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«Too much even for our mirror-world». Lawyer Vadim Klyuvgant on abolition of limitation period for tax crimes in an interview to Fontanka.ru

Drafting of the respective ruling of the Supreme Court Plenary Session was announced in June of 2019. “These crimes shall be considered continuous offenses and the limitation period shall begin to run of the moment of the actual termination of criminal activity, i.e. of the date of voluntary settlement or enforced recovery of arrears, the document states. Now the limitation period for tax crimes amounts to 2 to 10 years. The proposal is contrary to the norms of the Russian Constitution and is a consequence of changes in Russian law triggered by the Yukos case, according to Vadim Klyuvgant, Partner and Co-Head of the Criminal Law Practice of Pen & Paper Attorneys at Law. In his interview to Fontanka the lawyer who represented Mikhail Khodorkovsky in the notorious case explained the essence and the risks inherent with the proposed novelties.

— How long has the issue existed in the domestic law? That is, the limitation period in general and for economic crimes in particular.

— The limitation period for institution of proceedings is one of the fundamental and irrevocable pillars of criminal law. In fact, of other branches of law involving liability as well. The sword of Damocles cannot hang over a person forever, as the public danger of the crime and its consequences is mitigated with time — that’s a law of life. And if the state failed to or was reluctant to initiate criminal proceedings against a person within the limitation period, and this person hasn’t fled, then the termination of this period grants a discharge from liability.

Even more so when it comes to economic crimes. There are exceptional cases when the limitation period may not be applicable due to especially grave public danger: crimes against peace and humanity, terrorism or aggravated murder.

— For how long has the idea of abolition of limitation period for tax offenses has been discussed in Russia?

— In this form the idea has never been and can never be discussed seriously, as it implies undermining of the basic principles of criminal law doctrine. That is exactly the reason to search for loopholes, so that the limitation period continues to exist on paper, but runs in such a way that is in fact impossible to apply. That is the construction contained in the draft ruling of the Plenary Session of the Supreme Court.

— In 2006 the Supreme Court already made a statement on tax crimes. Both now and then the moment of termination of a tax crime is considered the moment of non-payment of a tax within the period stipulated by the law. Now this has been mentioned by the Supreme Court spokesman Pavel Odintsov. What part does the Yukos case play in that?

— The Yukos case was in many ways an anti-legal precedent, including with regard to application of a retroactive law (which has been amended to the detriment of the tax-payer), double imputation of tax claims and sanctions, manufactured construction of a “wrongdoing” by the tax payer and simply conflicting judgments. Then all these and other “findings” were replicated in many other cases and became common practice.

— The new draft ruling of the Supreme Court contains a clarification which wasn’t there before: the limitation period shall begin to run of the moment of voluntary settlement of tax arrears. Until the person settles their tax arrears, the limitation period won’t start running. Who is going to gain from this ruling and in what way?

— In no particular way, except for global dominance of fiscal objectives, including over law and legitimacy, which I cannot explain.

— Fellow lawyers are terrified by the actual introduction of retroactive force to this law. Why?

— I agree: the definition of the moment of termination of a tax crime contained in this draft ruling of the Plenary Session of the Supreme Court directly contradicts the law and actually makes it impossible to apply the limitation period, if a taxpayer does not admit to charges and challenges them, and consequently does not settle the arrears or the sanctions. No aggravating novelty may be applied in a retroactive law — it's directly prohibited by the law. Even more so a clarification by the Plenary Session of the Supreme Court. It’s directly prohibited by the Constitution and the Criminal Law. But that doesn’t help much, and no one can guarantee against such attempts in practice. We can only hope that this creative solution doesn’t make the final text of the ruling.

— The idea is based on the fact that tax crimes are continuous. How fair is that from the legal point of view?

— There are limits to everything, including to fiddling with legal terms. The components of the crime are stipulated by the law: “Tax evasion by way of failure to submit a tax declaration (return) or other documents submission whereof is obligatory under the laws of the Russian Federation on taxes and fees, or by way of inclusion into the tax declaration (return) or such documents of knowingly false information.” As soon as these actions are performed the crime is committed. And the moment of its commission has absolutely nothing to do with further actions with regard to mitigation of damages incurred, including the settlement of arrears.

— Fellow lawyers stress the multiple contradictions inherent in the new document to be adopted by the Supreme Court. For instance, it goes against the notes to art. 199 of the Criminal Code, which interpret the payment of tax arrears as active repentance and grounds for dismissal of the case. What is the most important point in the idea of abolition of limitation period for tax crimes for you?

— This novelty, should it become the law, will be that very sword of Damocles, pushing directors, beneficiaries and employees of taxpayer organizations to compensate to the state anything it demands, regardless of consent to these claims or the limitation period for tax liability of the organization. Not to mention the fact that physical persons shall not be liable for tax obligations of a legal person. Some time ago (before the Yukos case) it was a principle no one argued with. Now the times have changed and we see what we didn’t use to believe... The mechanism of active repentance stipulated by the note to art. 199 of the Criminal Code of the RF, should the novelty at hand proposed by the Supreme Court be adopted, will also be dropped out of the equation.

— Under the current edition of the Tax Code non-recoverable arrears shall be written off. Will an amendment of the Tax Code be inevitable?

If this provision stays in the ruling of the Plenary Session, we are inevitably looking at yet another disbalancing of law enforcement practice in both criminal and tax law on a quite dramatic scale. But twisting up tax law out of this whimsy seems too much to me, even for our mirror world.

— According to data provided by ombudsman Boris Titov, 37% of all applications to him are tax cases often initiated without investigation of the intent of defendants in such cases, just based on the fact of non-payment of taxes found in the course of a tax investigation. Is there a need for facilitate the work of investigators?

— Our law-”entombing” agencies do not want to and do not know how to prove criminal intent for tax evasion and that is a well-known fact to anyone involved in this sphere. Just like the fact that in accordance with the law no direct intent means no tax crime.

— Are tax offices virtually becoming preliminary investigation agencies?

— Actually tax authorities have been jointly working with the MIA, the FSS and the Investigative Committee and under the same instruction for a number of years now. That is no secret either.

— The business community is asking to refine the very notion of non-payment of taxes with regard to intention of the act. And also to distinguish between fictitious transactions and transactions effected with a tax-related main objective, since in the latter we are talking about an abuse of a right rather than a crime. May the Supreme Court's judgment be adjusted?

— There is no judgment of the Court just yet, but there is a draft ruling of the Plenary Session. And that, undoubtedly, may and should be adjusted with regard to the matter at hand. It will be possible if those who deem important to preserve the remnants of law and the economy in this country demonstrate and rationalize their unanimous stance.

— Can what we are witnessing now have any connection to the so-called third Yukos case, the existence of which was confirmed by the General Prosecutor Yury Chayka? As if it were based on the results of the audit of the oil company before the sale of a share of it to American shareholders.

— Let’s start by saying that the prosecution hasn't investigated a single case in the last twelve years as it doesn’t have the respective authorities. But somehow it is the General Prosecutor’s office that occasionally blurts out some sensational news on some new findings in the Yukos case. That’s one thing. Another thing is, the Yukos case is immortal like the Koschei: some investigative group in the Investigative Committee of the RF has been investigating something there for 16 years now. Lieutenants from that group have become generals; some of them have been stripped of their ranks or positions or put in jail. Others continue their way up the career ladder. So The General Prosecutor must know best what and why he “confirmed” yet another time... I know this case first-hand and I can only say that in the latest stories I haven’t heard or seen anything that hasn’t been already voiced in the sentences of the so called Yukos case.  

— So the mantra to stop nightmarizing businesses seems to be working just the other way around. Is that a problem for the economy?

If we regulate the economy and the state in general with the baton of criminal repression, as we have been witnessing here for almost two decades now, then the direction of our drift and its final destination are beyond dispute.

— Perhaps we are not the only ones and that’s an international experience? Is there anyone equally nifty in the war on tax crimes?

A state, in implementation of its fiscal functions anytime and anywhere over the span of human history, has always searched for new opportunities. And the taxpayer has always been resisting these changes wherever they are. The scale of this resistance may vary, but the best solution is always a reasonable compromise. Otherwise we face the issue at hand which never ends well for either of the parties. For instance, the first migrants to the US were the British, who were unhappy with the crown’s tax crackdown. Britain lost many of its entrepreneurial people and America found them. No taxes were added to the crown's treasury. I personally have never witnessed “maneuvers” like the ones recently proposed by the Russian Supreme Court. And in pre-Soviet Russia these “maneuvers” were called a very precise and specific term — subterfuges.

Nikolay Nelyubin reporting for Fontanka.ru