Alexan­der Minin: Tax­ing is­sues

Kyiv Post Legal Quarterly - - Contents - By Ber­met Talant ber­[email protected]

Ukraine’s tax sys­tem has been tur­bu­lent. It is af­flicted with cor­rup­tion ex­ac­er­bated by con­vo­luted laws and pro­ce­dures. It is gov­erned by ex­tremes — large-scale eva­sion and small-scale en­force­ment overkill.

Add it all up and, de­spite Ukraine's rea­son­able tax rates, the ad­min­is­tra­tion of gov­ern­ment rev­enue col­lec­tion presents a bar­rier to greater eco­nomic devel­op­ment. Ac­cord­ing to the Busi­ness Om­buds­man Coun­cil, nearly half of all com­plaints they re­ceive are tax-re­lated. Specif­i­cally, com­pa­nies had prob­lems with value-added tax re­funds and heavy-handed crim­i­nal pro­ceed­ings ini­ti­ated by the State Fis­cal Ser­vice.

Hav­ing a good tax lawyer, con­se­quently, is as im­por­tant as hav­ing a good ac­coun­tant. This is where Alexan­der Minin, a se­nior part­ner at Kyiv-based KM Part­ners law firm, comes into the pic­ture.

Most of his clients are large com­pa­nies with for­eign cap­i­tal that have been op­er­at­ing in Ukraine for a long time. He helps them as­sert their rights. On the bright side, he said that he's de­tected an im­prove­ment in tax ad­min­is­tra­tion in re­cent years in Ukraine.

Over­pay­ing taxes

Many of Minin’s clients have been try­ing to get re­im­burse­ments on in­come tax pay­ments they made in ad­vance be­fore 2014. Com­pa­nies were charged based on prof­its of the pre­vi­ous fi­nan­cial year. But when Ukraine's econ­omy went into re­ces­sion in 2014, many com­pa­nies found out they over­paid taxes.

“It’s not that easy to make the gov­ern­ment re­turn money, but we man­age to, even if it's not the full amount,” Minin says. “Some­times it’s suf­fi­cient to file a law­suit, and the fis­cal ser­vice de­cides to re­turn over­paid taxes with­out wait­ing for the judg­ment.”

My­roslav Pro­dan, the in­terim head of the State Fis­cal Ser­vice, told law­mak­ers on June 20 that the tax agency is work­ing on re­fund­ing over­pay­ments. Ukraine now has the money to do so, thanks to a re­bound­ing econ­omy

and the elim­i­na­tion of some tax-eva­sion schemes. Tax col­lec­tions in the first quar­ter of 2017 ex­ceeded last year's pe­riod by Hr 6.4 bil­lion ($246 mil­lion). (Ukraine, from all sources, raises and spends about $40 bil­lion an­nu­ally in its state bud­get.)

Tax in­spec­tions

An­other is­sue is law en­force­ment agen­cies that abuse tax in­spec­tions. It is com­mon in Ukraine for pros­e­cu­tors to file re­quests to courts for per­mis­sion to con­duct in­spec­tions to in­ves­ti­gate pos­si­ble tax eva­sion. Minin be­lieves that is wrong. “Once a court, with a sin­gle or­der, al­lowed tax in­spec­tions of over 1,000 com­pa­nies. Can you imag­ine?” he ex­claimed. As a rule, he said, they are fish­ing ex­pe­di­tions with lit­tle or no prior ev­i­dence of tax eva­sion.

The norm that al­lowed law en­force­ment to con­duct fis­cal in­spec­tions as part of a crim­i­nal pro­ceed­ing and by court or­der was re­moved from the crim­i­nal pro­ce­dure code sev­eral years ago, but it re­mained in the tax code.

“We pointed at this de­fect to the courts, and in many cases we man­aged to get fis­cal in­spec­tions over­ruled,” Minin said. “Our most re­cent in­ter­nal sta­tis­tics show that in a third of cases when law en­force­ment and tax agen­cies turn to courts for per­mis­sion for tax in­spec­tion, judges de­cline, say­ing there’s no grounds for it.”

Help­ing courts

Minin is also in­volved in Ukraine's tardy but much needed ju­di­cial re­form. He was an author of ex­am­i­na­tion ques­tions for the High Qual­i­fi­ca­tion Com­mis­sion of Judges of Ukraine, which is help­ing to se­lect a new Supreme Court, ex­pected in July. He said that courts have, in the past, ruled to pro­tect the state bud­get in dis­putes in­volv­ing pri­vate com­pa­nies. More judges to­day, he said, are will­ing to give both sides a fair hear­ing.

The statue of Lady Jus­tice Themis on April 5 at the Supreme Court of Ukraine in Kyiv. (Volodymyr Petrov)

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