{"id":9980,"date":"2018-03-15T12:35:32","date_gmt":"2018-03-15T10:35:32","guid":{"rendered":"https:\/\/kmp.ua\/?p=9980"},"modified":"2021-06-14T14:39:44","modified_gmt":"2021-06-14T12:39:44","slug":"the-opposite-positions-of-the-supreme-court-regarding-the-consequences-of-art-205","status":"publish","type":"post","link":"https:\/\/kmp.ua\/en\/analytics\/infoletters\/the-opposite-positions-of-the-supreme-court-regarding-the-consequences-of-art-205\/","title":{"rendered":"The opposite positions of the Supreme Court regarding the consequences of Art. 205 of the Criminal Code concerning the contractor: who is right?"},"content":{"rendered":"

(and in which cases is the position of the Supreme Court obligatory\/optional?)<\/strong><\/p>\n

Instead of an epigraph: a story from the cycle of Nasreddin Hodja<\/span><\/p>\n

Once upon a time one fellow of Nasreddin Hodja came to take an Hodja\u2019s advice on one dispute. He told Hodja the whole story and finally asked: \u201cSo what? Tell me, Hodja, am I not right?\u201d. Nasreddin didn\u2019t take a long pause for reflection and noticed: \u201cOf course, you are right\u201d. The next day another disputant knowing nothing about the Hodja\u2019s conversation also came to him. And he, as his opponent before that, told Hodja the case wanting to know the outcome of the dispute: he was prejudiced and presented the case in a favorable light. He finished the story and asked the host: \u201cWell, Hodja, what is your opinion? Am I not right here?\u201d. Hodja replied to him: \u201cOf course, there is no doubt that you are right\u201d.<\/span><\/p>\n

It happened that the Hodja\u2019s wife heard both conversations. She wanted to shame her husband and said: \u201cEffendi, you hosted a neighbor Korkud yesterday, he explained you his case and you told him that he was right. Then his opponent Sanjar came to you and you said to him that he was right. How is it possible? You are qadi; hence, I have been a wife of qadi for so many years. But could both the plaintiff and the defendant be right at the same time?<\/span><\/p>\n

The sage calmly answered: \u201cWife, you are right too\u201d.<\/span><\/p>\n

The Supreme Court\/The Supreme Court of Ukraine demonstrates \u201cfluctuations\u201d in position regarding the consequences of Art. 205 of the Criminal Code of Ukraine concerning the contractor.<\/p>\n

The last analyzed the Supreme Court\u2019s decisions: on February 27, 2018 the following position on the assessment of verdicts in criminal proceedings as proof of the unreality of transactions was outlined in the cases No. K\/9901\/4639\/17 (in the first\u2019s instance court and the appellate court \u2013 No. 802\/1853\/16-a)1<\/a><\/sup> and No. K\/9901\/3360\/17 (in the first\u2019s instance court and the appellate court \u2013 No. 813\/1766\/17)2<\/a><\/sup>:<\/p>\n

\u201cThe judicial panel notes that the mere fact of the existence of verdicts adopted on the basis of the compromise agreements in criminal proceedings does not give grounds for automatic conclusion on the unreality of economic transactions.<\/strong> Consequently, there is an urgent need to verify the proof of each tax offence and to conduct a comprehensive study of all the components of economic transactions, considering the circumstances established in the verdicts which came into effect”.<\/div>\n

In other words, the existence of verdicts against contractor still does not imply the nonrecognition of transactions with such contractor, particularly, for tax purposes. It is necessary to verify additionally proof of violation and conduct a comprehensive study of all the components of economic transactions.<\/p>\n

Such a position is quite logical.<\/p>\n

Nevertheless, along with the satisfaction of this approach, the question arises as to whether this should be considered as a change in the position of the Supreme Court, and if so, is it happening in the manner prescribed by the updated CAPU?<\/p>\n

Or is it a special position formed in relation to verdicts in criminal proceedings regarding the “fictitiousness” of b u y e r s<\/em>?<\/p>\n

At the same time, the updated Supreme Court as well as \u201cthe previous\u201d Supreme Court have developed before another position in their decisions noting that the existence of the verdict means the automatic unreality of all the economic transactions, considering that<\/p>\n

\u201c[\u2026] the status of a fictitious, illegal enterprise is incompatible with the legal business activity.<\/strong> Economic transactions of such enterprises cannot be legalized even with formal confirmation of accounting documents\u201d.<\/div>\n

Detailed information on this position is outlined in our reviews \u201cThe first working results of the new Supreme Court: have the expectations of taxpayers been fulfilled?<\/a>\u201d and \u201cReview of practice of the Supreme Court on important (problematic) issues related to taxation for 2018<\/a>\u201d.<\/p>\n

Before that, the position of the Supreme Court of Ukraine was completely different.<\/p>\n

Taking that into account, we will try to understand how to assess such positions and what to expect for a business environment? And which position of the Supreme Court\/Supreme Court of Ukraine on this issue should be considered as an obligatory for others?<\/p>\n

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

Does the later position of the Supreme Court override the previous one?<\/em><\/p>\n

At first sight, the answer seems to be obvious. If there is a collision between the acts of one body, the one that was issued later should be applied in accordance with \u201clex posterior derogat lex priori\u201d3<\/a><\/sup> \u2013 the principle of Roman law4<\/a><\/sup>.<\/p>\n

However, such a principle is applicable to the collisions of laws and regulations, which are served as the sources of law, in the Romano-Germanic legal system.<\/p>\n

It is considered that it is rather impossible to apply aforesaid principle to court decisions in the realities of the Romano-Germanic legal system, since they do not establish the rules and, accordingly, do not serve as the sources of law (in contrast to the Anglo-Saxon legal system).<\/p>\n

Consequently, it does not seem possible to contend that the position outlined in the later court decision takes precedence.<\/p>\n

Accordingly, a certain manifestation of the court\u2019s will is required to declare the change of the position. Taking into consideration the Western legal practice, such a manifestation of the will implies the court\u2019s reference to the previous position indicating the reasons for non-application or change of that position.<\/p>\n

The same opinion is supported by the European Court of Human Rights in the judgement in the case \u201cSerkov v. Ukraine\u201d (Application no. 39766\/05) of July 07, 2011<\/a>5<\/a><\/sup>:<\/p>\n

\n

\u201cThe 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\u00a0Vilho Eskelinen and Others v. Finland<\/em>[GC], no.\u00a063235\/00<\/a>, \u00a7 56, ECHR 2007\u2011IV, and\u00a0Scoppola v. Italy<\/em>(no. 2)\u00a0<\/em>[GC], no.\u00a010249\/03<\/a>, \u00a7 104, ECHR 2009\u2011…).<\/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\u201d.<\/p>\n<\/div>\n

At the same time, the decisions of the Supreme Court of February 27, 2018 do not contain the references to the previous positions, reasons for disregarding and change of such positions, as indicated from the Unified State Register of Court Decisions6<\/a><\/sup>. In other words, there is no direct evidence of the clearly expressed will on the deliberate change of and shift of the previous position regarding the consequences of Art. 205 of the Criminal Code of Ukraine concerning the contractor.<\/p>\n

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

How to deal with the binding nature of the positions in view of their ambiguity?<\/em><\/p>\n

The Code of Administrative Proceedings envisages the formality of the resolution\u2019s binding nature in the court decision previously delivered by the Supreme Court. It also provides for the special procedure to shift of such a resolution in the manner prescribed by Art. 346 and Art. 347 of the Code of Administrative Proceedings of Ukraine.<\/p>\n

However, what does actually that binding nature mean?<\/p>\n

It relates to the resolution on the application of the rule<\/strong><\/em>, as stipulated in Para 1 of Art. 346 of the Code of Administrative Proceedings of Ukraine:<\/p>\n

\u201cThe cassation court represented by the judicial panel shall transfer the case to the chamber, which include such a panel, in case of the necessity to shift of the resolution on the application of the rule<\/strong> in the similar legal relations outlined in the previously delivered decision of the Supreme Court represented by the judicial panel of that chamber or chamber itself\u201d.<\/div>\n

In other words, the resolution on application of the rule<\/em> in the similar legal relations is legally binding.<\/p>\n

As it can be remembered from the university course, the rule is a generally binding, formally determined, established or authorized rule of conduct that affects social relations to regulate them7<\/a><\/sup>. In general, it is established by the laws and regulations in the Romano-Germanic legal system.<\/p>\n

In a simplistic way, these are concrete rules enshrined in the laws and established the proper rule of conduct. The judicial branch has no power to make the law in accordance with the Constitution of Ukraine. This implies the lack of power in the judiciary to establish the rules.<\/p>\n

For instance, the resolution on the application of the rule was stated in the Court resolution of the Supreme Court of Ukraine of January 13, 2009 in the case No. 21-1578\u0432\u043e088<\/a><\/sup>, since it was provided for the concrete rule of article of the law:<\/p>\n

\n

\u201cThe courts did not disprove the arguments of the plaintiff that contractors were included in the Unified State Register of Legal Entities and Individual Entrepreneurs, and also had certificates of VAT payers at the time of conducting of the economic transactions (on which the tax authority did not recognize the justification for the assigning of the VAT amounts to the tax credit to the plaintiff). Under such circumstances the buyer cannot be liable for tax evasion committed by contractors, or potential invalidity of the data on such contractors contained in the aforementioned Register, subject to the unawareness of it.<\/strong><\/p>\n

Article 18 of the Law of Ukraine of May 15, 2003 No. 755-IV “On State Registration of Legal Entities and Individual Entrepreneurs” defines the following. In case of inclusion of the relevant data to the Unified Register, it is considered to be valid and can be used in a dispute with a third party as long as it would not be amended<\/strong>. In case of inclusion of the invalid relevant data, it is considered to be valid and may be referred to by the third party in a dispute, unless such a third party has been aware of or might have been aware of the invalidity of such data\u201d.<\/p>\n<\/div>\n

At the same time, a general position that has been articulated since the end of 2015 by the Supreme Court of Ukraine (the most notable decision is dated on December 1, 2015 \u2013 case No. 826\/15034\/149<\/a><\/sup>) determines that:<\/p>\n

\u201c[\u2026] the status of a fictitious, illegal enterprise is incompatible with the legal business activity.<\/strong> Economic transactions of such enterprises cannot be legalized even with formal confirmation of accounting documents\u201d.<\/div>\n

However, this suggestion can hardly be declared as the resolution on the application of the RULE:<\/p>\n

Firstly, the Supreme Court does not refer to the concrete rule, as we argued in the review: \u201cThe consequences of Art. 205 of the Criminal Code regarding supplier in the practice of new Supreme Court: why so disappointing to find out?<\/a>\u201d<\/p>\n

Secondly, such a resolution is not based on the law. Ukrainian legislation does not contain the notion of \u201cfictitious enterprise”. The provisions of Art. 205 of the Criminal Code of Ukraine envisage the term \u201csham business\u201d, which covers only the moment of establishment\/acquisition of the \u201cfictitious enterprise\u201d and does not apply to the further economic relations of such an enterprise with the contractors. There is also Art. 55-1 \u201cThe fictitious activity of the business entity\u201d of the Commercial Code, which defines the existence of the certain evidences of the fictitiousness as a justification for the legal action for dissolution of a legal entity or termination of the activity of an individual entrepreneur, including the invalidation of registration documents. However, the laws do not specify the automatic “fictitiousness” of all the transactions with such an enterprise.<\/p>\n

Consequently, it is hardly possible to claim the existence of the resolution on the application of the rule in this case.<\/p>\n

It is rather the court\u2019s attempt to establish the virtual rule, which is an abuse of the judicial power and violation of Para 2 of Art. 19 of the Constitution of Ukraine.<\/p>\n

However, an aforementioned court\u2019s statement is presumably the legal opinion provided by the Supreme Court in cited cases.<\/p>\n

According to the Para 7 of Art. 78 of the Code of Administrative Proceedings:<\/p>\n

\u201cProvided by the court to a particular fact in another case the legal opinion is not obligatory for the court<\/strong>\u201d.<\/div>\n

For that reason, all the statements of the Supreme Court should not be considered as mandatory. The binding nature is peculiar exclusively to the resolutions on the application of the concrete rules<\/strong><\/em> in the similar legal relations<\/span>.<\/p>\n

Consequently, it is necessary to check whether there is a resolution on the application of the particular rule and whether there are the similar legal relations.<\/p>\n

In conclusion, it is reasonable to recognize the early (up to 2015) decisions of the Supreme Court of Ukraine as legally binding with outlined resolutions on the application of the concrete rules enshrined, particularly, in the Law “On State Registration of Legal Entities and Individual Entrepreneurs\u201d.<\/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><\/p>\n

Footnotes:<\/em><\/p>\n

1<\/a><\/sup>The Court resolution of the Supreme Court is publicly available in the Unified State Register of Court Decisions by reference<\/a>.<\/em><\/p>\n

2<\/a><\/sup>The Court resolution of the Supreme Court is publicly available in the Unified State Register of Court Decisions by reference<\/a>.<\/em><\/p>\n

3<\/a><\/sup>Lat. \u201cA later law repeals an earlier (law)\u201d.<\/em><\/p>\n

4<\/a><\/sup>THEORY OF STATE AND LAW: TEXTBOOK, Matuzov, Malko, (Yurist, 2004).<\/em><\/p>\n

5<\/a><\/sup>The Judgment of the European Court of Human Rights \u201cCASE OF SERKOV v. UKRAINE\u201d is available by reference<\/a>.<\/em><\/p>\n

6<\/a><\/sup>The full text is published on the Unified State Register of Court Decisions by references: http:\/\/reyestr.court.gov.ua\/Review\/72486810<\/a> and http:\/\/reyestr.court.gov.ua\/Review\/72486685<\/a>.<\/em><\/p>\n

7<\/a><\/sup>Kelman, Murashin. General theory of state and law: Textbook. – K.: Condor, 2006. – 477 p.<\/em><\/p>\n

8<\/a><\/sup>The Court resolution of the Supreme Court is publicly available in the Unified State Register of Court Decisions by reference<\/a>.<\/em><\/p>\n

9<\/a><\/sup>The Court resolution of the Supreme Court is publicly available in the Unified State Register of Court Decisions by reference<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

(and in which cases is the position of the Supreme Court obligatory\/optional?) Instead of an epigraph: a story from the cycle of Nasreddin Hodja Once upon a time one fellow of Nasreddin Hodja came to take an Hodja\u2019s advice on one dispute. He told Hodja the whole story and finally asked: \u201cSo what? Tell me, […]<\/p>\n","protected":false},"author":280,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[176,177,84],"class_list":["post-9980","post","type-post","status-publish","format-standard","hentry","category-infoletters","tag-fiktivne-pidpriyemnitstvo","tag-nikchemni-pravochini","tag-kryminalni-provadzhennya"],"_links":{"self":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/9980"}],"collection":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/users\/280"}],"replies":[{"embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/comments?post=9980"}],"version-history":[{"count":13,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/9980\/revisions"}],"predecessor-version":[{"id":21944,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/posts\/9980\/revisions\/21944"}],"wp:attachment":[{"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/media?parent=9980"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/categories?post=9980"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kmp.ua\/en\/wp-json\/wp\/v2\/tags?post=9980"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}