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The Plenum of the Russian Supreme Court has adopted a resolution on liability for tax offences

1. The Plenum elected not to include in its final version of the Resolution an indication that crimes for which sanctions are provided in articles 198 and 199 of the Criminal Code are continuing crimes.


Earlier, the draft of this Resolution put forward for the first reading of the Plenum in June 2019 stipulated that tax evasion[1] is a continuing crime; therefore, the statute of limitations should start from the time when criminal activity has stopped, i.e. when tax arrears have been repaid or collected.

In practice, when criminal liability is imposed for tax evasion, the statute of limitations with respect to such criminal liability[2] will be calculated from the date when tax arrears have not actually been repaid within the established timeframe. If the crimes for which sanctions are stipulated by articles 198 and 199 of the Criminal Code had been recognised as continuing crimes, this could have resulted in the statute of limitations actually being cancelled.

While refusing to acknowledge the continuing nature of the crimes under articles 198 and 199 of the Criminal Code, the Plenum did not explain from what moment the statute of limitations for imposing criminal liability should start to run. Given the provisions of the summer draft of the Resolution, this creates a possibility for continuing discussion over the starting point for such statute of limitations.

We believe statute of limitations for liability being imposed for tax evasion should be calculated from the time at which taxes have not been paid by the deadline established by the law.

2. In its new Resolution, the Plenum has explained that a perpetrator of a crime within the meaning of article 199 of the Criminal Code may be a person authorised by virtue of the law or based on a power of attorney to sign documents as reporting documents which a company submits to tax authorities for the tax period. The Plenum named as such persons a company’s CEO or an authorised officer and a person who has actually performed the duties of a company’s CEO (clause 7 of the Resolution).

As compared with earlier Plenum’s Resolution No. 64 dated 28 December 2006, the newly adopted one does not mention a chief accountant (accountant) or other employees of a taxpayer company who are involved in drafting source accounting documents, or persons who arranged for the crime to be committed, induced the crime or facilitated such crime through their advice, instructions, etc.

However, the lack of any mention of such persons in the new Resolution does not mean that they cannot be subjected to criminal liability as perpetrators, co-perpetrators, aiders, abettors or organisers in accordance with the provisions of the General Part of the Criminal Code.

3. The Plenum has excluded the statement, which was part of the previous Resolution No. 64, that a perpetrator of a crime under article 199.2 of the Criminal Code may be an individual who has a status of an individual entrepreneur, an owner of company’s assets, a company’s CEO or a person performing managerial functions in the company which relate to the disposal of the company’s assets.

By doing so, the Plenum has entrenched the provision of Federal Law No. 250-FZ dated 29 July 2017 that excluded from article 199.2 of the Criminal Code, starting from August 2017, a reference to a special perpetrator and that established that any person who in fact committed the crime may be held liable for concealing monies or assets which should have been used for recovery.

4. In its new Resolution, the Plenum has clarified that all unresolvable doubts, inconsistencies and ambiguities of regulatory acts on taxes and levies should be interpreted in favour of a taxpayer (clause 8 of the Resolution).

Considering the presumption of innocence, all unresolvable doubts should be interpreted in favour of an accused. According to well-established practice, the principle was understood as relating to doubts regarding the facts of the case. The Plenum’s clarifications with respect to unresolvable doubts resulting from contradictions and ambiguities of regulatory acts on taxes and levies allow for this principle to be applied to a fuller extent to crimes involving tax evasion.

5. Corporate tax evasion may be effected through a failure to submit a tax return (assessment) or other documents, or through the deliberate inclusion of false information in such tax return (assessment) or other documents.

In the Resolution it has adopted, the Plenum has stated that by “other documents” one should understand such documents that simultaneously meet all the criteria below, namely:

  • they are stipulated by tax legislation;
  • they should be attached to a tax return (assessment);
  • they serve as the ground for calculating and paying taxes.

A failure to submit such documents, as well as the deliberate inclusion of false information in them, may constitute a method of tax evasion (clause 5 of the Resolution).

In its earlier Resolution No. 64, the Supreme Court meant by “other documents” any documents serving as a ground for assessing and paying taxes: extracts from a sales ledger, extracts from the ledger of income and expenditure of business transactions, copies of ledgers of incoming and outgoing invoices, settlements relating to advance payments and pay slips, certificates of amounts of taxes paid, annual reports and documents confirming the right to apply tax benefits.

6. By Federal Law No. 250-FZ dated 29 July 2017, articles 198 and 199 of the Criminal Code were supplemented with a statement that not only taxes and levies but also insurance contributions payable by a company (an individual) should be taken into account for the sake of classification of the crime under the article in question.

In this regard the Plenum has explained that insurance contributions paid before the Federal Law has come into effect are included in the payments if this may result in the reduction of the aggregate outstanding amounts of an individual or a company for the relevant period (clause 15 of the Resolution).

This is a positive explanation for taxpayers and is in line with article 10 of the Criminal Code regarding the retroactive effect of a criminal law, whereby a criminal law improving the position of a person who has committed a crime should have retroactive effect. In the Resolution on which we are commenting, the Plenum has enshrined the legal position which the Russian Constitutional Court set out earlier in its Resolution No. 27-P dated 9 July 2019.

7. The Plenum has stated that to determine the amount of the damage caused to the state budgetary system through a tax offence, the actual amount of tax obligations must be determined, considering all factors, in their totality, that increase or reduce the amount of tax arrears (clause 14 of the Resolution).

The Supreme Court has indicated the need for complete tax reconstruction in determining the amount of damage caused by a tax offence. In doing so, it upheld the consistent practice of the Supreme Court's Judicial Board for Economic Disputes ruling it impermissible to collect taxes in excess of what is required by the law.

8. In the Resolution it has adopted, the Plenum has clarified that a person who has an unexpunged or outstanding conviction for the crime stipulated by the same article under which he is being released from liability will be considered a person who has committed the crime for the first time (clause 24 of the Resolution).

The Criminal Code provides for a possibility of being released from criminal liability if a person who for the first time commits a crime under articles 198 to 199.1 of the Criminal Code fully compensates the damage to the state budgetary system (article 76.1 of the Criminal Code). The above provision of the Criminal Code allows persons who are suspected or accused of the crime not to have criminal liability imposed if they compensate the damage in full.

Please note that the Criminal Code does not contain the definition of a “person who has committed the crime for the first time”. The explanation in the new Resolution is not new as earlier it was stated with respect to all types of crimes (see for example, the Plenum’s Resolution No. 19 dated 27 June 2013).

At present, such relief in connection with full compensation of the damage caused by the crime is only possible before the first court hearing scheduled under the criminal case. On 17 December 2019, the Supreme Court put before the State Duma a draft Federal Law amending article 28.1 of the Criminal Procedure Code (draft law No. 863715-7) under which a release from liability is possible in connection with full compensation of the damage caused through the crime before the court retires to its chambers for sentencing.

9. The Plenum had indicated that not only a person who committed the crime, but also others acting at his request (with his consent) can pay the damage and/or monetary compensation as provided for by article 76.1 of the Criminal Code. In the event of crimes under articles 199 and 199.1 of the Criminal Code, damage can be repaid by a company whose tax evasion is imputed to the person (clause 25 of the Resolution).

The possibility for the company to repay the damage in the form of arrears, default interest and a fine has been elaborated in well-established court and administrative decisions and is enshrined in the Criminal Code (the notes to articles 199 and 199.1 of the Criminal Code).

10. An explanation of the possibility to hold an individual liable as a civil law defendant under tax crimes is contained in clause 28 of the Resolution. The Plenum has stated that an offender may be held liable as a civil law defendant only in cases when there are no legal or actual grounds for tax claims to be satisfied by the company itself or persons who are liable for its debts in accordance with the procedure prescribed by the law.

The practice of joining individuals as civil law defendants in tax crime has been inconsistent over the past ten years. There was a period when courts refused to award recovery of arrears, default interest and fines, reasoning that an individual who is subjected to criminal liability for tax crimes is not a payer of VAT, corporate profit tax, or corporate property tax, with the company being the proper defendant.

The Supreme Court subsequently in one case stated that it is damage caused through the crime rather than tax arrears that is being recovered within the scope of a criminal case and, therefore, an individual is a proper defendant.

The question of whether damage can be collected from an individual was in focus for the Constitutional Court in its Resolution No. 39-P dated 8 December 2017 in the case of G.G. Akhmadeeva. In the Resolution, the Court expressed a position whereby it is not allowed, according to the general rule, to recover damage caused to the state budget in the amount of taxes and default interest due to the relevant budget from individuals accused of tax crimes until all possibilities of recovering the damage from taxpayer company have been exhausted (the company has been excluded from the register of legal entities or is effectively dormant, or it is impossible to recover arrears and default interest within the framework of existing civil law and tax procedures).

The Plenum of the Supreme Court has reflected such an approach in its Resolution.

General conclusion

The Plenum’s Resolution No. 48 dated 26 November 2019 mirrors the amendments to legislation; many of its wordings have already been included in other resolutions of the Constitutional and Supreme Courts. This proves the intention of the Plenum to rather gather existing explanations in a single document than clarify new issues.

What to think about and what to do

The adopted Resolution allows for an increase in the accuracy of an assessment of criminal law risks associated with liability for tax crimes, and for a more effective defence for persons in the risk zone of tax crimes.

Help from your adviser

With extensive experience in protecting companies' CEOs and employees from the perspective of criminal law defence at all stages of criminal prosecution, from a pre-investigation inspection (summons for providing explanations, receipt of requests for information, etc.) to defence in court, Pepeliaev Group’s specialists can assist with evaluating criminal law risks in taxation and plan for measures to be taken to mitigate such risks taking into account the new official explanations.

[1] Here and below, taxes also include duties and insurance contributions.

[2] Under the Criminal Code, the statute of limitations for criminal liability depends on the gravity of the crime and amounts to two years for article 198(1-2) and article 199(1) of the Criminal Code and to ten years for article 199(2) of the Criminal Code.

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