Evasion of Taxes – Advocate for Tax Crimes

Evasion of taxes. What can be done?

The main recommendation is to always pay taxes.

Another recommendation offers that when planning taxes a lawyer for tax crimes should be engaged to participate in that work; he will help cool the ardor of some visionaries in the field of the so called ‘tax optimization’.

And one more recommendation is that the preparation to defense in tax crimes should begin even before the tax audit. This thing is called “Due diligence: preparation for an on-site tax inspection” (can be found here — https://ukt.ru/services/complex_legal_products/taxaudit.html — these are our partners). The main point here is the identification and neutralization of tax risks and the main one of them is recognition of inconsistency of tax benefits obtained through transactions with counterparties having the attributes of unfairness (by-night companies).

Another very important piece of advice is that the lawyer for tax crimes should be included in the team, which will appeal a tax audit statement in the administrative order, because it is at that time that, as a rule, that the criminal case defense position begins to form.

YOUR DEFENSE AGAINST CRIMINAL PROSECUTION IN CASES OF EVASION OF TAXES BY PHYSICAL OR LEGAL PERSONS WILL LOOK LIKE AS FOLLOWS:

Criminal proceedings (namely, the pre-trial) consist of the following steps:

• Verification of a crime report (pre-investigation probe), including the decision-making whether to file a criminal case or refuse initiating criminal proceedings.
• The preliminary investigation, which takes the form of a preliminary inquiry.

1. Pre-investigation probe into cases of evasion of taxes.

The verification of a crime report (pre-investigation probe) for tax crime cases is carried out by operative units of Economic Safety Department or Economic Safety Directorate of the Interior Ministry or directly by investigators of corresponding units of the Investigative Committee of the Russian Federation.

As a rule, the ground for getting your company checked is the information reported by tax authorities to law enforcement agencies or probe into affairs of your company run by the tax authorities together with the law enforcement authorities.

The Investigative Committee gets informed by the tax inspectorate after it has conducted a tax audit, has prepared a tax audit statement, has made a decision on tax, penalty interest and duty payment and has maintained a tax payment demand.

In accordance with the tax code, this demand is to be fulfilled by the taxpayer within two months.

There is a successful cooperation established between tax and law enforcement authorities. Nowadays, after maintaining a Tax, Penalty Interest and Duty Payment Demand the relevant information is sent to law enforcement agencies; according to Clause 1.1, Article 140 of the RF Criminal Procedure Code, only those materials that are directed by the tax authorities in accordance with the legislation on taxes and levies in order to initiate a criminal case may be the pretext for starting an inquiry and making a decision to open a criminal case under Articles 198-199.2 of the RF Criminal Code.

But according to the Directive on procedure of submitting materials by the tax authorities to the internal affairs agencies, in case of detecting facts that suggest committing a violation of the legislation on taxes and levies containing elements of a crime, nowadays, if having faced a demand on payment of tax, penalty interest and duty and the taxpayer does not fulfill this demand within 2 months, the tax authority shall send the materials to the corresponding unit of the Investigative Committee within 10 days.

At present, the investigation of criminal cases has been handed over to the Investigative Committee; no special directive on the interaction of the tax authorities and the Investigative Committee has been issued, therefore the tax authorities continue to use the above Directive.

This stage features the verification of a crime report, i.e. the criminal case has not been filed, and the point is to be cleared whether there are elements of crime and whether they are enough to file a criminal case.

Since the audit of your organization by the tax authorities and the police is going on with your participation, it is essential for you to know your rights.

In particular, it must be remembered that police officers are entitled to participate in the conduct of on-site audits only on request of the tax authorities, therefore, if the tax and police representatives come to you to perform an audit, you have the right to request from police officers showing a request to participate in the said tax audit.

Here it should be said that the bodies of internal affairs might conduct investigatory operations (test purchase, inspection of premises, etc.). In this case, it is necessary to require the police order on conducting investigatory operations. However, it should be remembered that not all types of investigatory operations require the order to be imposed.

The most appropriate is to store documents of the company in the third place (e.g. auditors’ premises), in this case, during the audit you are not giving the inspection the documents of their interest, and then depending on the situation, you can pass documents in the extent seen reasonable by the company.

Here it should be said that the police in their activities may be guided not only by the Law “On Police”, but also by the Law on Investigatory Activities and may try to get from you certain documents under the above-mentioned law.

However, in case of your refusal to submit documents to the police, they would have no other choice than to record this search operation as void: they would get no legitimate means of influencing you, as opposed to the tax authorities.

At this stage you do not have either to present yourself at the units of Economic Safety Department to give any explanation.

There is a possible negative point resulting from the pre-investigation probe into a tax crime that is a survey of the company’s premises and the seizure of documents and computer system blocks for examination (obviously if they are still in the office). Therefore, you should make a decision yourself whether to respond to queries of investigators, submit documents, and give explanations or to refuse to contact them and be ready for the visit of police representatives to the office and for the shutdown of the ordinary activities of the company for that matter.

And the top tip, if the police came in, a lawyer for tax crimes, who will help protect the interests of your company, is indispensable here; therefore timely contacting him would greatly facilitate protection.

The pre-investigation probe is carried out in the following terms:

• Law (Clause 1 of Article 144 of the RF Criminal Procedure Code) requires authorized persons to take a report of any offense committed or planned, and the final decision must be made within 3 days from the date of receipt of the information;
• In exceptional circumstances the above term may be extended up to 10 days, for which the investigator (interrogating officer) is to submit a written request justifying the necessity and motivation of continuing the verification of the information;
• The examination of a crime report may be extended up to 30 days to carry out documentary checks and audits.

The probe results in:

• Filing a criminal case;
• Refusal to institute a criminal action, if the probe does not reveal grounds for criminal prosecution, or meets the circumstances that exclude the possibility of the action.

2. Pre-trial proceedings (preliminary investigation)

According to the amendments to the RF Criminal Code and the Criminal Procedure Code, adopted on the basis of the Federal Law No383 of December 29, 2009, criminal cases are investigated by investigators of the Investigative Committee of the Russian Federation (cases filed after January 1, 2011).

Prior to January 1, 2011, criminal cases filed under Articles 198-199 of the RF Criminal Code, had been investigated by the police.

The second stage, namely the preliminary investigation, deals with the following provisions of the Constitution of the Russian Federation — Articles 49, 50, 51. The rights provided by law of criminal procedure for the suspect and the accused, are envisaged in Articles 46, 47 of the RF Criminal Procedure Code.

The rights of the suspect and the accused

The use and implementation of the above rights envisaged in the criminal procedure law are rendered individually for each criminal case and in respect of each of the suspect and the accused.

One must know that the preliminary investigation bodies may carry out any investigations and proceedings listed in the Criminal Procedure Law.

Depending on the results of investigation into a criminal case, a few settlements of the case may take place; they all are listed in the RF Criminal Procedure Code. To properly protect yourself in cases of tax crimes, you will need a lawyer for tax crimes. This is the only way to ensure efficient criminal defense and getting a positive result for you.

3. The court proceedings on evasion of taxes.

• The first instance
• The cassation instance
• The supervisory authority
• The European Court of Human Rights

KEY EVIDENCE IN CASES OF EVASION OF TAXES

When a criminal case has been filed upon the facts of evasion of taxes, the investigative bodies conduct investigations in accordance with the RF Criminal Procedure Code.

When conducting investigation activities, as a rule, the tax authority carries out seizure of documents in your company. There is a possibility of search in the company, or in another place, if the law enforcement agencies have facts that there is information or documents relevant to the criminal case in some place or at the disposal of some person.

The key evidence in cases of evasion of taxes is necessarily written materials of the case; in a criminal case they appear usually in the form of physical evidence, or, more rarely, in the form of other materials of the case.

For example: balance sheet, the calculation for advance payments of the unified social tax, the calculation of advance payments on company property tax, settlement statement for the Social Insurance Fund of the Russian Federation, etc.

Expert’s opinion on the issue of non-payment of tax is considered to be the key evidence, without which a criminal case cannot be sent to court.

In addition to the above, any evidence listed in the RF Criminal Procedure Code can be used.

ARTICLES:

Article 198 Evasion of taxes and (or) insurance premiums by an individual

1. The evasion of taxes and (or) insurance premiums by an individual by failure to submit a tax statement or other documents, the submission of which is mandatory in accordance with the legislation of the Russian Federation or through the inclusion of knowingly false data into a tax statement or such documents, committed on a large scale, shall be punishable with one of the following:

— A fine of between 100,000 to 300,000 rubles or the job wages or other earnings of the convicted person for a period of one to two years,

— Compulsory labor for up to 1 year,

— Detention for up to 6 months,

— Imprisonment for up to 1 year.

2. The same act, if committed on an especially large scale, shall be punishable with one of the following:

— A fine of between 200,000 to 500,000 rubles or the job wages or other earnings of the convicted person for a period of eighteen months to 3 years

— Compulsory labor for a term up to 3 years

— Imprisonment for up to 3 years.

Notes:

Large scale:

— The sum of taxes and (or) insurance premiums, amounting to more than 600,000 rubles for the period within the 3 financial years in a row, provided that the share of unpaid taxes and (or) insurance premiums exceeds 10% of the amount of taxes and (or) insurance premiums payable, or

— The sum of taxes and (or) insurance premiums exceeding 1.800.000 rubles,

Especially large scale — the sum constituting for the period within 3 fiscal years in a row more than 3,000,000 rubles, provided that the share of unpaid taxes and (or) insurance premiums exceed 20% of the amount of taxes and (or) insurance premiums payable, or exceeding nine millions rubles.

Article 199. Evasion of taxes and (or) insurance premiums by organization

(Revision of Federal Law of 08.12.2003 N 162-FZ)

1. The evasion of taxes and (or) insurance premiums by an organization by failure to submit a tax statement or other documents, submission of which is mandatory in accordance with the legislation of the Russian Federation on taxes and levies, either through the inclusion of knowingly false data into the tax statement or such documents, committed on a large scale, shall be punishable with one of the following:

— A fine of between 100,000 to 300,000 rubles or the job wages or other earnings of the convicted person for a period of 1 year to 2 years,

— Compulsory labor for up to 2 years with deprivation of the right to engage in certain activity up to 3 years or without such deprivation,

— Detention for up to 6 months,

— Imprisonment for up to 2 years with deprivation of the right to occupy certain positions or engage in certain activities for a term of up to three years or without such deprivation.

2. The same act committed: a) by a group of persons in a preliminary conspiracy; b) on an especially large scale, shall be punishable with one of the following:

— A fine of between 200,000 to 500,000 rubles or the job wages or other earnings of the convicted person for a period of 1 to 3 years,

— Restraint of liberty for a term of up to 5 years with deprivation of the right to occupy certain positions or engage in certain activities for a term of up to three years or without such deprivation,

— Imprisonment for up to six years with deprivation of the right to occupy certain positions or engage in certain activities for a term of up to three years or without such deprivation.

Notes:

1. As a large scale, this Article, as well as Article 199.1 of this Code recognizes the following:

— The sum of taxes and (or) levies, amounting for the period within the 3 fiscal years in a row to more than 2,000,000 rubles, provided that the share of unpaid taxes and (or) insurance premiums exceeds 10% of the amount of taxes and (or) insurance premiums payable,

— The sum of taxes and (or) levies exceeding 6,000,000 rubles,

And as an especially large scale, the sum constituting for the period within 3 fiscal years in a row more than 10,000,000 rubles, provided that the share of unpaid taxes and (or) insurance premiums exceeds 20% of the amount of taxes and (or) insurance premiums payable

or exceeding 30,000,000 rubles.