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Ukraine increases thresholds of criminal liability for tax evasion and decriminalizes fictitious entrepreneurship

On September 18, 2019, the Parliament of Ukraine adopted the Law to increase thresholds of criminal liability for tax evasion and decriminalize fictitious entrepreneurship. These amendments allow to request closure of criminal proceedings subject to decriminalization. 

New thresholds of criminal liability for tax evasion 

The Law significantly increases the threshold of criminal liability under each part of Article 212 of the Criminal Code  of Ukraine,  -  establishing liability for evasion of taxes and duties. Thresholds as of the date of this publication[1]

Evasion

Previous

New

in significant amount
(p. 1 of Art. 212 of the CC)

 approx. UAH 1 mln

approx. UAH 2,9 mln

in large amount
(p. 2 of the Art. 212)

 approx. UAH 2,9 mln

approx. UAH 4,8 mln

in especially large amount
(p. 3 of the Art. 212)

approx. UAH 4,8 mln

approx. UAH 6,7 mln

Threefold raise of the minimum threshold of criminal liability shall limit opportunities of the law enforcement officers to use criminal cases related to tax evasion as mean of pressure on business.

This also means that upon entrance of the Law into force, criminal proceedings initiated for tax evasion in the amounts that now are lower than the minimum threshold are subject to ceasing.

Along with the above, the legislator increased the penalties for crimes, indicated in Part 1 and 2 of Art. 212 of the CC of Ukraine, in 2,5-3 times.

Decriminalization of fictitious entrepreneurship

The Law also excludes Article 205 from the CC of Ukraine that provided for criminal liability for fictitious entrepreneurship (i.e.  establishment or acquisition of business entities (legal entities) to cover illegal activities or carry out prohibited ones).

This change is aimed to minimize burden on business due to searches, inspections, seizure of large volumes of documents within various criminal proceedings in which creation of the same "fictitious" companies is investigated.

Notably, the Law does not provide alternative mechanism (e.g administrative offences) of bringing to responsibility for fictitious entrepreneurship.

Finally, decriminalization of fictitious entrepreneurship will indirectly impact administrative proceedings, namely cases in which tax authorities attempt to challenge contracts concluded with potentially "fictitious" counterparties, and cases in which relevant tax notices are challenged.  In such cases, the State Fiscal Service relied the mere fact of pre-trial investigation under Art. 205 of the CC of Ukraine to prove that all contracts concluded with "fictitious" company are invalid. Deprivation of possibility to rely on the above should motive tax authorities to submit sounder claims and reduce number of the latter.

What can participants of the criminal proceedings do?

Following the entry of the Law into force, the participants of the proceedings under:

  • Part 1 or Part 2 of Art. 205 of the CC of Ukraine;
  • Art. 212 of the CC of Ukraine, if the amount of tax evasion is less than UAH 2 881 500,

can file to the investigator, prosecutor a motion to close criminal proceedings (decriminalization for wrongdoings is a definite reason for closure of criminal proceedings under Para. 4 of Part 1 of Art. 284 of the CPC of Ukraine).

For further information, please contact Asters Partner Sergiy Grebenyuk and Counsel Orest Stasiuk.



[1] According to the Criminal Code: p. 1 of the Art. 212 - the threshold increases from 1,000 to 3,000 Tax free minimum income; p. 2 of the Art. 212 - from 3,000 to 5,000; p. 3 of the Art. 3 tbsp. 212 - from 5000 to 7000.

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