{"id":13344,"date":"2019-12-20T10:00:33","date_gmt":"2019-12-20T08:00:33","guid":{"rendered":"https:\/\/kmp.ua\/?p=13344"},"modified":"2020-08-25T10:59:47","modified_gmt":"2020-08-25T08:59:47","slug":"increased-liability-on-tax-evasion-and-some-other-crimes-and-some-other-important-changes-of-the-law-on-amendments-on-simplifying-the-pre-trial-investigation-of-certain-categories-of-criminal-offences","status":"publish","type":"post","link":"https:\/\/kmp.ua\/en\/analytics\/exclusive\/increased-liability-on-tax-evasion-and-some-other-crimes-and-some-other-important-changes-of-the-law-on-amendments-on-simplifying-the-pre-trial-investigation-of-certain-categories-of-criminal-offences\/","title":{"rendered":"Updating! False start.<\/i> Increased liability on tax evasion
and some other crimes,
and
some other important changes of the Law on Amendments on Simplifying the Pre-Trial Investigation of Certain Categories of Criminal Offences"},"content":{"rendered":"

On April 24, 2019, the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on the Simplification of Pretrial Investigation of Certain Categories of Criminal Offences” No. 2617-VIII as of on November 22, 2018 (hereinafter referred to as Law No. 2617-VIII) was officially promulgated1<\/a><\/sup>.<\/p>\n

The name of the Law does not always disclose the changesthat have been made and its possible influence. In particular, such changes may be the increase in criminal liability for tax evasion, unified social tax, and a set of criminal offenses.<\/p>\n

So, that entails not just about some kind of technical “simplification”, as it was indicated in the title, but also about other important changes. Some of them, which we consider most important for taxpayers and for cases of so-called “white-collar crime”, are discussed further.<\/p>\n

1.<\/em><\/p>\n

As of January 1, 2020 the Act No. 2617-VIII increases the liability for a set of criminal offecences.<\/p>\n

In particular, the criminal liability for tax evasion is increased (Article 212 of the Criminal Code of Ukraine (hereinafter – the Criminal Code of Ukraine)).<\/p>\n

For illustrative purposes, we lay down the increase of liability in the comparative table below:<\/p>\n

\"\"<\/p>\n

That is, in fact, the threshold of sanction under part 1 and 2 of article 212 of the Criminal Code of Ukraine regarding the liability for tax evasion was doubled<\/p>\n

Similar changes have been made to Art. 212-1 of the Criminal Code of Ukraine (Evasion from the payment of unified contribution for compulsory state social insurance and insurance premiums for the compulsory state pension insurance).<\/p>\n

Similar changes are made to some alternative qualifications to Art. 212 of the Criminal Code of Ukraine, which sometimes take place in practice in connection with taxes (for example, Article 3672<\/a><\/sup>, Article 1913<\/a><\/sup> of the Criminal Code of Ukraine).<\/p>\n

2.<\/em><\/p>\n

Formally, such changes have been made in a way that the relevant acts do not fall into the category of criminal offenses, the institution of which is actually introduced by changes under the Law No. 2617-VIII.<\/p>\n

In connection with the initiating of the institute of criminal offenses, changes are introduced to the classification of criminal offences (for criminal misdeeds and crimes). Crimes are divided into non-serious, grave and especially grave. For ease of comparison, whether some changes to the essence have been made, we suggest you to consider the following changes in the form of a table below:<\/p>\n

\"\"<\/p>\n

As we can see, in essence, the qualification of criminal offences depending on the gravity, was not changed tremendously.<\/p>\n

As a result, there are no real changes in exemption from criminal liability due to the limitation period, which is established depending on the severity of the crime.<\/p>\n

3.<\/em><\/p>\n

Although changes of limitation period, the completion of which is the basis for the release of liability for the crime, did not actually take place, the Law as a matter of fact actually provides some additional grounds for the actual release of liability under “old” criminal proceedings that are still ongoing at the stage of pretrial investigation.<\/p>\n

It should be reminded that as of 2018, the changes came into force, in particular amendments to Art. 219 of the Code of Criminal Procedure of Ukraine (hereinafter referred to as the Code of Criminal Procedure of Ukraine), which established precise limits for the permitted periods of pretrial investigation, depending on the gravity of the crime.<\/p>\n

However, the law under which the relevant amendments were made contains a legal notice that these changes only apply to criminal proceedings that have been listed on the Unified Register of Pretrial Investigations after the entry into force of these amendments.<\/p>\n

The extent to which this reservation is valid is a separate issue. However, in practice, the pretrial investigation authorities are more likely to adhere to the position that time limits of the old investigations are really unrestricted and may continue to “to the top of their bent”.<\/p>\n

We do not share this opinion, and consider that there are strong legal grounds for the recognition of such investigations invalid, and all their “possess” after the completion of the terms under Art. 219 the Code of Criminal Procedure of Ukraine – inappropriate, and which can not be used.<\/p>\n

Amendments implemented by Law No. 2617-VIII provide additional support for such a restrictive approach.<\/p>\n

Thus, in connection with changes in the classification of types of crimes, the same Law No. 2617-VIII also introduces amendments to Art. 219 of the Code of Criminal Procedure of Ukraine, which in the new version effective as of 2020 will establish, among others, that:<\/p>\n

“2. The term of the pre-trial investigation from the moment of entering the information about a criminal delict into the Unified Register of Pre-trial Investigations until the day of notification to the person about the suspicion is:<\/span><\/p>\n

1) twelve months – in a criminal proceeding concerning a non-serious crime;<\/span><\/p>\n

2) eighteen months – in a criminal proceedings concerning grave or especially grave crime”.<\/span><\/p>\n

Again, the previous version of Art. 219 of the Code of Criminal Procedure of Ukraine was weighted by the provisions of subsection 4, section 2, section 4 of the Law of Ukraine No. 2147-VIII as of October 3, 2017, under which the amendments to the Code of Criminal Procedure of Ukraine, which established the specific terms of pre-trial investigation, “have no retroactive effect in time and apply to cases in which information about criminal offence, listed on the Unified Register of Pretrial Investigations after introduction into effect of these changes”<\/span>.<\/p>\n

However, the new Law No. 2617-VIII changed the Art. 219 of the Code of Criminal Procedure of Ukraine once again and therewith does not contain such restrictions\/reservations (which, we recall, are formally linked to the previous amendments to Art. 219 of the Code of Criminal Procedure of Ukraine). Consequently, there are grounds to believe that as of January 1, 2020 (the coming into force of new changes), there will be no, even formal, grounds for limiting the use of the deadlines for pre-trial investigation under Art. 219 of the Code of Criminal Procedure of Ukraine, regardless of the date of registration of criminal proceedings in the Unified Register of Pretrial Investigations.<\/p>\n

We hope that the issue mentioned above will finally solve the “Gordian knot” with ongoing “old” criminal proceedings (registered until March 15, 2018).<\/p>\n

4.<\/em><\/p>\n

We will separately mark the moment, which did not fall into the adopted version of the new Law:<\/p>\n

at certain stage of the draft of this Law, such progressive change as the exclusion of Art. 205 (fictitious entrepreneurship) from the Criminal Code of Ukraine and the transfer of the components of such crime as fictitious entrepreneurship into the Code of Ukraine on Administrative Offenses (provision was made for the inclusion of Article 164-19) was envisaged.<\/p>\n

By the way, the demand for such decriminalization, the weaknesses of the legislative purpose of this article, negative experience with the use of such article in practice was repeatedly discussed within the framework of meetings of business communities. Moreover, such an approach was consistent with the experience of other countries. The separate article \u00abFictitious Entrepreneurship\u00bb does not exist or has been excluded in other countries. Such an act qualifies as fraud and \/ or under relevant articles that provide for liability for tax evasion. More relevant material that we have prepared, in particular for relevant discussions within the American Chamber of Commerce, is given in the Appendix to this review.<\/em><\/p>\n

However, unfortunately, in the process of considering the legislative proposal, such a change was rejected due to the lack of an institute of administrative investigation, in the absence of which allegedly “it is impossible to record circumstances which indicate the presence of signs of offence without conducting the relevant individual investigative actions”<\/em>4<\/a><\/sup>.<\/p>\n

We hope that if the proper procedure for the administrative investigation of fictitious entrepreneurship is properly defined, it will still be possible to decriminalize “fictitious entrepreneurship” with the transfer of the relevant structure to the administrative offenses.<\/p>\n

Updated on December 20, 2019<\/strong><\/em><\/p>\n

On December 03, 2019 the Verkhovna Rada of Ukraine has adopted the Law of Ukraine as of October 02, 2019 No.\u00a0136-\u0406\u0425 “On Amendments to Section II “Transitional Provisions” of the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on the Simplification of Pretrial Investigation of Certain Categories of Criminal Offences” No. 2617-VIII as of November 22, 2018 (regarding postponement of the entry into the force) (hereinafter referred to as the Law No. 136-IX), which has come into effect today on December 20, 2019.<\/p>\n

By the Law No. 136-IX the entry into the force of the Law No. 2617-VIII was extended to 6 months, i.e. till July 01, 2020. Therefore, the initiating of the institute of criminal offenses and increasing the liability for tax evasion, as well as several other crucial changes mentioned above, were postponed at least till July 2020.<\/p>\n

However, as it follows from the Explanatory note to the Law No. 136-IX, there are several reasons which influenced the postponing the entry into the force of such changes.<\/p>\n

First<\/em>, by reference to the Explanatory note, the question of the present interest is readiness of pretrial investigation bodies for investigation of criminal offences: “At the same time, not all criminal justice bodies, <\/strong>which competence under effective criminal procedural legislation (Article 216 of the Criminal Procedural Code of Ukraine) includes pretrial investigation of actions which belong to criminal offences, are ready for conducting this activity<\/strong> (respective subdivisions are still not organized, executive officers are not trained etc.), that may lead to certain difficulties in law enforcement”.<\/strong><\/p>\n

Second<\/em>, there is another matter of interest as regards to the initiating of the institute of criminal offenses: “However, the changes introduced did not lead to one of the main goals of the current criminal policy \u2013 narrowing the scope of criminal <\/strong>repression. The effective Criminal Code of Ukraine is deemed to be unreasonably extended and unable to handle the tasks imposed on it in a full measure.<\/strong><\/p>\n

For a long time<\/strong>, many scientists and experts in criminal law expressed their opinion regarding inappropriate regulation of the institute of criminal offenses within the effective Criminal Code of Ukraine, and that it is advisable to concentrate it in a separate legislative act \u2013 the Code for Criminal Offenses<\/strong>“.<\/p>\n

Therefore, with regard to the abovementioned, current amounts of penalties for tax evasion offences, which are determined in non-taxable minimum income of citizens, continue to be relevant. For more details please find our newsletter “Decriminalization of tax evasions on amount < UAH 2 881\u00a0500. Retroactivity of the effective version of Article 212 of the Criminal Code<\/a>“.<\/p>\n

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.<\/strong><\/em><\/a><\/p>\n

Annex 1<\/strong><\/p>\n

Regarding the application of Art. 205 of the Criminal Code of Ukraine in tax disputes<\/strong><\/p>\n

One of the issues which worries taxpayers including Chamber Members the most, is the efforts of the controlling authorities to transfer the “sins” of contracting parties to honest taxpayers. At the same time, the current practice of administrative legal proceedings on the application of tax disputes as evidence of materials and decisions of courts in criminal proceedings, in particular, under art. 205 \u201cFictitious Entrepreneurship\u201d of the Criminal Code of Ukraine, which, moreover, is uneven, is perceived by most payers at least as controversial. This practice does not adequately ensure the fulfillment of the purpose of the activity of administrative courts, which is now enshrined at the constitutional level (Article 125), “protection of rights , freedoms and interests of the person in the field of public-legal relations “.<\/p>\n

Justice should not only be carried out, but it must also be seen that it has been accomplished. Therefore, it is important to ensure the clarity of issues that cause misunderstandings among majority taxpayers, to ensure that practices are established with clear, transparent, understandable principles of the rule of law.<\/p>\n

As to the opinion of the participants of the Chamber who took part in the discussion of this problem, in the current judicial practice, the following aspects were not properly reflected:<\/p>\n

1. Lack of direct connection between the crime under Art. 205 of the Criminal Code of Ukraine and subsequent operations of the corresponding subject of economic activity<\/em><\/p>\n

Art. 205 “Fictitious Entrepreneurship”<\/em> of the Criminal Code of Ukraine defines an act on “the creation or acquisition<\/strong> of business entities (legal entities) in order to cover illegal activities or activities that are prohibited” as a crime “fictitious entrepreneurship”.<\/em><\/p>\n

That is, such a crime has been completed at the time of the creation or acquisition of a business entity (legal entity) with the intention (intention) of further illegal\/prohibited activities but does not cover such further activities.<\/p>\n

Part 6 of the Art. 78 of the Code of Administrative Proceedings (hereinafter – Code of Administrative Proceedings) states: “The verdict of a court in a criminal proceeding, a decision to close a criminal proceeding and the release of a person from criminal liability, or a court ruling in an administrative offense case that has become legally binding, are binding on the administrative court , which deals with the legal consequences of acts or omissions of a person against whom a verdict has been passed, a court ruling or decree of court, only on the question whether these actions (inaction) took place and if they were committed this person<\/span>“.<\/em><\/p>\n

Consequently, the court decision in criminal proceedings under Art. 205 of the Criminal Code of Ukraine can not be perceived as proof of the a priori illegality of all subsequent operations of the entity, since the court decision is evidence for the purposes of administrative proceedings only in one question. The question is whether the fact of the acquisition or creation of a legal entity by the particular person was real and whether it was done with the intention to cover up further illegal activities.
\nHowever, the court decision in the criminal proceedings under Art. 205 of the Criminal Code of Ukraine, according to the definition of the crime under this article, does not cover the further actual activity of the acquired \/ created legal entity, which, in case of illegality, should be subject to a separate criminal-legal assessment. It should also be noted that the law does not automatically establish the illegality of all subsequent activities of such a business entity, and therefore does not exclude the legal business operations of such entity.<\/p>\n\n\n\n
Having regard to the abovementioned, the statement contained in many decisions of the Supreme Court of Ukraine from 2015 and in some decisions of the already upheld Supreme Court that “the status of a fictitious enterprise is incompatible with legal business activity, even for formal confirmation of its original documents”<\/em> is not perceived as being based on the law.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

As an example of such a position, in the ruling of the court as of 16.01.2018 (case No. 2\u0430-7075\/12\/26705<\/a><\/sup>), the Supreme Court reached the following conclusion:<\/p>\n

“The status of a fictitious enterprise is incompatible with legal business activity, even with its formal confirmation with primary documents, and gives grounds for concluding that the primary documents<\/strong> that became the basis for the formation of a tax credit and gross expenditures, issued by the counterparty, the fictitious business activity of which is established by a court sentence, can not be considered as properly registered and signed by authorized persons, documents certifying the fact of the acquisition of goods, works or services, and therefore including these (showed in such documents) VAT amounts to tax credit are groundless”.<\/em><\/p>\n

This position was also set out in the Supreme Court judgments as of 23 January 2018 in case No. K \/ 9901\/1608\/186<\/a><\/sup>, as ofJanuary 23, 2018, in case No. 826\/7047\/13-a7<\/a><\/sup>, as of January 31, 2018, in case No. 2a \/ 0470 \/ 6369\/12, as of 06 July 2018 in case No. 826\/6986\/14 and in the Supreme Court’s judgment as of 27 March 2018 in case No. 2\u0430-2902\/10\/08708<\/a><\/sup>.<\/p>\n

More considered consistent with the law is another approach which was explicated on February 27, 2018 by the Supreme Court in cases No. K \/ 9901\/4639\/179<\/a><\/sup> (in the court of the first and appellate courts No. 802\/1853\/16-\u0430) and No. K \/ 9901\/3360\/1710<\/a><\/sup> (in the court of first instance and appellate instance No. 813\/1766\/17) regarding the assessment of sentences in criminal proceedings as evidence of fictitious operations:<\/p>\n

“The panel of judges notes that the very fact of the existence of the judgments, adopted on the basis of agreements in criminal proceedings, does not give grounds for the automatic conclusion that the economic operations are fictitious<\/strong>. That is why it is imperative to check the proof of each tax delict and to carry out a comprehensive investigation of all the components of economic operations, considering the circumstances set out in the verdicts which became legally binding”.<\/em><\/p>\n

A similar position was subsequently supported by the Supreme Court ruling No. 826\/3498\/1511<\/a><\/sup> as of March 29, 2018 and Supreme Court ruling No. 815\/6470\/1612<\/a><\/sup> as of March 27, 2018.<\/p>\n

Therefore, in this regard, we see a certain positive movement and we call for confirmation of such an approach as the established practice of the Supreme Court on the issue under consideration, that is, the existence of even sentences under Art. 205 of the Criminal Code of Ukraine on the participants of the enterprise contractors does not automatically “lead to negative consequences for taxation purposes, and it is necessary to look complexly on the question and explore all available evidence that can confirm the reality of the transaction.<\/p>\n

2. Non-consideration by the courts of the norms of the Commercial and Tax Code, which were subject to use in the presence of signs of “fictitious activity”; there is a question to lawfulness and compliance of administrative court decisions with court decisions that do not take into account the chronology of data discovery regarding the signs of fictitiousness and inaction of the controlling authorities<\/em><\/p>\n

In accordance with part 1 of Art. 7 of the Code of Administrative Procedeengs, the court is to decide cases in accordance with the Constitution and laws of Ukraine; the court’s decision must be based on the principles of the rule of law, be lawful (that is, rely on the rules of substantive law in compliance with the rules of procedural law) and grounded (Article 242 of the Code of Administrative Proceedings).<\/p>\n

However, court decisions often use concepts and approaches that do not rely directly on the rules of substantive law, the laws of Ukraine. Thus, in particular, the concept of “fictitious enterprise”, which often operate, is not defined by the laws of Ukraine.<\/p>\n

“Fictitious entrepreneurship”, which is limited to the creation or acquisition of a legal entity to cover further illegal activities, is already discussed above. In addition, laws only define such a concept as “Fictitious activity of a business entity” (Article 551 of the Commercial Code). Consequently, in view of the requirement of Code of Administrative Proceedings to rely on the rules of law, when establishing the presence of fictitious business entities, the courts should refer specifically to this article and apply its intended effects.<\/p>\n

The article specified is:<\/p>\n

“Article 55-1. Fictitious activity of the subject of economic activity<\/em><\/p>\n

1. Signs of fictitious nature, which give grounds for appeal to a court on termination of a legal entity or termination of activity of an individual entrepreneur, including the invalidation of registration documents<\/span>:<\/em><\/p>\n

– registered (re-registered) for invalid (lost, lost) and forged documents;<\/em><\/p>\n

– not registered in state bodies, if the registration duty is stipulated by the legislation;<\/em><\/p>\n

– registered (re-registered) in bodies of state registration of individuals with the subsequent transfer (registration) of possession or management of the false (non-existent), dead, missing persons or those persons who did not intend to carry out financial and economic activity or exercise powers;<\/em><\/p>\n

– registered (re-registered) and conducted financial and economic activities without the knowledge and consent of its founders and legally appointed managers”.<\/em><\/p>\n

That is, according to the law, the presence of the indicated signs of fictitiousness is recognized only as reasons for a court to terminate a legal entity or terminate an activity oif an individual entrepreneur, including the invalidation of registration documents. The law does not directly establish other legal consequences of the presence of signs of fictitiousness.<\/p>\n

Under these conditions, the court’s decision on the invalidity of the apriori<\/em> automatically all<\/em><\/span> operations of the enterprise with signs of fictitious activity can be considered as an outlet beyond the limits of judicial discretion, because Part 2 of Art. 19 of the Constitution extends to the courts, which are also a body of state power. Part 2 of Art. 19 allows acting solely on the basis of the Constitution and laws of Ukraine.<\/p>\n

In addition, questions arise as to the due diligence of the courts in considering such cases in the requirements of Part 4 of Art. 242 Code of Administrative Proceedings regarding the compliance of the court decision with the tasks of administrative proceedings, as defined by the Code of Administrative Proceedings.<\/p>\n

So, in the continuation of the topic of the established laws of Ukraine the consequences of detecting signs of fictitious activity:<\/p>\n

In accordance with clause 19-1.1.45 of the Tax Code of Ukraine (hereinafter \u2013 the Tax Code of Ukraine):<\/p>\n

“19-1.1. The controlling authorities perform following functions<\/strong> …:<\/em><\/p>\n

19-1.1.45. apply to the court in cases stipulated by the law<\/strong>“.<\/em><\/p>\n

It is precisely such a statutory case that has been determined in accordance with clause 20.1.37 of the Code of Practice, which establishes that control authorities have the right:<\/p>\n

“20.1.37. to apply to the court for termination of a legal entity<\/strong> and termination of an entrepreneur’s entrepreneurial activity and\/or the invalidation of constituent (constituent) documents of business entities”.<\/strong><\/em><\/p>\n

Thus, an appeal to a court regarding the termination of a legal entity and the invalidation of constituent (constituent) documents of business entities is a function (= duty) of controlling authority as defined by law in case of revealing signs of fictitiousness of the relevant entity.<\/p>\n

That is, when receiving information about the presence of signs of fictitious activity in a particular enterprise, the controlling authorities must apply to the court to terminate such a legal entity.<\/p>\n

Consequently, any taxpayer can count on the fact, that in the presence of relevant information at the tax authorities, there should be a petition to the court to terminate the enterprise, for which there are signs of fictitiousness. And the lack of data on such treatment may accordingly be regarded as taxpayers as evidence of the absence (in particular, from the controlling bodies) of data on signs of fictitious activity of a particular enterprise.<\/p>\n

However, an analysis of the practice shows that this requirement is usually not fulfilled.<\/p>\n

As an example, “Thoreniia” Ltd (EDRPOU 38091691) is rather “on the ears”, the mention of which, in search of the USRCD as of mid-March 2018, is already contained in 666 court decisions. As can be seen from the data of the USRCD, the tax authorities obviously had information on possible signs of friction Toreniia LLC before October 2013, which can be deduced, for example, from the corresponding mention in the court decision of the Odessa Regional Administrative Court from 15 October 201313<\/a><\/sup>:<\/p>\n

“The Rozdilnianska unified state tax inspectorate of the Main Department of the Ministry of Internal Affairs in the Odessa region is obliged to provide to the Odessa Regional Administrative Court<\/em><\/p>\n

…<\/em><\/p>\n

– information if any criminal cases were initiated against directors … Toreniiaa LLC (EDRPOU 38091691) … on the grounds of committing fictitious business, if so, whether sentences were issued on criminal cases, if so, then provide duly certified copies of such sentences … “.<\/em><\/p>\n

However, despite the presence of an appropriate obligation to apply for the termination of a legal entity with signs of fictitiousness, from 2013 and till now (almost 6 years!), the controlling authorities did not apply to the court to terminate LLC “Torenya” – Ltd. “Torenya” and further , even now, according to the current data of the open Unified State Register of Enterprises, Institutions and Organizations, remains an active legal entity, by the way, with the same director, who allegedly denies involvement in the activities of the Company. And this despite the fact that in 2014, he was released from responsibility for Part 1 of Art. 205 of the Criminal Code of Ukraine in connection with the expiration of the limitation period14<\/a><\/sup>.<\/p>\n

Therefore, in this particular case and other similar cases the non-fulfillment of functions by controlling authorities is one of the factors that leads to tax disputes related to assessment of legal relations with respective authorities. The assessment should be provided according to part 2 of Article 2 of the Code of administrative proceedings: in these cases actions of controlling authorities cannot be considered as conscientious, since they make the taxpayer responsible for transactions with entities at a time when controlling authorities were aware of their fictitiousness, but any measures directed at termination of such entities were not taken by controlling authorities.<\/p>\n

Non-fulfillment of said obligations (applying to the court for termination of legal entities due to their fictitious characteristics) is deemed to be inaction of tax authorities. Therefore, controlling authorities can not benefit of it due to requirement of ensuring the rule of law based on the practice of applying the Convention for the Protection of Human Rights and Fundamental Freedoms (hereinafter \u2013 the Convention<\/strong>) by the European Court of Human Rights (hereinafter \u2013 the ECHR<\/strong>), which is recognized as a source of law in Ukraine according to Article 17 of Law of Ukraine On enforcement of decisions and application of practice of the European Court of Human Rights.<\/p>\n

Thus, in cases of Lelas v. Croatia (application No. 55555\/08, para. 74 of the Decision) and Rysovskyy v. Ukraine (application No. 29979\/04, para. 70-71 of the Decision) the ECHR reached the conclusion that the error arisen due to non-fulfillment and non-compliance with procedures cannot be remedied at the expense of the individuals concerned. Respective position is stated in para. 70-71 of the Decision in case of Rysovskyy v. Ukraine:<\/p>\n

“70. In examining the conformity of this justification with the Convention, the Court reiterates particular importance of the principle of \u201cgood governance\u201d. <\u2026> In particular, it is incumbent on the public authorities to put in place internal procedures which enhance the transparency and clarity of their operations, minimise the risk of mistakes (see, for example, Lelas v. Croatia, no. 55555\/08, \u00a7 74, 20 May 2010, and To\u015fcu\u0163\u0103 and Others v. Romania, no. 36900\/03, \u00a7 37, 25 November 2008) and foster legal certainty in civil transactions affecting property interests (see \u00d6nery\u0131ld\u0131z, cited above, \u00a7 128, and Beyeler, cited above, \u00a7 119).<\/em><\/p>\n

71. <\u2026> In other words, State authorities which fail to put in place or adhere to their own procedures should not be allowed to profit from their wrongdoing or to escape their obligations (see Lelas, cited above, \u00a7 74). The risk of any mistake made by the State authority must be borne by the State itself and the errors must not be remedied at the expense of the individuals concerned (see, among other authorities, mutatis mutandis, Pincov\u00e1 and Pinc, cited above, \u00a7 58; Gashi v. Croatia, no. 32457\/05, \u00a7 40, 13 December 2007 and Trgo v. Croatia, no. 35298\/04, \u00a7 67, 11 June 2009)”.<\/em><\/p>\n

In other words, controlling authorities did not fulfill<\/strong> their functions on termination of the legal entity with fictitious characteristics and, consequently, additional charges for transactions conducted after detection of fictitiousness were accrued by controlling authorities. Therefore, such additional accruals should be considered as attempt to remedy the error of state authorities at the expense of taxpayers, which is not permissible under the Convention.<\/p>\n

If we do not consider the failure of controlling authorities to submit to the court a claim on termination of the enterprise which allegedly conducts fictitious business activity as non-fulfillment of legal requirements, in other case it can be considered as evidence of the fact that controlling authorities actually do not see any characteristics of fictitious business activity.<\/p>\n

Therefore, we believe that the court must take these circumstances into account and give them an appropriate assessment within examination under part 2 of Article 2 of the Code of administrative proceedings.<\/strong><\/p>\n

3. It is not clear why legal opinions of the Supreme Court of Ukraine on application of the legal provision to be applied are not actually apllied (and was applied till the year of 2015); non-obligatoriness of legal assessment provided by the court in particular cases for other cases<\/em><\/p>\n

In Resolution as of January 13, 2009 in case No. 21-1578\u0432\u043e0815<\/a><\/sup> the Supreme Court of Ukraine expressed the position according to which actual references of the purchasers to the data from the Unified State Register that are valid at the date of transaction conduct, deprive of grounds of application of negative consequences under the purchaser\u2019s transaction upon condition of the purchaser\u2019s ignorance on the possible unreliability of such data in the state registers provided that the purchaser was not aware of it. Thus, the Supreme Court of Ukraine stated the following:<\/p>\n

“Article 18 of the Law of Ukraine as of May 15, 2003 No. 755-IV On State Registration of Legal Entities and Individual Entrepreneurs stipulates the following. If the data to be introduced to the Unified State Register were actually introduced, such data are considered to be reliable and may be used in dispute with the third party as long as the data are not changed.<\/strong> If the data to be introduced are unreliable and actually were introduced, in this case the third party may refer in dispute to such data as to reliable data, except when the third party knew or should have known that such data are unreliable”.<\/em><\/p>\n

This position constitutes a legal opinion on application of particular legal provision under certain legal relationships. At that time this provision was stated in Article 18 of the Law of Ukraine On State Registration of Legal Entities and Individual Entrepreneurs, now in Article 10 of the new version of the abovementioned Law.<\/p>\n

This position was applied by the Supreme Court of Ukraine and courts of lower instances as obligatory till the year of 2015. Afterwards it was simply “forgotten”, it wasn\u2019t properly changed.<\/p>\n

It should be noted that when a position is changed, such a deed is expected to be performed with the reference to the previous position, indicating why the position is not being used or is changing, in view of the ECHR position in case of Serkov v. Ukraine (application No. 39766\/05) as of July 07, 201116<\/a><\/sup>:<\/p>\n

“39. The Court admits that there may indeed be cogent reasons why the guiding legal interpretations need to be revised.<\/strong> The Court itself, applying dynamic and evolutive approaches in interpreting the Convention, may depart, where necessary, from its previous interpretations, ensuring thereby the effectiveness and contemporariness of the Convention (see Vilho Eskelinen and Others v. Finland [GC], no. 63235\/00, \u00a7 56, ECHR 2007 IV, and Scoppola v. Italy (no. 2) [GC], no. 10249\/03, \u00a7 104, ECHR 2009 …).<\/em><\/p>\n

40. However, the Court cannot discern any justification for the shift of legal interpretation the applicant faced. In fact no reasons were given by the Supreme Court to explain the reinterpretation in question.<\/strong> Such a lack of transparency must have affected public confidence and trust in the law. In the circumstances of the present case the Court considers that the manner in which the domestic courts interpreted the relevant legal provisions undermined their foreseeability”.<\/em><\/p>\n

With regard to the above, it can be asserted that changes to the legal opinion regarding the application of the said legal provision de-jure were not performed, at least in compliance with the rule of law and its integral parts.<\/p>\n

Therefore, we see the reasons to assert that the legal opinion provided in the Resolution of the Supreme Court of Ukraine as of January 13, 2009 in case No. \u2116 21-1578\u0432\u043e0817<\/a><\/sup> on application of the legal provision is still applicable for comparable legal relations. It means, that responsibility cannot be actually assigned to the taxpayer (by means of respective accruals and penalties) for the reason that the contractor is the “Mickey Mouse Company”, unless it is proved that the taxpayer was informed on possible unreliableness of the data in the Unified State Register.<\/p>\n

According to part 5 of Article 242 of the Code of administrative proceedings, “When choosing and applying the legal provision to the disputed legal relations the court takes into account legal opinions on application of the legal provisions, stated in resolutions of the Supreme Court”. With regard to provisions of Article 346-347 and subpara. 8 of para. 1 of chapter VIII “Transitional provisions” of the Code of administrative proceedings, change of approach and moving away from a legal opinion on application of the legal provision in such relationship requires special procedures. We would like to emphasize that relevant articles of the Code of administrative proceedings refer to literal wording of “legal opinion on application of the legal provision”.<\/p>\n

As regards to the approach given in Resolutions of the Supreme Court of Ukraine since the year of 2015 which contains the position on incompatibility of fictitious enterprise with legal business activity, such a position shall not be considered as a legal opinion on application of the legal provision.<\/p>\n

Thus, as follows from wordings of such court decisions, the legal opinion is based on “systematic and literal analysis of legal provisions”<\/strong>. However, WHAT LEGAL PROVISIONS are the point at issue? The legal provision is a statutory, formally defined, established or authorized rule of conduct, which influences on social relations in order to regulate them. According to Romano-German system of law, such rule of conduct is usually stipulated by the regulatory legal act. In other words, this refers to provisions of particular laws. In the absence of references to specific provisions of law, there can be no question of “applying the legal provisions”.<\/p>\n

The wording of fictitious enterprise status given in Resolutions of the Supreme Court and the Supreme Court of Ukraine since the year of 2015 is likely deemed to be a legal assessment. According to part 7 of Article 78 of the Code of administrative proceedings “The legal assessment<\/strong> of certain fact provided by the court while considering another court case shall not be obligatory for the court”<\/strong>.<\/em><\/p>\n

Therefore, based on the understanding that<\/p>\n