties was carried out by the legal entity;
- 33 decisions – by person who committed the acts (by the director or chief accountant) and
- 23 decisions – without specifying a person who paid taxes and penalties.
Thus, analyzing the content of the above-mentioned court decisions on exemption from criminal liability, in which is formally indicated about payment of taxes and penalties by the official (director or chief accountant), we can conclude that probably 14 out of 33 of the abovementioned decisions of this kind related to the payment by legal entity4.
Percentage ratio of the results of the final analysis is as follows:
58.3% – payment of taxes and penalties carried out by the legal entity-taxpayer,
18.4% – by officials,
23.3% – judging only from the text of the decision, it is not possible to clarify who carried out the payment of taxes and penalties.
So, in 2015, in most cases, payment of taxes and penalties was carried out by the legal entity, whereby the courts exempted from criminal liability respective officials (director and / or chief accountant).
Exemption of the officials from criminal liability on the grounds of part 4 of Article 212 by the courts of first instance in case of payment of taxes and penalties by the legal entities-taxpayers, in general, is in line with the practice of higher courts.
As a proof of this we can refer to the decision of the High Specialized Court of Ukraine for Civil and Criminal Cases as of February 14, 2013 in the case No.5-233km135. This decision is sometimes referred to as a proof that taxes and penalties shall be paid by the official. However, it does not contain such categorical imperative. In the mentioned decision, the High Specialized Court of Ukraine for Civil and Criminal Cases has made a conclusion that for the purposes of exemption under part 4 Article 212 of the Criminal Code of Ukraine, a number of conditions needs to be followed: (1) defendants need to be found guilty and the fact of the offense needs to be established, and (2) participation of the guilty person in payment of taxes and penalties.
In connection with the fact that in the case No.5-233km13 the High Specialized Court of Ukraine for Civil and Criminal Cases proved that first of all, that the defendants did not acknowledge their guilt and tax evasion was not properly established (excerpt provided in the notes6). Second of all, at the moment of payments of the taxes and penalties the respective persons were not officials of the enterprises already and therefore did not influence the process of payment of taxes and penalties by the enterprises.
The position of the High Specialized Court of Ukraine for Civil and Criminal Cases concerning participation of the guilty in payment of taxes and penalties is the following:
“Besides, the condition of application of the special type of exemption from criminal liability, envisaged by part 4 of Article 212 of the Criminal Code of Ukraine, is the positive post-criminal behavior of a person who before being brought to criminal liability pays respective taxes and duties, as well as fines and financial penalties.
Judging from provisions of Article 18 of the Criminal Code of Ukraine, according to which the subject of crime is the natural person from the individualization principle, criminal liability as we as from part of Article 212 of the Criminal Code of Ukraine for the purposes of application of this rule of law on the official of the enterprise-taxpayer, this person shall participate in payment of respective amounts of tax debt, fines or financial penalties. Such participation can be expressed in actions aimed at repayment, within his/her authority, or payments for that purpose on the account of the company or by compensation of the amounts paid by a legal entity. If such amounts are paid by the enterprise without participation of the official who is brought to criminal liability, provisions of part 4 Article 212 of the Criminal Code of Ukraine shall not be applied”.
That is, in the decision as of February 14,2013 in the case No. 5-233km13 the High Specialized Court of Ukraine for Civil and Criminal Cases did not specify that the amount shall be paid by the natural person only, but stated the necessity of actions from the side of the natural person within official authority, aimed at payment of taxes and penalties.
Therefore, the High Specialized Court of Ukraine for Civil and Criminal Cases confirmed that taxes and penalties can be paid both by natural persons and legal entities-taxpayers, but if the payment is transferred from the accounts of the legal entity-taxpayer, respective persons who committed acts, shall contribute to repayment by acts within authority.
Such approach is rather logical, since if to consider that accrued taxes and penalties shall be paid by the official of the taxpayer, does it exempt the legal entity-taxpayer from payment of the accrued taxes? And is there a necessity of double payment?
Therefore the approach that payment of taxes and penalties by the legal entity allegedly exempts the official of such taxpayer from liability can be considered formally. Considering the practice of the European Court of Human Rights which acknowledges by the law not only the established rules, but, most likely, the complex of the established rule with the prevailing practice of law enforcement, such approach shall be considered as established by law.
At the same time uncertainty of the established rule on this issue provides certain possibilities for abuse in particular situations by manipulative approaches of law enforcement bodies. For instance, the promise of exemption from liability under the conditions of payment by the legal entity is very often used to support the proposals on the recognition of tax evasion. However, when a person does not recognize the intent to commit such crime and plans to prove his/her innocence, it is often heard from investigators in this case, that the payment of legal entity will not exempt from liability. As per opinion of the authors, that is not so. However, such a threat shall be considered during decision making.
Therefore, specification and definition of this question by the established rule is rather important.
Respective proposals on clarification of the provisions of Part 4 Article 212 of the Criminal Code of Ukraine can be found in draft law No.3448 ( more details about “Draft Law No.3448) are available on our web site in section “Projects and publications” by the link). We hope that with the adoption of the abovementioned draft law the discussed in this newsletter issue of lack of clarity, who actually should pay taxes and penalties for exemption from liability, will be solved.
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.
1According to statistics of the General Prosecutor’s Office in 142 criminal proceedings the notification on suspicion were delivered. Applying to the court for exemption from criminal liability occurred in 70 criminal proceedings. Statistics was also provided by us in the Newsletter “Statistics on criminal proceedings under Article 212 of the Criminal Code of Ukraine or what kind of year was 2015 for the taxpayers?” by the link.
2According to the report of the courts of the first instance, in 2015 under Article 212 of the Criminal Code of Ukraine 246 criminal proceedings were closed. According to the Unified State Register of Court Decisions, 103 criminal proceedings were closed under part 4 of Article 212 of the Criminal Code of Ukraine.
4Judging from the text of the court decisions, the payments shall be done by the official, but judging from the data on confirming by the integrated card taxpayer, details of orders and other circumstances, specified in the decisions, it appears that the payment was done by a legal entity-taxpayer.
5Decision of the High Specialized Court of Ukraine for Civil and Criminal Cases of February 14, 2013 in the case No. 5-233km13 is available in the Unified State Register of Court Decisions by the link.
6“A necessary condition for exemption from criminal liability is the established in the prescribed by law manner the fact of its socially dangerous act, which contains corpus delicti.
Judging from the abovementioned information, according to the explanations in para. 1 of the Resolution of the Supreme Court of Ukraine of December 23, 2005 No. 12 “On application of legislation on exemption from criminal liability by the courts of Ukraine”, when deciding on such exemption, the court ( judge) during the previous, trial, appellate or cassation proceedings shall assure (irrespective of the fact whether it was received by the court of first instance with the appropriate regulation or the indictment, and to the courts of appeal and cassation – with a verdict of guilt) that the act really took place and contains the crime and the person is guilty for its committing. Only under such conditions the respective court decision can be made in the prescribed by the Code for Criminal Proceedings manner.
As envisaged from the case materials and court records, PERSON_1, PERSON _3 and PERSON _2 in court did not admit guilt in the brought charges …
Considering the abovementioned, the court concluding guilt of PERSON _1, PERSON _3 and PERSON _2 in committing acts, did not properly check their arguments on the absence of intent to tax evasion, which was essential for deciding the presence or absence of crime in acts of these persons.
The court, violating the principle of the continuity of the trial, established by Article 257 of the Code for Criminal Proceedings of Ukraine, substantiated its conclusions with the data from numerous written documents (basic accounting, banking, financial and economic, etc.) were not investigated in the court hearing (folder 9, page of case 87-91) “.
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