Tax evasion: a review of practices and advice on protection

In the first half of 2020, SFS investigators registered 480 criminal proceedings regarding tax evasion. In these cases, cases of non-payment to the budget of the enterprise in the amount of not less than UAH 3,153,000 are being investigated. Failure to pay taxes in one amount or more carries the risk of criminal prosecution in 2020. 

What does the criminal proceedings under Art. 212 of the Criminal Code of Ukraine? How do they start and how to defend yourself in such cases? What is the position of the courts in this category of cases? Briefly and in essence - further in the article. 

Where does the crime of tax evasion come from? 

Criminal proceedings in most cases appear after a tax audit. The results of the inspection are formalized by an act containing a list of violations of tax legislation and the amount to be paid by the company. Although the Tax Code provides that the act cannot be considered as a statement or notification of a criminal offense of tax evasion, in practice, even in its presence, investigators can register criminal proceedings. Later, investigators attach a tax notice-decision (hereinafter - PPR) to the materials of the proceedings. 

If the investigator concludes that the taxpayer is intentionally evading taxes or underestimating the amount of tax liability and there are materials that confirm this, the investigator initiates criminal proceedings. Criminal proceedings are often instituted for non-payment of taxes, payment at a lower rate without legal grounds, overstatement of the company's gross expenses and VAT tax credit, and so on. However, this can only be the position of the investigator, and it will be necessary to prove innocence in court.

There are cases when the proceedings appear on the basis of the work of the operational units of the pre-trial investigation body. In this case, if violations are found in the amount greater than UAH 3,153,000, the operative draws up a report on the need to initiate criminal proceedings. 

What does this mean for the head of the enterprise? Possible consequences of registration of criminal proceedings - search of the enterprise and the address of residence of the head of the enterprise, summonses for interrogation of the director, accountant, other persons, suspicion under Article 212 of the Criminal Code of Ukraine, application of a preventive measure, referral to court and lengthy pending a court decision. At the same time, appealing the PPR in court does not always stop law enforcement officers from conducting active investigative actions. 

How to defend yourself in such cases? 

Protection in cases of tax evasion has its own characteristics. To decide on the guilt or innocence of a person, the court analyzes the documents drawn up by the tax on the results of the inspection (inspection report, PPR) and takes into account the conclusions of forensic economic examinations, which must be appointed by investigators to prove violations of tax law. 

However, PPR can be appealed and revoked in an administrative court. Therefore, it is necessary to defend oneself in two directions at once: in parallel with the defense of a criminal case, to challenge the PPR. 

A positive court decision will help prove innocence in a criminal case. If the administrative court confirms the correctness of the accounting of business transactions, then the court that will consider the criminal proceedings, it will be easy to justify the decision to acquit the person. 

For example, the investigator referred the case to court without waiting for the results of the administrative court's decision. Later, the director of the company attached a decision to cancel the PPR during the trial on his charges. The court acquitted the person, as the administrative court concluded that the PPR had been dismissed on the basis of an analysis of part of the evidence by which the prosecutor had tried to prove the person's guilt (see verdict of the Kaharlyk District Court in the case of 12.12.2016 № 368/634/15-k).

Thus, the strategy of protection in cases of tax evasion under Art. 212 of the Criminal Code of Ukraine must be thought out in advance. Defense will take place not only in a criminal case, but will also depend on the decision of the administrative court.

As for the criminal case itself, the courts pay attention to the conclusions of the forensic economic examination and the testimony of witnesses. 

An important role is played by economic expertise, which determines the amount of damage caused to the state. How it was conducted, on the basis of which documents, in what terms and by whom - clarification of these issues can have key consequences for the acquittal of a person. For example, if the expert conducted without taking into account the primary accounting documentation, this leads to the invalidity of the examination and is the basis for acquittal (see verdict of the Kyiv District Court of Kharkiv of April 22, 2019 in case №640 / 3526/16-k).

For effective protection, it is necessary to involve witnesses who can confirm, for example, the reality of business transactions, the absence of fictitious counterparties, the absence of forged documents in business activities, and so on. This can be confirmed by employees of the enterprise or contractors, accountants, other persons who were involved in the process of the enterprise.

The court will also analyze the testimony of the accused himself. It is an effective tool to help the court get a general idea of the case and the evidence available in it. Therefore, the demonstrations should not be reduced to a formal non-admission of guilt, it is better to prove the reality of transactions and movements of assets, payments, correctness of primary documents and lack of intent not to pay taxes with reference to specific evidence. 

For example, the director of the company explained that he bought the goods from a contractor, while paying all taxes, as evidenced by a certificate from the SFS. The director referred to the case file, which testifies to the reality of business transactions with the counterparty. Taking into account other evidence, the court found the person not guilty (see verdict of the Shevchenkivsky District Court of Kyiv dated 08.10.2020 № 761/18549/15-k). However, in many court decisions one can find testimonies, the content of which is reduced to denial of guilt, lack of evidence, without any specific arguments. This position is not conducive to defense and only plays in favor of the prosecutor. 

Conclusion. Here are some basic tips to keep in mind for effective tax evasion protection. An active position of the defense, revoked PPR in the administrative court, the correct formation of the evidence base, proving procedural violations during the collection of evidence by investigators will be the key to obtaining an acquittal.

 

WITHpublished in the publication "Lawyer & Law" in February 2021