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There Will Be Less Criminal Cases Initiated in the Event of Tax Default


Galyna Melnyk, Tax Lawyer at Ilyashev & Partners Law Firm
Artem Orel, Attorney at Law at Ilyashev & Partners Law Firm
Source:  RBK Ukraine 

On November 10, 2015 a Draft law No. 3448 “On introduction of amendments to the Tax Code of Ukraine in relation to particularities of criminal proceedings in tax relations and matters of administration of taxes and charges” was introduced for consideration of Verkhovna Rada of Ukraine.

It needs to be noted that the major part of criminal proceedings in Ukraine is currently initiated by tax police based on corresponding official notices and materials of tax audits performed by the tax inspectorate bodies. For example, detection by tax inspectors of tax arrears in the amount exceeding UAH 609 000.00 automatically results in transfer of the case materials to the tax police and institution of pre-trial investigation under “traditional” tax-related articles of the Criminal Code of Ukraine No. 212 (evasion of the payment of taxes, duties, official settlements) and No. 212-1 (evasion of the payment of the social security tax and statutory pension insurance tax). Moreover, pending court dispute with fiscal authorities by no means has an influence on introduction of information into the Unified register of pre-trial investigations, i.e. does not rule out institution of criminal proceedings.

This is why many specialists pin their hopes on the possibility that such Draft law will bottle up certain matters related to mass-scale and oftentimes unsubstantiated institution of criminal proceedings after and based on taxpayers’ failure to pay taxes. So, we may conclude that such hopes are justified.

In this connection we should undoubtedly dwell on the major novelty stipulated by the Draft law which may influence the current situation. It is planned that it will be forbidden for the controlling authority (tax inspectorate) to set (bring to notice in another manner) the taxpayer’s audit materials in motion prior to expiration of the term stipulated for settlement of coordinated financial liability. Pursuant to p. 57.3 of the Tax Code of Ukraine such term constitutes ten calendar days following the day of receipt of a tax notice-decision or, in case of appealing the decision upheld by controlling authority in court – ten calendar days following the day of upholding the decision by the appellate court.

The Draft law describes in detail regulation of the procedural consequences following violation of the mentioned norms which serves a good purpose. The Draft law stipulated the following amendments to the Criminal Procedure Code of Ukraine (Articles 40, 284 and 303). In particular, setting (bringing to notice in another manner) the taxpayer’s audit materials in motion prior to expiration of the term stipulated for settlement of coordinated financial liability and prior to finishing the court action (all the way to the appellate court) shall result in immediate cessation of such “wrongful” criminal proceedings.

According to the planned amendments to the Criminal Procedure Code of Ukraine investigation authorities shall be obliged to cease criminal proceedings of such type. At the same time intended or un-intended failure of investigators and prosecutors (as well as ignoring performance of their official obligations) to immediately cease the mentioned “wrongful” criminal proceedings may be appealed to the investigating judge.

The Draft law proposes to extend 1 095-day term onto all instances of judicial appeal of tax notices-decisions (regardless whether it was an administrative appeal or not).

It needs to be reminded that the current version of the Tax Code (p. 56.19) stipulates that if a tax notice-decision was appealed under the administrative procedure (through lodging complaints to the fiscal authorities) the taxpayer shall have the right to appeal such notice-decision via court procedure within one month from expiration of the procedure of administrative appeal. The Draft law proposes to cancel the mentioned provision of the Code. As the explanatory note to the Draft law states the purpose of such initiative is to broaden the rights of the taxpayer in case of a disputed problem with a tax authority.

Unfortunately, alongside with liberal provisions the Draft law contains certain shortcomings which may later bring about practical problems for the taxpayers.

Firstly, it will create inconsistence between the Tax Code and the Code of administrative court procedure in terms of coordination of the term stipulated for lodging a claim on cancellation of tax notices-decisions to the court.

Article 99 (4-5) of the Code of administrative court procedure stipulates for one-month term for appealing any notices-decisions to the court (including application of so-called procedure of “pre-court dispute resolution”). According to p. 56.18 of the Tax Code the procedure of administrative appeal is considered to constitute a pre-trial settlement of the dispute. In the same way the matter of cancellation of a one-month term for lodging a court appeal has not been conclusively solved by the Draft law. To solve the mentioned matter it will be necessary to introduce amendments to the Article 99 of Code of administrative court procedure and delete the aforementioned provisions from p. 56.18 of the Tax Code.

 Secondly, the Draft law offers to establish that the monetary obligation will be considered as non-coordinated only if the taxpayer appeals to the court not later than on the 10-th calendar day following the receipt of a tax notice-decision or end of the procedure of administrative appeal. Such provision considerably narrows the scope of the taxpayers’ rights compared to the scope stipulated by the current version of the Code according to which in case of lodging a court appeal the monetary obligation shall be considered to be non-coordinated in any case.

At the moment the taxpayers take advantage of the mentioned provisions and have the possibility to actually avoid settlement of the monetary obligation within one month stipulated for lodging an appeal on cancellation of tax notice-decision. If the Draft law is passed the taxpayers (who, for any reason, have missed the mentioned ten-day term required for lodging an appeal to the court) will have to settle the monetary obligation to the budget regardless of lodging an appeal against tax notice-decision in the future (within 1 095 days from the date of its receipt).

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