On July 30, 2021, attorney Dmytro Chuguienko closed out a case that had run for three years across three separate branches of litigation. The result: the client walked away owing nothing on a tax assessment of 2.8 million hryvnias — roughly 100,000 US dollars at the time.
History
In May–June 2015, the Client was introduced through a relative to someone who said he needed help running a business. He asked her to open a bank account and sign a set of papers related to the business. In exchange, she would receive 2,000 hryvnias — about 70 USD.
She wasn't the only one. About ten other people at the same bank branch opened debit card accounts on the same terms, all tied to transactions for LLC "X." After opening the account, the Client handed over her debit card, signed the paperwork, and collected her 2,000 hryvnias. The acquaintance assured her there was nothing to worry about — everything was perfectly legal.
What made the arrangement seem safe was that the card wasn't a credit card: there was no way, she thought, that using it could leave her owing money to the bank.
Once she handed over the card, the Client heard nothing more from anyone involved. No one contacted her about activity on the account, so she assumed it was no longer needed and closed it.
That, however, was only the beginning.
The "acquaintance" and the company behind him were running a conversion center — a money-laundering operation designed to help real-sector businesses dodge income tax and to launder criminally obtained funds. The scheme relied on a network of individuals and shell entities whose card accounts were used to funnel cash out through ATMs and bank branches.
Over the course of several months, the Client's single card account alone processed 9 million hryvnias in transactions.
When the State Tax Service audited those transactions, it assessed the Client for 2.8 million hryvnias in unpaid tax — and then sued to collect it.
Protecting the Client's Interests
In November 2017, the Client came to Disputes Law Firm for help.
By then, the Tax Service's lawsuit was already just weeks from trial, leaving little time to build a defense.
Administrative Proceedings
The first move was to file an administrative claim challenging the tax notifications-decisions ("TNDs") themselves, seeking to have them declared unlawful and revoked. Doing so would also suspend the Tax Service's collection lawsuit while the challenge was pending.
The core argument was straightforward: the Client had never conducted any business or investment activity, and so had never earned the income the assessment was based on.
The attorney had hoped to draw on the criminal case file as evidence that there was no basis for the tax charge, but neither the investigator nor the prosecutor produced a single document in response to the court's order.
With the evidentiary record still too thin to carry the argument on its own, the attorney moved to open a second front: a criminal complaint alleging fraud against the Client.
Criminal Procedure
The criminal case moved slowly, but it moved. Police and prosecutors checked the individuals who might have been suspects, confirmed they couldn't be located, and documented that finding formally — which, however modest, put real paperwork into a file that had had almost none.
At the next hearings before the Kyiv District Administrative Court, the attorney argued that the agreement between the Client and LLC "X" was void as a matter of law — fictitious and contrary to public order under Article 228 of the Civil Code of Ukraine, and tied to criminal conduct under Articles 208 and 212 of the Criminal Code. A transaction structured to evade taxes or secure an unlawful budget refund offends public order by its nature, since it aims at the illegal acquisition of state funds — money the budget would otherwise have received.
There was also a simpler problem with the Tax Service's theory: the Client could never have carried out the transaction it described. Buying UAH 9,869,535.92 worth of securities would have required funds she never had. Her earnings statements, employment record, and official income certificate (Form OK-5) showed that she had never, in her entire working life, come close to earning that kind of money.
Even so, these arguments alone weren't enough to move the case forward, and given the Tax Service's objections, the attorney decided to open a third track — a civil claim — while the administrative proceedings remained suspended by court order.
Civil Procedure
Attorney Dmytro Chuguienko filed a claim with the Shevchenkivskyi District Court of Kyiv seeking to have the underlying contracts — the ones the tax assessment was based on — declared void.
According to the Tax Service's own records, the assessed debt stemmed from profit the Client had supposedly earned buying and selling securities worth UAH 9,876,120.00 under the disputed contracts.
The claim argued that those contracts were fictitious and therefore void from the outset, since they were never intended to create, change, or terminate any real legal rights or obligations. Several facts supported that conclusion:
First, the Client had no funds to buy UAH 9,869,535.92 worth of securities in the first place. Second, she had no connection to the securities market whatsoever — she wasn't a broker, had no trading experience, and had spent her career as a travel sales manager and sales consultant, according to her employment record. She had never encountered securities before and had no interest in them; she signed the disputed contracts without knowing what they contained, trusting the relative-connected acquaintance who had misled her about what she was actually signing.
Third, the numbers themselves didn't add up. The securities were supposedly purchased for UAH 9,876,120.00 and sold for UAH 9,869,535.92 — meaning the Tax Service's own version of events had the Client buying nearly 10 million hryvnias in securities on July 6, 2015, only to sell them by October 1, 2015 for a profit of 6,584.08 hryvnias, or 0.0667%. No legitimate investor structures a transaction that way, and the pattern itself undercuts any claim that a real transaction took place.
Finally, LLC "X" and its counterparty were not functioning businesses at all. They had been set up by unknown persons for the sole purpose of running a scheme of tax evasion, money laundering through the conversion center, and fictitious entrepreneurship.
That conclusion was borne out by the pre-trial investigation conducted by the tax police in Kyiv's Obolon district. Case memos from that investigation found that a group of individuals had withdrawn a combined UAH 39.11 million in cash through payment terminals and ATMs, tied to securities transactions that were never actually carried out.
Investigators had obtained temporary access to LLC "X"'s records and traced its fund movements, and found no relationship at all between the company (registration code 39481091) and the Client.
The investigation likewise found no offices, commercial or warehouse space, production equipment, fixed assets, or any of the operational infrastructure a company would need to honor the obligations described in its own business documents. LLC "X" was registered at what's known as a mass-registration address and, in practice, had no presence there at all.
The individuals whose bank accounts had been used for the cash withdrawals were questioned as witnesses in the criminal proceedings. They stated they had no connection to any purchase or sale of securities involving LLC "X" or its counterparty, and that they had opened their bank accounts purely for a fee, later signing powers of attorney over to whoever ran the scheme.
The person listed as director of LLC "X" said, in a phone conversation, that he had never actually served in that role and had spent the entire relevant period in the Anti-Terrorist Operation zone.
Taken together, the evidence made clear that the disputed contracts were never meant to be performed. The Client could not have purchased the securities in question, and the defendants had no intention of trading securities at all — the contracts were a front for criminal activity dressed up as ordinary business.
On April 19, 2019, the Shevchenkivskyi District Court of Kyiv granted the claim in full and declared the disputed contracts void.
The administrative case, suspended since 2018, resumed in December 2019. In June 2020, the court fully granted the claim to revoke the tax notifications-decisions.
In October 2020, the Sixth Administrative Court of Appeal rejected the Tax Service's appeal and left the lower court's decision in force.
Finally, on July 30, 2021, the Kyiv District Administrative Court dismissed the Tax Service's claim to collect the 2.8 million hryvnia tax debt.
The Client can now put this episode behind her for good.
It was a long, complex case that ran across three branches of law at once — and the outcome is one the team at Disputes Law Firm is genuinely proud to have delivered.
