A special procedure is being revisited for initiating criminal cases for tax offences

Pepeliaev Group advises that, on 9 March 2022, a Federal Law[1] came into effect to re-introduce a special procedure for initiating the criminal cases for which articles 198 to 199.2 of the Russian Criminal Code (the ‘Criminal Code’) provide.

According to the amendments, only those materials which tax authorities forward under tax legislation will serve as the ground for a criminal case to be instigated with regard to tax offences.

Please be reminded that, according to article 32(3) of the Russian Tax Code (the ‘Tax Code’), if a claim for tax to be paid has been filed based on a decision to impose liability for a tax offence and within two months fr om the date when the term expired for such claim to be enforced the taxpayer has not paid in full the arrears the amount of which points to the signs of a crime having been committed, the tax authorities will be obliged to submit the materials to the law enforcement authorities for the latter to decide whether a criminal case should be instigated.

According to article 89(4) of the Tax Code, a field tax audit may generally cover a period of no more than three calendar years preceding the year in which the decision to hold a field tax audit was adopted.

These amendments are not new for Russian criminal procedure legislation.

Until December 2011, the general procedure for initiating criminal cases applied to tax offences. In order to improve criminal law proceedings, Federal Law No. 407-FZ dated 6 December 2011 supplemented article 140 of the Russian Criminal Procedure Code (the ‘Criminal Procedure Code’) with part 1.1 pursuant to which only those materials that have been submitted by tax authorities may be the reason for initiating a criminal case based on the offences set out in articles 198 to 199.2 of the Criminal Code.

The special procedure for instigating criminal cases with regard to tax offences did not last long: Federal Law No. 308-FZ dated 22 October 2014 repealed part 1.1 of article 140 of the Criminal Procedure Code. The explanatory note to the draft of the above federal law concluded that the special procedure was one of the reasons for low efficiency in uncovering tax offences and created impediments for the results of investigative measures to be used in the criminal proceedings.

Therefore, the goal of Federal Law No. 51-FZ dated 9 March 2022 is to reduce any potential pressure on business from the perspective of criminal law and to ensure the harmonisation of tax legislation and criminal procedure legislation as regards criminal liability being imposed for tax offences which demonstrate the signs of an act that is subject to a criminal law punishment.

From the moment they come into effect (on 9 March 2022), the amendments preclude a criminal case from being instigated with regard to tax offences (article 198 to 199.2 of the Criminal Code) as a result of law enforcement authorities conducting independent audits of companies within the scope of criminal intelligence activities. Decisions must be adopted refusing to instigate a criminal case with respect to pre-investigation checks that are being conducted at present by virtue of articles 144 and 145 of the Criminal Procedure Code.

The effect of the law over time

A criminal procedure law has no retroactive effect. That the procedure is being changed for the instigating of criminal cases with regard to the body of a tax offence does not prompt the termination of criminal cases that were initiated previously. Nevertheless, within the scope of the criminal cases that were already initiated, investigative authorities will be deprived of the opportunity of instigating new criminal cases based on points that are newly discovered during the investigation: for example, with respect to other periods of a taxpayer’s operations or other types of taxes, wh ere by doing so they increase the total amount of damage in the form of tax arrears and worsen the position of the persons who are charged with criminal liability.

The fact that criminal prosecution may be started based only on the results of a field tax audit actually reduces the period over which it is possible to hold somebody criminally liable for a tax offence. This period used to be 10 years, but has been reduced to as long as the tax audit goes back in time.

Help from your adviser

With extensive experience of defending company’s executives and employees in criminal cases at all stages of a criminal prosecution from the date on which the pre-investigation check started (being summoned for interrogation, requests being received to provide documents and information, etc.) up to defending clients in courts, Pepeliaev Group's experts are equipped to help to assess and reassess the risks of a criminal investigation with regard to the amendments to the Criminal Procedure Code, and to plan measures to mitigate these risks.

[1] Federal Law No. 51-FZ “On amending articles 140 and 144 of the Russian Criminal Procedure Code” dated 9 March 2022.