On July 30, 2021, attorney Dmytro Chuguienko completed a three-year legal support case, which included multiple branches of law trial court proceedings. In the end, the attorney helped the client to avoid paying taxes of 2.8 million hryvnias (approximately 100 thousand US dollars at that time).

History

In May - June 2015, the Client met her relative who mentioned that his acquaintance needed help in running a business. Later on, this acquaintance contacted her and informed her that the Client was required to open a bank account and sign the necessary papers for conducting business. For such help, the Client would get 2,000 hryvnias or 70USD.

There were about 10 people in the branch of the specified bank, who, like the Client, had opened debit card accounts for a fee to carry out transactions with LLC "X". After opening the account, she gave away the debit card, signed the papers, and received a reward of 2000 hryvnias from the acquaintance. He assured The Client not to worry, as their activities are completely legal.

In addition, the Client's vigilance was dulled by the fact that the card was not a credit card, there could be no negative consequences for using it, in particular, no credit debt to the bank.

After handing over the Card, the Client did not contact any of the mentioned persons and was not informed about operations with the Card, therefore she came to the conclusion that her card is no longer needed and closed the account.

But it was just the beginning of the story.

That "acquaintance" and the company have acted as a conversion center (money laundering) to evade the payment of income taxes for enterprises in the real sector of the economy and to launder money obtained by criminal means. Thus, the specified conversion center included many individuals and legal entities who used card accounts to withdraw cash through ATMs and bank branches.

During several months of their "work", they carried out card transactions for a total amount of 9 million hryvnias and this amount is only for 1 card account.

The State Tax Service made an audit on those transactions and the Client was overcharged in taxes of 2.8 million hryvnias. Thus, the tax service filed a lawsuit to collect those funds.

Protection of the Client's interests.

In November 2017, the Client applied to the Disputes Counsels' Partnership for legal assistance.

The trial of the State Tax Service of Ukraine vs the Client had been scheduled for just a few weeks, so time was short and a defense strategy had to be generated as quickly as possible.

Administrative proceedings

The first thing that needed to be done was to file an administrative lawsuit for recognition as illegal and revoke tax notifications-decisions (hereinafter - "TND") to suspend the proceedings on the Tax Service's lawsuit to collect that huge debt.

The basis for appealing the TND was the fact, that the Client did not carry out any entrepreneurial activity and any investment activity in particular, thus did not receive any income.

In addition, the attorney intended to use the materials of the criminal proceedings as evidence of the absence of grounds for charging taxes. But the investigator and the prosecutor did not provide a single document at the judge's warrant to represent evidence.

Because of the insufficiency of the evidence base for proving the aforementioned legal position, the attorney decided to initiate criminal proceedings on the fact of committing fraud against the Client.

Criminal procedure

The criminal procedure progressed very slowly, but the police and the prosecutor's office did a pretty good job: they carried out a formal check on the persons who could be suspects in this case, established that they could not be found, and made a report on this.

At least some documents appeared in the case.

At the following court hearings in the District Administrative Court of Kyiv, the attorney drew the judge's attention to the fact that the Agreement concluded between the Client and LLC "X" was void and fictitious, because it was aimed at violating public order (art. 228 of the Civil Code of Ukraine) and because there was a criminal offense stated in art. 208, 212 of the Criminal Code of Ukraine. An illegal deal aimed at willful evasion of taxes or obtaining the right to a budget refund violates public order, as it is aimed at the illegal acquisition of state property (non-receipt of a substantial amount of funds by budgets or targeted state funds).

The client could not carry out this operation, as she did not have money for the purchase of securities of UAH 9,869,535.92. for their further sale. Statements of earnings, records in the workbook, and certificate OK-5 indicated that during her entire life the Client has not ever had an income of almost 10 million hryvnias to purchase securities.

At the same time, such arguments turned out to be insufficient, and taking into account the objections of the representative of the Tax Service, the attorney decided to start another legal process - a civil one.

And for now, the administrative proceedings had been suspended based on a court order.

CIVIL PROCEDURE

Attorney Dmytro Chuguienko filed a complaint with the Shevchenkivsky District Court of Kyiv to declare null and void the contracts that became the basis for tax assessment, on the following grounds.

According to the content of the Acts of the Tax Service, the specified debt arose from the profit from the transactions of purchase and sale of securities for the total amount of UAH 9,876,120.00. under the disputed Contracts for the purchase and sale of the securities.

The disputed securities purchase and sale agreements are fictitious and, as a result, null and void because they were not aimed at establishing, terminating, or changing civil rights and obligations provided in these agreements, due to the following:

The client did not purchase securities of UAH 9,869,535.92 because:

1. She had no necessary funds for this.
2. She never had anything to do with the stock market, is not a broker, and has no experience in trading on the stock market. As stated in the Client's workbook, she worked as a travel services sales manager and sales consultant. She had never come across securities and had no interest in them. While signing the disputed Contracts, she did not know their content. She did not try to find it out, as she trusted the person (actually a relative) who asked for help and misguided her about the actual content of the beforementioned transactions.
3. Income derived from the difference between the price of purchase and sale of the securities, as well as the dates of transactions did not make any sense. So, the securities were allegedly purchased for the price of UAH 9,876,120.00 and were sold for the price of UAH 9,869,535.92. According to the Tax Service, the Client purchased securities worth about 10 million hryvnias on 07/06/2015 to sell them by 10/01/2015 with a profit of 6,584.08 hryvnias. (0.0667%).

Such actions indirectly prove the lack of substance of the transaction of purchase and sale of securities.

1. LLC "X" and LLC "U" are not enterprises in the real sector of the economy, they were created by unknown persons to systematically commit criminal offenses: tax evasion, money laundering (part of the conversion center), and fictitious entrepreneurship.

The mentioned facts are confirmed by the materials of the pre-trial investigation of the Tax police in the Obolon District of Kyiv. Thus, according to official memos in the case, "the conducted pre-trial investigation found that a group of individuals withdrew cash through post terminals and ATMs in the total amount of UAH 39.11 million." from securities purchase and sale transactions that were not carried out.

As part of the pre-trial investigation, temporary access to the belongings and documents of LLC "X" was made. During the analysis of that documents and the movement of funds, the relationship between LLC "X" (code 39481091) and the Client was not found.

"Also, the pre-trial investigation did not find any sign of offices, commercial and warehouse premises, production equipment, fixed assets, and other conditions, which are necessary for the fulfillment of the contractual obligations to the counterparties specified in the business documents. LLC "X" is registered at the mass registration address and is not located at the address.

Along with this, individuals from whose bank accounts cash withdrawals were made were interrogated as witnesses in the aforementioned criminal proceedings, who specified that they had nothing to do with the purchase or sale of securities involving LLC "X" and LLC "Y"; and accounts in banks were opened by them exclusively for a reward with the subsequent issuing of powers of attorney ."

In addition, it is stated that the director of LLC "X" in a telephone conversation told that he was not the director and has always been is in Anti-Terrorist Operation Zone.

All these pieces of evidence completely indicated that the disputed Contracts were concluded without the purpose of their actual execution, since the Client did not purchase and could not purchase securities, and the Defendants did not intend to trade in securities but intended to carry out illegal activities and commit criminal offenses under the guise of legal economic activity.

On April 19, 2019, the Shevchenkivskyi District Court of Kyiv fully satisfied the claim and declared the disputed contracts null and void.

Only in December 2019, the Administrative court resumed the proceedings, and in June 2020, it passed a decision where the lawsuit for revoke of tax notices-decisions was fully satisfied.

In October 2020, the Sixth Administrative Court of Appeal refused the State Tax Service to satisfy the appeal and left the decision of the administrative court unchanged and in force.

Then on July 30, 2021, the District Administrative Court of Kyiv passed a decision refusing the claim for the collection of tax debt of 2.8 million hryvnias.

The Client can now live peacefully and not worry about this episode in her life.

That was an extremely complex, long, and interesting multi-branch case and we, the lawyers of the Disputes Counsels’ Partnership, have all the right to be proud of the victory that we gained for the Client.