On 18 July 2016, the State Fiscal Service of Ukraine (the SFSU) introduced amendments to the Order of State Fiscal Service of Ukraine “Guidelines on the Procedures for Interaction between the Departments of the State Fiscal Service related to Organizing, Executing and Implementing of the Tax Audit Findings” (hereinafter the “Amendments”) with a view to reforming the procedures for instituting the tax evasion criminal investigations.
The Amendments became effective on the same date.
Yielding to the public lobbying efforts of the business community, the Amendments were introduced with a view to curbing the Tax Police’s practice of unfounded, if not frivolous, institution of tax evasion criminal investigations.
Previously, the Tax Police used to institute tax evasion criminal investigations any time a tax audit revealed back taxes in excess of the statutory thresholds. This was typically automatic, without any preliminary analysis of the merits of the case and even if the taxpayer is still in the process of challenging the tax assessment in court.
With these Amendments, the Tax Police will no longer be able to institute tax evasion criminal investigations until the courts had ruled out the tax litigation case.
At any rate, this is the idea behind the Amendments. The literal reading of the Amendments, however, presents a fiscal interpretation that may effectively invalidate the proposed safeguard. At this juncture, it is not entirely clear if this might have been merely the result of bad drafting. The resulting practice upon the Amendments’ implementation will strongly indicate if the Tax Police will comply with the limitations imposed by the Amendments or take the mentioned fiscal interpretation as true, thus continuing its current practices.
On a separate note, a draft of a law governing the same issue was brought to the Parliament’s attention in November 2015. Once this draft is voted into law, it would establish a much stronger legal basis for the effective procedures to follow when conducting tax evasion criminal investigations, including the prohibition to Tax Police with regard to initiating a tax evasion criminal investigation while the tax assessment is still being challenged in court.