The fictitiousness of your counterparty does not yet testify about the fictitiousness of economic relations

Plot. One of the enterprises of the city of Kyiv carries out complex repair works of buildings (painting, minor repairs of appliances and furniture, repair of air conditioners, replacement of electric lamps, maintenance of air conditioners, cleaning, etc.). The biggest problem of this company is the availability of employees. Since this kind of work is not highly paid, the company has a constant flow of employees, some are constantly laid off, and some are hired. As a result of the search for workers, the company, through the OLH website, finds a team of 10 people who are ready to perform certain work. After negotiations with the head of the team and reaching agreements, the team begins to perform work on the site, after completion of work, they are accepted by the responsible person of the customer's enterprise.

Next is the problem.  As it turned out, all employees are individuals and do not carry out economic activities as sole proprietorships or limited liability companies. And their leader expected to be paid in cash. However, the company that ordered the work carries out its activities in the form of LLC, and accordingly can not make cash payments. In order to resolve this issue, the manager opens a limited liability company for one of its employees and invoices for the work performed. The company pays for the work performed in accordance with the invoice, all primary documents are signed. So, the work is done, all the necessary documents are concluded, the work is paid. The issue is closed.

The next problem.  LLC, which was opened for the employee does not file reports, does not pay taxes. SFS employees come to the employee and he gives evidence that this LLC is not relevant and registered him for a fee. By agreement with the prosecutor, the employee is convicted under Art. 205 of the Criminal Code of Ukraine (Fictitious Entrepreneurship) and he receives a fine of UAH 8,500. And after that there are problems at the enterprise. The tax police initiates criminal proceedings under Art. 212 of the Criminal Code of Ukraine (Evasion of taxes, fees, other mandatory payments), and the SFS sends a tax notice-decision (PPR).

How to act in such a situation?  Definitely contact the relevant lawyers, because in each individual case there are different approaches to proving your innocence, because the company can not and should not be responsible for the actions or inaction of its contractors. However, it must always be remembered that all circumstances require evidence (documents, testimony, video and sound recordings). Therefore, such evidence must be preserved.

What does the case law say about this?  Prior to the judicial reform, the Supreme Court of Ukraine, in the presence of a verdict, which actually confirms the creation of a fictitious director by the director, supported the position of the supervisory body and noted that the primary documents that became the basis for the tax credit , cannot be properly executed and signed primary documents (SCU decision of 17.11.2015 in case №2a / 3264/11/1070). Also, the Supreme Court of Ukraine has repeatedly pointed out that the status of a fictitious, illegal enterprise is incompatible with legal entrepreneurial activity (decisions of the Supreme Court of Ukraine dated 12.09.2017 in case №21-3775а16 and from 01.12.2015 in case №21-3788а15) .

In December 2017, taxpayers had high hopes that this practice would change after the creation of the new Supreme Court.

Therefore, the Supreme Court in the decision of 27.02.2018 in the case №813 / 1766/17 making a cardinal decision in favor of the business entity came to the conclusion that the verdicts referred to by the supervisory authority did not record the circumstances confirming the impossibility carrying out business transactions with a business entity - a taxpayer. Also, the panel of judges of the Administrative Court of Cassation of the Supreme Court noted that the very fact of the verdicts does not give grounds for an automatic conclusion about the unreality of business transactions, therefore it is necessary to check the evidence of each tax offense and comprehensively sentences that have entered into force. 

A similar legal position has already been expressed by the Supreme Court in the following rulings of 20 November 2018 in case № 808/2858/16; from 19.09.2018 in the case № 809/2438/15; from 31.07.2018 in the case № 808/1507/16; from 05.06.2018 in the case № 2a-1570/6063/12; from 17.04.2018 in the case № 808/2459/17; from March 27, 2018 in the case №815 / 6470/16. 

In addition, the Supreme Court in its decision of 20.06.2018 in case №826 / 14465/13-a drew attention to whether the person against whom the conviction was passed was the same person who signed the documents from the contractor of the entity management, on the basis of which the latter formed the costs, tax credit, as well as whether the period of the crime coincides with the period in which the relevant documents were signed.

And one of the ways to solve this problem, which could put all the dots on the "and", is the transfer of one of these cases to the Grand Chamber of the Supreme Court. Trying to solve the problem concerning the ambiguity of case law in the above category of cases, the Judicial Chamber for Resolving Tax Disputes of the Administrative Court of Cassation within the Supreme Court by decision of 21.02.2018 in case № 826/19939/16 referred to the Grand Chamber of the Supreme Court a similar case, where there was a conviction under Article 205 of the Criminal Code of Ukraine - it was an administrative case on the claim of LLC "Food Network" to the Office of Large Taxpayers of the State Fiscal Service. The only reason for the transfer was the presence in the case,

The Grand Chamber of the Supreme Court disagreed with the conclusions of the Judicial Chamber for Resolving Tax Disputes of the Administrative Court of Cassation of the Supreme Court and returned the case to the Administrative Court of Cassation for reconsideration. The main position of the Grand Chamber of the Supreme Court on this issue was that the verdict for fictitious business in relation to the director of the contractor was justified by the Grand Chamber that in each case the courts must provide a legal assessment of the facts of the case.

Thus, this issue is relevant today, there is no final decision of the Grand Chamber of the Supreme Court, the jurisprudence on disputes under Article 205 of the Criminal Code of Ukraine is quite contradictory, and therefore neither the Grand Chamber nor the Administrative Court of Cassation in the Supreme Court is the only approach. SFS authorities in the presence of a verdict on the fictitiousness of doing business, not found. Therefore, payers with a "positive" are waiting for a solution to this problem, where the fines imposed by the SFS are sometimes millions of hryvnias, which worsens the financial situation of any business entity.

How to deal with criminal proceedings?  At the same time, the presence of a court decision to cancel the PPR is the basis for closing the criminal proceedings under Art. 212 of the Criminal Code of Ukraine, in particular on the basis of paragraph 2 of Part 1 of Art. 284 of the CPC of Ukraine (established absence in the act of a criminal offense), as the abolition of PPR confirms the absence of damage, and the absence of damage indicates the absence of an objective aspect of the crime.