Bringing to criminal liability of officials of organizations for tax evasion

April 2, 2014

We propose to consider the possibility of adoption by the Supreme Court of the Republic of Kazakhstan a Regulatory Resolution “On some issues of application by courts the legislation on criminal liability of officials of organizations for evasion of taxes and other obligatory payments to the budget”.

The Resolution is necessary to unify the legal practice, which today has been developed in such a way that the rights of entrepreneurs (taxpayers) are violated by the law enforcement bodies and the courts. At the present time there is an established practice when the officials of legal entities are made criminally liable under article 222 of the Criminal Code solely on the ground that the tax authorities charge taxes on the results of tax audit. In other words, the fact of extra-charged tax automatically equates to tax evasion. Tax authorities shall transmit the case files to the financial police and from that moment, the entrepreneur faces new problems, along with the obligation to pay extra-charged taxes. It should be admitted that the financial police often use this procedure to extract bribes by intimidation.

In our opinion, in a Regulatory Resolution, which is to be a source of law and enforceable by the courts and law enforcement bodies, there should be prescribed the disposition of article 222 (242) of the Criminal Code with the reference to the presumption of innocence, that criminal prosecution for tax evasion is possible if it is proved, that there was a direct intention in the actions of the official responsible for the calculation and payment of taxes, i.e. he was aware of the social danger, foresaw the possibility or inevitability of violation of tax liability, and wished the organization to avoid paying taxes. Herewith, the omission must also contain direct intention (e.g. the guilty person offered to supervisor or decided itself not to file the tax return for the purpose of tax evasion). It must be specified, that the law enforcement agencies and courts should take into account, that tax evasion could occur because of director’s, accountant’s, or tax manager’s  negligence (indirect intention). If during the investigation it is determined that failure to pay taxes was a result of negligence of the responsible official, he should not be held criminally liable. Negligence is that the official foresaw the possibility (not the inevitability) of violation of tax liabilities (for example, due to the uncertainty of taxation) and did not want the organization to avoid paying taxes.

Furthermore, we consider it is necessary to consolidate in the Regulatory Resolution a rule stating that the presence of explanatory letters to the tax authorities or the prosecutor’s office, following which the organization failed to pay taxes, should be the absolute ground for refusal to prosecute for lack of evidence. An official cannot be found guilty of tax evasion if he had acted in accordance with the official explanation of state bodies.  In this case, there will be no direct intention.

We believe that the adoption of this Resolution will improve the practice of investigating and consideration the cases on prosecution for tax evasion. This will help to ensure that law enforcement bodies and the courts will more thoroughly investigate all the circumstances of the case and more scrupulously treat the evidence. In turn, entrepreneurs get the confidence that their rights are protected, extra-charged taxes do not lead automatically to criminal prosecution, and that the accusation of tax evasion will be followed only if the direct intent is proved.

Nurlan Makenov