In general, this essentially decriminalizes the first instance of a taxpayer’s evasion of taxes, fees (mandatory payments) and the single contribution to compulsory state social insurance and insurance contributions to compulsory state pension insurance—with the aim of replenishing the budget and reducing the burden on the law enforcement system—is a good initiative; however, the proposed amendments to the Criminal Code of Ukraine and the Criminal Procedure Code of Ukraine contain a number of controversial provisions and raise a number of questions.

A similar initiative was previously introduced, and the legal proceedings have already taken place. This is a tax settlement—an exemption from legal liability for taxpayers and/or their officials for underreporting tax liabilities for corporate income tax and/or value-added tax for anytax periods prior to April 1, 2014. This procedure was actively applied in criminal proceedings investigated by the tax police in 2015–2016, in which taxpayers availed themselves of this procedure.

The proposed initiative clearly stipulates that the procedure for compensating for damages in criminal offenses related to tax evasion and evasion of the Unified Social Contribution (USC) is determined in accordance with the requirements of the Tax Code of Ukraine and the Laws of Ukraine “On Compulsory State Pension Insurance” and “On the Collection and Accounting of the Single Contribution for Compulsory State Social Insurance.” This is absolutely correct, as it is unacceptable for the tax authority where the taxpayer is registered to have discrepancies in its calculations of non-payment and arrears compared to the data used by the State Tax Service of Ukraine.

At the same time, the initiative also sets out clear measures for determining the amount of damage caused by a criminal offense (preparing an analytical study followed by confirmation or refutation of its conclusions through expert examination).

However, even at this stage, there is a discrepancy with the taxpayer’s obligations to the State Tax Service, since without an approved tax assessment notice, the taxpayer has no obligation to pay any taxes, fees, fines, or penalties.

Thus, instead of a service-oriented State Tax Service, we end up creating a “monster” in the form of the BEB (which has punitive functions and the full range of measures under the Criminal Procedure Code of Ukraine), which effectively “issues” an indulgence to the taxpayer for certain transactions and periods, as a result of which the taxpayer can avoid further legal liability.

The issue here also pertains to the initiation of criminal proceedings based on analytical reports, since such reports are not—and cannot be—documents that determine the amount of a taxpayer’s monetary obligations. Granting them such powers would lead to a de facto duplication of the functions of the BEB analysts and the State Tax Service auditors, which would effectively place excessive pressure on taxpayers.

Accordingly, the mere registration of a criminal proceeding did not give rise to an obligation on the part of the taxpayer to pay any taxes or fees, since such obligations could arise only on the basis of a decision by the State Tax Service.

In fact, this procedure results in the BEB duplicating certain powers of the State Tax Service. Instead, it would be more rational to implement this mechanism by entering into agreements with the State Tax Service (STS) under the proposed procedure and, by analogy with the successfully implemented tax compromise, after agreeing on such a procedure and concluding an agreement with the STS, to establish grounds for the decriminalizationthe criminal liability under Articles 212 and 212-1 of the Criminal Code of Ukraine for first-time offenses and as a basis for closing criminal proceedings of this category under Article 284 of the Criminal Procedure Code of Ukraine.

At the same time, it is advisable to grant the State Tax Service the initiative to conclude such agreements during the pretrial investigation of criminal proceedings.

However, the proposed model still carries the risk of replacing tax procedures with criminal procedural mechanisms, since the determination of the amount of damage and actual tax liabilities occurs outside the procedures provided for by the Tax Code of Ukraine, without the adoption and approval of a tax notice-decision.

Measures to determine the amount of damage caused by a criminal offense include, at the request of a detective from the Economic Security Bureau of Ukraine, an analytical study by the information and analytical units of the Economic Security Bureau of Ukraine, in accordance with Article 22 of the Law of Ukraine “On the Economic Security Bureau of Ukraine,” followed by confirmation or refutation of the conclusions contained in the analytical report prepared by an analyst of the Economic Security Bureau of Ukraine through an expert assessment to determine the amount of material damages, conducted in accordance with the provisions of this Code.

Author of the article: Yevhen Bovkun, attorney at Barristers Law Firm