Ukrainian legislation defines criminal tax fraud offence as intentional evasion of taxes, fees or other mandatory payments which are part of the taxation system, committed by an official of a legal entity of any ownership status, or by an individual entrepreneur, or by any other entity/individual, obligated to pay such taxes, fees or other mandatory payments, provided that such actions resulted in actual non-receipt of significant amounts of funds by budgets or special state funds.
A significant amount of funds for such purposes means underpament of taxes, fees or other mandatory payments in excess of 3,000 social tax allowance (currently UAH 4,026,000 or approximately EUR 104,192).
Criminal liability for tax evasion applies in case a certain threshold of underpayment is reached. Specifically, If the anount of underpaid tax liabilities exceeds 3,000 times the social tax allowance (currently UAH 4,026,000 or approximately EUR 104,192), criminal proceedings on tax evasion may be initiated.
According to Ukrainian legislation, criminal proceedings may be initiated based on the amount of tax underpayment only. Therefore, the application of tax penalties should not trigger criminal proceedings.
Criminal intention is a requirement for criminal tax evasion. According to the Criminal Code of Ukraine, criminal liability for tax evasion targets only the "intentional" violation of tax rules ensuring the formation of the state and local budgets through the receipt of taxes and duties (mandatory payments) from legal entities and individuals.
Spontaneous filing of an amended tax return before the initiation of a tax audit or criminal proceedings will prevent triggering of the criminal proceedings. In this respect, to secure from criminal proceedings, the taxpayer should pay in full the amount of underpaid taxes together with applicable penalties and late payment interest.
According to Ukrainian legislation, criminal proceedings for tax fraud can be initiated based on the tax audit's findings only. If, during the course of a tax audit, information has been discovered suggesting that a taxpayer has committed alleged criminal tax evasion, the tax auditors must notify the Economic Security Bureau of Ukraine. The latter will decide whether or not to initiate a criminal investigation.
The general limitation period for tax liability is 1095 days and 2,555 days for transfer pricing purposes. After this period of limitations expires, the taxpayer may not be assessed for additional taxes, tax penalties or late payment interest for such tax liability. However, the period of limitations does not apply if a tax return was not filed. Please note that due to the COVID-19 quarantine such a period was suspended starting from 18 March 2020 until the end of the quarantine (currently in place until 31 May 2022). In practical terms, this means that the tax office is entitled to audit FY2017 through FY2022.
The 1,095-day limitation period also applies to a tax office's authority to enforce the assessed tax liability. If the taxpayer’s liability, which has been ascertained and reported by the taxpayer; or, alternatively, assessed by the tax office, remains unpaid during such 1,095-day period and no actions are taken by the tax authority with the view to its collection, then the taxpayer will be released from such liability. The same 1,095-day limitation rules apply to financial penalties, either in the form of tax penalties and penalty interest.
Finally, if the criminal tax evasion charges were to be pressed, then the limitation period would be extended to up to 10 years, depending on the "gravity" of tax evasion.
Depending on the tax violation, the limitation period may start to run either from the final statutory date for filing the tax return, from the date of failure to pay applicable taxes or other violations of Ukrainian tax legislation.
For criminal tax evasion, the statute of limitation generally starts to run from the date of failure to pay applicable taxes. For tax offenses, such as failure to submit a tax report, the statute of limitations runs from the date of failure to file a tax declaration.
According to the Criminal Code of Ukraine, the criminal liabilities vary depending on the "gravity" of the tax offense. In addition to penalties, (i) a prohibition to engage in certain positions, as well as (ii) confiscation of property, may apply. Please see below for more details.
If the volume of underpaid tax liabilities were to exceed UAH 3,721,500 (c. EUR 120,320), the individual taxpayer or officers of corporate taxpayer may - apart from penalties- be prohibited to engage in certain activities or to occupy certain positions for the period of up to three years.
If the amount of underpaid taxes were to exceed UAH 6,202,500 (c. EUR 200,533), the individual taxpayer or corporate officers may - apart from tax penalties be prohibited to engage in certain activities or to occupy certain positions for the period of up to three years.
If the amount of underpaid taxes were to exceed UAH 8,683,500 (c. EUR 280,746), the individual taxpayer or corporate officers may - apart from the penalties - be prohibited to engage in certain activities or to occupy certain positions for the period of up to three years, and confiscation of property.
As mentioned in Question 5, to avoid the risk of criminal liability, the taxpayer shall pay in full the amount of underpaid taxes along with the applicable penalties and late payment interest.
Tax amnesty rules were introduced in Ukraine from 1 September 2021 and lasted until 1 September 2022.The main rationale behind the tax amnesty legislation is to allow Ukrainian individual taxpayers to voluntarily report their undeclared assets. It is a limited time offer to eligible individual taxpayers allowing to regularize reportable assets at a special tax rate with the view to being pardoned for tax and currency control offenses.
The applicants were entitled to file the Special Tax Return within this period and discharge the tax liability within 30 calendar days following the submission of the Special Tax Return. The applicants were also able to pay the tax liability in three equal instalments - one within 30 calendar days following the filing of the Special Tax Return, one on or before 1 November 2023, and one on or before 1 November 2024.
The Criminal Code of Ukraine stipulates that the person, which has committed tax evasion in significant, large, or especially large amounts, might be released from criminal liability.
The officials of the company may be discharged from criminal tax evasion and no penalty will be due if
- the tax assessments (including fines and interest) are fully paid, and
- such payments are made before a company's official is served a formal Notice of Charges (pre-trial level).
Previously, the criminal law required such payments to be done by a relevant individual only. Effective 25 November 2021, the law was changed to allow a legal entity/another person to repay debts to the state. Under the new rules, the payer's identity is no longer relevant; a company's official may be discharged from criminal tax evasion at the pre-trial level as long as the proceeds are credited in full to the budget.
The 1095 and 2,555 days limitation periods prescribed in question No. 6 are disregarded if an executive officer of a corporate taxpayer or an individual taxpayer is charged with a criminal tax evasion with respect to the tax liability in question.
Tax authorities can assess tax liabilities but can collect underpaid taxes only once such tax liability becomes "agreed" after the final court ruling in the case.
The Criminal Code of Ukraine generally allows settlement of criminal proceedings by means of a plea agreement. At the same time, the alleged tax offenders rarely utilize this mechanism, although it is applicable to tax frauds. In practice, it is more common for the alleged tax evaders to pay tax assessment in full to release from criminal liability as discussed in question No. 9.
As a matter of Ukrainian law, criminal liability for tax evasion does not apply to a corporate taxpayer. Instead, only an individual, in its capacity as: (a) a taxpayer or (b) an "officer" of a corporate taxpayer may be criminally liable for the deliberate tax evasion.
Yes, a foreign corporate officer may be subject to criminal tax evasion prosecution, as long as he/she was responsible for tax payment to be made by a Ukrainian taxpayer.
As a starting point, the amount of the agreed tax underpayment, penalties and late payment interest calculations should be covered in full by the corporate taxpayer.
At the same time, if a criminal proceeding results in imposing criminal penalties on a corporate taxpayer's officer, such an officer is liable for payment of criminal penalties. The penalty for criminal tax evasion as stipulated shall be paid by a convicted individual. A company may not pay the penalty on behalf of its official. This is in line with the principle of an individual criminal liability. Once the verdict is effective, a convicted company's official will have one month to repay the penalty.
For the executive officers to be personally relieved of potential criminal tax evasion liability, the identity of the payer is irrelevant as discussed in question 9 above.
2018 was marked by an increase of registered tax offenses by 12 percent compared to 2017. However, during the last five years, the overall situation remained unchanged – only a small percentage of registered tax offenses makes it to the court hearing: most cases are dismissed at the pre-trial stage due to the absence of evidence that the crime actually occurred.
On a separate note, in 2019 Ukraine implemented a law which increased the threshold of criminal liability in tax fraud by more than three times – as a consequence the number of registered tax offenses in 2020 decreased compared to previous years. No increase of registered tax frauds was reported after in 2021 the Economic Security Bureau of Ukraine was established and received jurisdiction to investigate tax fraud at the pre-trial stage.