 |
Co-authored
by
Andrii Kuleba
(Junior
Associate of
Lavrynovych & Partners Law Firm)
|
Ideally,
the resolution
of
the
tax
disputes
by
way of a settlement
between
“warring”
parties,
the tax
authority
and
a
taxpayer, could be considered as an effective and prompt method of
having such disputes decided. However, it was impossible to implement
this method for quite a long period of time.
History
of the issue
Resorting
to
the
history
of
the
issue
in
question,
first
of all it is worth noting the Law of Ukraine No. 2181-III of
21 December 2000 “On Procedure for Repayment of Tax
Obligations to State Revenues and State Specialized Funds” (lost
effect following the enactment of the Tax Code of Ukraine).
This
Law set out the procedure for a settlement of disputes between the
tax authorities and taxpayers on the basis of a tax compromise.
Simultaneously, there were effective provisions of the Economic
Procedural Code of Ukraine (at the time this Code governed the
resolution of tax disputes) with respect to the possibility of
entering into settlement agreements between parties. However, neither
tax compromises were reached, nor settlement agreements in tax
disputes were approved by the courts. Most probably, the reason for
that lay in the absence of the political will to carry out such
“suspicious manipulations”.
Somewhat
widespread a settlement of tax disputes became just recently (in
2012-2014). The pressure with respect to the pumping up the state
revenues increased so much that the taxmen began to accept a
short-term effect achieved by the settlement. Though the state
revenues obtains less receipts as a result of the settlement, there
is no need to wait years for the final resolution of the dispute.
Some kind of “the revolution of consciousness” happened in the
minds of “the respectable sirs” of our tax authority.
So
how
does
a
settlement work in
tax
disputes
and
what
lessons
can
be
learnt
from
the
current court
practice?
Word
of the law
The
respective
issues
are
governed
by
the
Administrative
Proceeding
Code
of
Ukraine
(hereinafter
– the
“AP
Code”),
which
directly provides for the possibility to settle the case between the
parties to the litigation.
According
to
the
AP
Code
mutual concessions should be at the heart of a settlement.
A
settlement may
only
deal
with
the
rights
and
obligations
of
the
parties
to
litigation and may not go beyond the subject of the claim.
The
procedural
consequence
of
a
settlement is
the
ruling
on
the
closure
of
the
proceedings.
Such a ruling should also contain the terms and conditions of the
settlement.
The
AP
Code
clearly
states
that
it
is
possible
to
reach
a
settlement
at
any
stage
of
the
administrative
proceedings,
namely:
(і) within
the
preliminary
procedure,
(іі) during
the court hearings in the court of first instance,
(ііі) within
the first appeal proceedings,
(іv)
within
the second appeal (cassation) proceedings
and
(v)
at
the stage of the enforcement of court judgments.
The
legislation also embraces the list of requirements to the terms and
conditions of a settlement.
First,
a settlement should
not
contradict
the
law.
Second,
a settlement should not make up a breach of anyone’s rights,
freedoms or interests.
That
said,
the
legislative requirements to a settlement are quite standard. If the
court finds the terms and conditions of a settlement being
incompatible with at least one of the aforementioned requirements,
the court will not accept such a settlement (section
51
(4) of the AP Code).
Of
particular interest is
the
fact that
the
control
over
the
performance
of
a
settlement
agreement
is
carried
out
by the administrative court which was in charge of its approval.
The
AP
Code
unambiguously
provides
for
that
in
the
case
of
the non-performance
of
the
settlement
agreement by
one
party,
the
court
renews
the proceedings upon
the
application
of
the other party.
Actual
realities
First
that can be noted is that sometimes courts use incorrect name of a
settlement in their rulings (Ukrainian “мирова
угода”
(“myrova ugoda”) instead of Ukrainian “примирення
сторін”
(“prymyrennia storin”)). The rulings
of
the
Odesa
Administrative
Court
of
Appeal
dated
18 December
2013
in
the case No. 814/1270/13-а
(challenging a notice of assessment) and of
the
Zakarpatskyi District Administrative Court dated 14 January
2014
in
the case
No. 2a-0770/527/12
(challenging
a notice of assessment) are good examples of this approach.
Somehow
different approach
is
contained
in
the
ruling
of
the
same Zakarpatskyi
District Administrative Court dated
27
September 2013
in
the case
No. 807/3463/13-а
(tax
debt collection).
In
this case parties concluded a settlement agreement, called it “мирова
угода”
(“myrova ugoda”)
and filed it with the court for the consideration. The court pointed
out that a “мирова
угода”
(“myrova ugoda”)
is not stipulated by the AP Code. Nevertheless, the court accepted
its terms and conditions and closed the litigation.
Sometimes,
despite
the
requirements
of
the
AP
Code,
the
judges
demonstrate
“laziness”
in setting forth the terms and conditions of a settlement
agreement in their rulings.
An example
of
such
an
“inactivity” is the ruling of the District Administrative Court
of the City of Kyiv
dated
27 April 2012
in
the case No. 2а-1999/12/2670
(tax debt collection).
As
to
the
nature
of
tax
disputes
in
which
a
settlement is usually attained, there may be two main categories
outlined.
The
first one is tax debt collection claims brought by the
tax
authorities
against
taxpayers.
The second one is claims of taxpayers against
the
tax
authorities
related
to the cancellation of notices of assessment.
Does
the court always humane?
It
should be noted that in the majority of cases the court accepts the
terms and conditions of the settlement and closes the proceedings.
However, the opposite situations are also possible.
Of
great interest in this
aspect
is the
ruling
of
the
Donetsk
Administrative
Court
of
Appeal
dated
1 October 2013
in
the case
No. 2а/0570/8782/2011
(challenging a notice of assessment). In this case that, by the way,
relates to the
Ukrainian
subsidiary
of
the
world
biggest
producer
of
construction
materials
with the German place of registration – Knauf, the parties
submitted to the court the rather “sophisticated” settlement
agreement. We can just assume that “pricy” lawyers from a
top-tier law firm billed a great deal of hours for drafting such an
agreement.
It
seems that Knauf
was
deeply
concerned
with
the
risks
related to settling the tax dispute.
First
of all, they worried about a risk
of
brining
criminal charges.
The
lawyers
of
the
company
were
afraid
that
the
conclusion
of
the
settlement
agreement
according
to
which
the
company
agreed
with
the
additional
tax
assessment
could be
considered
by
the
tax
police
as
the
confession
of guilt for the tax evasion.
Accordingly,
the provisions of the settlement agreement were drafted so as to
minimize that risk to the greatest possible extent.
In
particular,
it
was
prescribed
by the settlement agreement that
Knauf discharges
additional
tax
payments
not
because
it agrees with them, but
exclusively
based on its pragmatic
considerations
taking
into account numerous further expenditures needed for
the continuation of the proceedings. In
addition,
the
settlement
agreement
contained
the
prohibition
on
the
criminal
prosecution
of
the
executives
of
the
company
in
connection with its possible interpretation as the recognition of the
lawfulness of the additional tax bill.
The
Donetsk
Administrative
Court
of
Appeal
rejected
to
accept
such
a
“tricky”
settlement
agreement
maintaining that its terms and conditions did not comply with the
statutory requirements.
In
lieu of conclusion
It
appears that a settlement begins
to
enter confidently the
practice
of the resolution of tax disputes.
To
date,
there
is some
judicial practice on
this issue.
Hopefully,
the
scope
of
the
application of this efficient
way
of the dispute resolution will
only
expand.
* - Photo from http://www.mobilimize.com
On April 8 and 10, 2014, the Verkhovna Rada adopted two Acts introducing amendments to the Tax Code of Ukraine:
