Unscheduled tax audit in criminal proceedings

The issue of assigning tax audits by the determinations of investigative judges has long been rather controversial.

While some courts supported petitions of investigators for the assignment of unscheduled documentary audits in criminal proceedings, others agreed with the opinion of taxpayers and indicated the lack of legal grounds for such decisions made by the investigative judges.  The “the root of all evil” related to this problem, as you know, was as follows.

“The decision of the court (investigative judge) on the assignment of an audit made in accordance with the law” – this is precisely the wording of one of the reasons for conducting a documentary unscheduled audit determined by article 78 of the Tax Code of Ukraine after the recent changes made according to the Law of Ukraine No. 1797-VIII as of December 21, 2016.  However, the problem resides in the fact that none of the existing laws regulate the procedure for making such decisions, as well as the right to appeal hearing.

In due course, according to the Law of Ukraine “Regarding the Prosecutor’s Office” as of October 14, 2014 No. 1697-VII, the provisions of part 2 of article 36 and paragraph 4 of article 40 of the Code of Criminal Procedure of Ukraine, which attached the right of the investigator, prosecutor and court to assign such audits were excluded.  But in practice, investigators continue to substantiate their petitions by quoting the above-said norm of the Tax Code of Ukraine, talking about the possibility of the investigative judges accepting definitions as regards the assignment of tax audits, and the latter willingly accept the audits.

At the same time, applying to the appeal courts with appeals petitions against the rulings of the investigative judges on the assigning of tax audits of business entities, lawyers indiscriminately received disclaimers to open appeal proceedings on the basis that Article 309 of the Code of Criminal Procedure did not provide for the right to take review against this kind of decisions on appeal.

Using a formal approach to solving this problem, the appeal courts referred to the provisions of part 4 of article 399 of the Criminal Procedure Code of Ukraine and blinked the fact that the Criminal Procedure Code of Ukraine did not have the possibility and procedure for making decisions on the assignment of tax audits within criminal proceedings as such.

The Supreme Court was to give a quietus to the argument.  The legal community followed this process closely, however, what a surprise it was when the newly formed Supreme Court confirmed the legitimacy of the refusals of the appeal courts to revise these definitions by its Resolution of February 15, 2018, using the same formal approach to solving the problem.

However, soon, the Grand Chamber of the Supreme Court took up the consideration of this problem.  It was done considering an exceptional legal problem in this issue, as well as with the aim of ensuring the development of law and the formation of a single law enforcement practice.

Using its significant Decree of May 23, 2018 in case No. 243/6674 / 17-k, the Grand Chamber of the Supreme Court canceled the definition of the appeal court refusing to open the appeal proceedings on the definition of the assignment of a tax audit as part of criminal proceedings, and assigned to take review against the decision in court of appeal.

The Grand Chamber of the Supreme Court proceeded from the fact that Article 309 of the Code of Criminal Procedure of Ukraine concerned the refusal to open appeal proceedings on appeal petitions against the definitions of investigative judges, which are provided for by the Code of Criminal Procedure of Ukraine, and since the criminal procedure law does not have legal grounds for making tax audit orders  within criminal proceedings, the provisions of Article 309 of the Code of Criminal Procedure of Ukraine in this case cannot be applied.

Thus, the right to appeal such a determination shall be secured on the basis of the provisions of paragraph 17 of the first part of Article 7 and the first part of Article 24 of the Code of Criminal Procedure of Ukraine.  The principle of legality established by Article 9 of the Code of Criminal Procedure of Ukraine provides that in cases when the provisions of the Code of Criminal Procedure do not regulate or ambiguously regulate questions of criminal proceedings, the general principles of criminal proceedings determined by the first part of Article 7 of the Code of Criminal Procedure of Ukraine are subject to be applied.

Citing such arguments, the Grand Chamber of the Supreme Court indicated that ensuring the right to an appeal review of the case was one of the main bases of legal proceedings (paragraph 8 of part three of Article 129 of the Constitution of Ukraine).  The Constitutional Court of Ukraine, considering the above-said provision of the Basic Law, concluded, that an appeal petition lodged against a court decision is possible in all cases, except for those when the law prohibits such an appeal.

Having put an end to this matter, the Supreme Court stated that restrictions on access to court were incompatible with the provisions of paragraph 1 of Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms, if they did not have a legitimate aim, or there was no reasonable proportionality between the means applied and the legitimate aim, which they strived to achieve (the decision of the European Court of Human Rights “Volovik against Ukraine”).

Not so long ago, the Supreme Court confirmed its standpoint based on the above-said decision of the Grand Chamber in the Order as of September 25, 2018, and indicated that the appeal courts were obliged to open appeal proceedings on complaints as regards the definition of investigative judges for granting permits for unscheduled audits.

Thus, at the moment there is a well-established judicial practice at the level of the Supreme Court, which testifies to the illegality of disclaiming the appeal courts regards provision of access to justice, when appealing against the definitions of the investigative judges on the assignment of tax audits in criminal proceedings.

One cannot but hope that the investigative judges, whose main function is to monitor the observance of human rights, freedoms and legitimate interests, will no longer make appropriate rulings on the assignment of tax audits, since the Supreme Court, in the above-said decisions, has repeatedly drawn attention to the fact that such definitions are not provided for by the Criminal Procedure Code of Ukraine, and, therefore, sound illegal.

Oleg Zheryobkin,

Attorney Dynasty Law Firm

 

Publications 18 January, 2019

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