Violation of tax legislation, as a rule, entails administrative liability established by the Code of Administrative Offenses of the Russian Federation and the Tax Code of the Russian Federation. In addition, if tax additional charges exceed the threshold defined by the Criminal Code of the Russian Federation, the relevant actions are regarded as socially dangerous and entail additional criminal liability.

In this case, the subject of the offense, i.e. a person brought to administrative responsibility, can be both an official and the company itself, while criminal law measures for committing a crime are applied only to individuals.

Tax consultant of TС Ekaterina Kopylova in an article for the publication «Company Lawyer» analyzed the approaches of the tax service and courts that companies encounter if challenging additional charges occurs simultaneously with criminal prosecution of managers for non-payment of taxes.

Bringing an organization to responsibility for a tax offense is carried out in the following stages:

• Conducting a tax audit, based on the results of which the tax authority makes a decision on bringing or refusing to bring the taxpayer to responsibility.
• Appealing the decision to a higher tax authority and then to the Central Office of the Federal Tax Service (optional).
• After appealing a decision to a higher tax authority, i.e. after complying with the claim procedure, a company may exercise the right to challenge an audit decision in an arbitration court by filing an appropriate application.

Criminal proceedings against an individual responsible for the evasion of compulsory payments by a company consist of the following stages:

• Initiation of criminal proceedings. 
• Preliminary investigation.
• Preparation for trial.
• Proceedings in courts of general jurisdiction.

It is important to remember that since 2022 the initiation of criminal proceedings on tax offenses may be carried out by investigative authorities only on the basis of materials sent by tax authorities based on the results of tax audit (paragraph 3 of Article 32 of the Tax Code of the Russian Federation, part 1.3 of Article 140 of the Criminal Procedural Code of the Russian Federation).

Thus, at present the tax audit in respect of a legal entity in all cases precedes the preliminary investigation and criminal proceedings in respect of an individual responsible for evasion of mandatory payments by a legal entity. But arbitration and criminal proceedings may take place simultaneously, or one of them may be completed earlier than the other.

In practice, there are often questions about the need to prove circumstances that have already been established in criminal proceedings or in arbitration proceedings, about the use of evidence obtained during the investigation and consideration of a tax dispute in arbitration court.

In fact, the courts consider the same fact of non-fulfillment of the obligation to pay taxes and fees only in respect of different persons: a legal entity and an individual responsible for it. However, at the same time, there is no complete identity between these two processes, as the subject of the offense, the type of legal proceedings, the subject matter and standards of proof are different, which cannot but affect the mutual influence of the processes on each other.

Arbitration courts listen to the verdict, to a lesser extent to the investigation

If the court in a criminal case has established that certain actions took place and that they were committed by a certain person, these circumstances shall have prejudicial value for the arbitration court, i.e. the parties in an arbitration case no longer need to prove them. This is provided for in part 4 of article 69 of the APC RF.

Sometimes arbitration courts directly indicate that they make a decision on the tax dispute only «after waiting for the consideration of the criminal case and the entry into force of the sentence», as, for example, in the case of LLC «Novocherkassk Autotransport Company» [1]. 

When making a decision on the tax dispute, the court took into account the testimony accepted by the criminal court, according to which the direct performer of obligations under the transaction was not the person who is a party to the contract. This was a fundamental factor in recognizing the justified additional VAT charge to the Company.

Of course, from the point of view of the procedural law, the bodies of justice should not «wait» for each other when resolving related cases, as it is assumed that both courts will issue fair acts, give a proper assessment of all the circumstances and evidence available in the materials of court cases, within the established time limits, taking into account the principles of judicial independence and adversarial proceedings. 

At the same time, the legislator has provided for the institute of prejudice (endowing court decisions that have entered into legal force with the property of prejudice) and established its limits to achieve such important goals as ensuring the validity of the principle of legal certainty and maintaining consistency of judicial acts.

Arbitration courts in their own way demonstrate the observance of the balance between the values described above. In particular, an arbitration dispute in relation to a company is usually considered in isolation from the materials of a criminal case.

For example, in the case of LLC «House of Clothing» [2] the taxpayer tried to justify the illegality of the tax authority's claims about the use of the scheme of «business splitting» by the results of the preliminary investigation, according to which 19 individual entrepreneurs out of 22 are not controlled by the taxpayer and do not participate in the scheme of «business splitting».

The court did not accept these arguments for the reason that the circumstances to be proved in a tax dispute in arbitration court and in criminal court are not identical, and the absence of grounds for bringing a particular official to criminal liability does not exclude the existence of grounds for bringing a legal entity to liability for a tax offense.

An expert examination establishing damage to the budget does not reduce a company's tax assessments

As part of the investigation of tax offenses, as well as at the judicial stage of consideration of a criminal case by the court of general jurisdiction often appoint the production of various types of expertise. Thus, an economic (tax, accounting) expert examination may establish the infliction of damage to the budget of the Russian Federation in a smaller amount than the amount of arrears specified in the decision of the tax authority in respect of the company.

When appealing against a decision on an audit, the expert's conclusions may be used as a basis for challenging a part of the arrears exceeding the amount of damage established by the expert examination. However, arbitration courts often do not recognize such a ground for reducing additional charges against a legal entity as justified.

This was the case, for example, in the case of Elektrostroy LLC [3]. The results of the forensic examination served as a reason for the Company to apply to the arbitration court with a petition for review of the case that had previously ended negatively for the company.

The court considered that the objectives of the expert examination within the framework of a criminal case are different from the objectives achieved within the framework of a tax audit, therefore, the amount of underpayment under the decision of the tax authority cannot coincide with the damage established on the initiative of the investigation.

Although this position is not undisputed, it prevails in judicial arbitration practice.

Use of the results of ORD in proving 

Materials obtained by investigative authorities in the course of operational and investigative activity (OIA) can also be used in arbitration court, as Article 89 of the APC RF allows the use of "other documents and materials" as evidence, provided that they contain information on circumstances relevant to the correct consideration of the case.

• Withdrawing and obtaining information 

Let us give just one example of the use by the tax authority of information about the activities of the company obtained in the course of ODS. 

In the case of LLC «Ak Tash Construction and Installation Company» [4], the tax authority imputed to the Company the distortion of the tax base with reference to the circumstances indicating the interdependence of the taxpayer and the disputed counterparties.

In support of this fact, the tax authority presented the results of operational search activities, which contained a hard disk with information downloaded from a special program for corporate document management and reporting. The data reflected that the accounting records of the disputed counterparties were maintained by the Company's employees and that managerial decisions regarding the submission of reports were made by the Company's general director.

• Wiretapping of telephone conversations

Law enforcement agencies have the right to listen to telephone conversations in accordance with paragraph 10 of Article 6 of Federal Law No. 144-FZ «On Operative Investigative Activities» dated August 12, 1995.

In the period when criminal investigation could precede or go simultaneously with a tax audit, there were situations when officials of the taxpayer during telephone conversations confirmed their involvement in the committed tax offense, disclosing defamatory information, which was then used in the arbitration court as evidence of the legality of bringing the Company to responsibility.

Thus, in the case of «Shulginskoye» Ltd. [5], the arbitration court accepted as evidence the results of a wiretap of a conversation between the founder of the Company and the General Director. The conversation was in relation to inspection measures on the Company's territory and included the following phrases: «Yes, yes, they are raring to go into the brewing [beer brewing shop]. I don't let them in yet, I keep pausing to have all the brew logs removed or destroyed».

The impact of the arbitration process on the criminal process

The Code of Criminal Procedure also contains rules of prejudice with respect to circumstances that are established by an arbitration court judgment that has entered into legal force. By virtue of Article 90 of the Code of Criminal Procedure, they must be recognized by the court, prosecutor, investigator, inquirer without additional verification.

This provision was realized, for example, in the case of JSC «Promstroyservis» [6], in which the arbitration court recognized the decision of the tax authority on additional assessment of taxes, penalties, fines - invalid. This decision was upheld in the courts of appeal and cassation instances up to the Supreme Court of the Russian Federation.

However, the criminal case [7] against the founder of Promstroyservis JSC in the court of first instance ended with a guilty verdict, despite the fact that the arbitration courts recognized the decision of the tax authority invalid.

The criminal court of appeal reversed the conviction and sent the case for a new consideration, pointing out that one should not unreasonably disregard the circumstances established by the arbitration court.

In the course of the arbitration proceedings, the conclusions of the tax authority on the fictitious financial and economic activities of the taxpayer were refuted. Such factual circumstances, in the opinion of the criminal court of appeal instance, were part of the subject of proof in the criminal case.

It is obvious that in criminal and arbitration proceedings different standards of proof are applied, and within the framework of a particular type of proceedings courts in their study are limited by their competence. But at the same time, the court in any case cannot leave without attention and evaluation the circumstances established by judicial acts that have entered into legal force, if they are important for the resolution of the case under consideration. Otherwise, it would be impossible to ensure the stability and general binding nature of the court decision, to exclude the conflict of judicial acts.

However, in practice there is an opposite position, when courts of general jurisdiction, considering criminal cases against persons responsible for non-payment of mandatory payments by the company, proceed from the lack of prejudicial value of the arbitration court decision, taking into account other evidence available in the materials of the criminal case [8].

But the identity of the factual circumstances that served as a basis for bringing to responsibility of both types (for a tax offense committed by a legal entity and related non-payment, recognized as criminal acts for an individual) and the situations described above demonstrate that an effective strategy to protect the rights of both legal entities and individuals, always includes an integrated approach to the conduct of both processes, taking into account all the subtleties and nuances of their mutual influence.

[1] The decision of Arbitration court of the Rostov region from 10.06.2024 of 10.06.2024 in the case of LLC «Novocherkassk Autotransport Company» № А53-13019/2021

[2] Decision of the Arbitration Court of St. Petersburg and Leningrad Region of 07.06.2024 in the case of LLC «House of Clothes» № A56-110840/2023

[3] Decision of the Arbitration Court of Moscow on refusal to review a judicial act on new or newly discovered circumstances of 21.05.2024 in the case of LLC «Elektrostroy» № A40-12146/2023

[4] Decision of the Arbitration Court of the Republic of Tatarstan of 29.05.2024 in the case of LLC «Ak Tash Construction and Installation Company» No. A65-30786/2023

[5] Decision of the Arbitration Court of the Altai Territory of 18.06.2021 in the case of LLC «Shulginskoye» № A03-3675/2018

[6] Decision of the Moscow District Arbitration Court of 29.03.2022 in the case of JSC «PROMSTROYSERVICE» № A40-306672/2019

[7] Sentence of the Kuntsevsky District Court of 10.10.2022 in the case of Tangiev B. M. № 01-0067/2022 (01-0513/2021)

[8] Determination of the Tyumen Regional Court of 10.03.2022 in the case of S. M. Vorotnikov No. 22-268/2022