Criminal and Tax Risks for Business: Defensive Strategy for Owners and Management

Ivan Maryniuk, Head of Tax Law Practice

Source: Mind.ua

For most companies, a tax audit is primarily perceived as a financial risk: potential tax assessments, penalties, and tax disputes. However, in practice, such measures are increasingly becoming the first signal of potential criminal and tax risks for the business.

The reality is that today, the interaction between tax authorities and law enforcement agencies has become significantly tighter. Audit materials containing signs of tax law violations may be referred to law enforcement, sometimes escalating a tax dispute into criminal proceedings with the risk of personal liability for management. 

Furthermore, criminal tax risks can arise even without a direct tax audit. Data exchange between tax authorities and the Economic Security Bureau of Ukraine (ESBU), as well as the ESBU’s use of analytical databases and tax registries, allows law enforcement to identify potential violations independently. In such cases, criminal proceedings may be initiated even if, at the initial stage, tax authorities formally have no claims against the taxpayer.

Ivan Maryniuk, Head of Tax Law Practice at Ilyashev & Partners Law Firm, shared with Mind how owners and management should act in these conditions to timely assess risks and protect their business.

Key Triggers of Criminal Tax Risks

In practice, a tax audit does not always automatically lead to criminal proceedings. However, certain situations and factors significantly increase the risk of a tax dispute shifting into the criminal law realm. These include:

Substantial tax assessments. If, based on the audit results, the regulatory body concludes there has been a significant underpayment of tax liabilities, the materials are passed to law enforcement to be evaluated for signs of tax evasion.

Transactions with “high-risk” counterparties. When the tax office classifies transactions as non-commercial (“sham” or “fictitious”) or aimed solely at generating tax credits or expenses, this becomes grounds for further investigation by law enforcement.

Signs of intentional actions. Law enforcement pays particular attention to schemes aimed at minimizing tax liabilities. These may include:

• the use of complex supply chains and transit companies;
• business fragmentation involving individual entrepreneurs (FOPs);
• the use of preferential or reduced tax rates without sufficient justification;
• systemic use of counterparties with signs of fictitiousness.

Practical Steps for Risk Management

Given these risk points, it is critically important for businesses to systematically manage criminal tax risks. One key tool is a regular tax audit. Its purpose is to identify potential high-risk transactions, verify that accounting matches actual business operations, and assess potential areas of dispute before they attract the attention of the authorities.

An equally vital component is establishing an effective tax compliance system. This involves internal procedures such as:

• counterparty due diligence before entering into agreements;
• proper documentation of business transactions;
• monitoring tax risks and forming policies for interacting with regulators.

The existence of such procedures not only reduces the risk of violations but also serves as evidence of the business’s good faith during a tax audit. Experience in handling complex audits shows that early preparation of the evidence base and proper communication with regulators in the initial stages allows for minimizing the risk of misinterpreting business operations and preventing the escalation of a dispute into the criminal sphere.

Businesses should also pay special attention to the structuring of activities and the model of interaction with individual entrepreneurs (FOPs). It is essential to ensure the economic substance of such relationships, avoid signs of artificial fragmentation, and properly document the actual nature of transactions.

Furthermore, timely legal support is a crucial element. Involving tax lawyers at the early stages of an audit allows for the proper formulation of the company’s position and prevents the escalation of the dispute into criminal proceedings.

Defense Strategy for Companies and Executives in Tax Disputes

In cases where a tax dispute already shows signs of criminal proceedings, it is vital to form a clear defense strategy for both the company and its executives. Criminal tax proceedings are almost always accompanied by increased scrutiny of management decisions and the roles of specific officials.

At the same time, it is important to consider that an essential element of the crime (tax evasion) is intent. Criminal liability is possible only when it is proven that the company’s officials deliberately committed actions aimed at non-payment of taxes. The mere fact of additional tax assessments or the existence of a dispute does not automatically imply the existence of a crime.

This approach is confirmed by the case law of the Supreme Court, which has repeatedly emphasized that it is necessary to prove the intentional nature of the taxpayer’s actions, rather than just the fact of assessed liabilities within a tax dispute.

How Do Disputes Usually End and What is the Role of the ESBU?

Statistics show that a significant portion of criminal proceedings regarding tax evasion end with the voluntary payment of the assessed liabilities and the subsequent dismissal of the proceedings. Businesses often use this mechanism as a way to settle a dispute at an early stage.

This is supported by statistical data from the State Judicial Administration. In 2025, courts reviewed 229 cases:

• 215 cases were dismissed due to the payment of taxes;
• 14 cases ended in verdicts (8 acquittals, 6 convictions).

However, in such situations, it is extremely important to carefully verify and justify the calculations. ESBU analytical products and forensic examinations may be based on various methodological approaches. Therefore, it is crucial for businesses to scrutinize these calculations, involving tax consultants, auditors, and experts to form their own professional position.

In these categories of cases, a comprehensive approach to defense is essential, combining:

• tax analysis;
• criminal law strategy;
• proper handling of evidence.

This combination significantly mitigates potential consequences for the company and its management.

Effective business protection against criminal tax risks is based not only on responding to existing claims but, primarily, on a proactive and systematic approach to tax risk management. Regular audits, implementation of compliance procedures, proper business structuring, and timely legal assessment of potential risks significantly reduce the likelihood of a tax dispute escalating into criminal proceedings.