Changes in tax and other Criminal Code articles vital to businesses


Bryan Cave Leighton Paisner (Russia) LLP, formerly Goltsblat BLP in Russia, advises that, on 1 April 2020, the Russian President signed Federal Law No. 73-FZ “Amending the Criminal Code of the Russian Federation and Article 28.1 of the Criminal Procedure Code of the Russian Federation” (the Law). The Law, focusing on improving criminal law regulation of business, introduces an array of changes, such as the approach to calculating tax crime arrears, and liability for currency law breaches and for setting up a criminal association.

The most significant provisions:

The Law modifies the approach to calculating tax crime cumulative thresholds (Articles 198-199.4 of the Russian Criminal Code): they are now set only as fixed amounts at the top of the range of current values. In particular, the threshold for large-scale evasion (in large amounts) is set at RUB 15 m and particularly large-scale evasion (in particularly large amounts) at RUB 45 m for entities, these amounts being cumulative over three years.

The mechanism for calculating the criminal thresholds for arrears in consideration of tax paid by the taxpayer (the share of unpaid tax in total payable taxes) has been eliminated even though it seemed the most appropriate and fair approach as it factored in the general scale of the business and the taxpayer’s contribution to Treasury revenues.

These changes might bring down considerably the number of criminal prosecutions for relatively small-scale evasion (up to RUB 15 m) but will not usually increase the criminal thresholds for medium-sized and big businesses since the fixed cumulative thresholds remain at the current level. Moreover, law enforcement resources freed up by investigations into insignificant evasion cases being curtailed might be redirected to focusing on big businesses.

The Law also amends Criminal Code Article 193: Evasion of the duty to repatriate funds. Prosecution for failure to repatriate funds is now only possible if the accused has already been found liable for a similar offence under Article 15.25 of the Code of Administrative Offences. Thresholds triggering criminal liability for failure to repatriate have also been raised from RUB 9 m to 100 m for large-scale and from RUB 45 m to 150 m for particularly large-scale evasion. The Law simultaneously tightens liability for evading repatriation of proceeds by collusion: up to five years’ imprisonment.

Though higher criminal liability thresholds and the prior administrative liability condition in Criminal Code Article 193 are favourable developments for businesses, they fail to eliminate all current risks of currency-related Criminal Code articles being applied. In particular, the Law does not deal with Criminal Code Article 193.1 (Cash transfers to non-residents’ accounts under fake documents), its disposition and current law enforcement practice posing ever more significant criminal law risks, including when income types are reclassified for tax purposes. Criminal prosecution under this Article is still possible, for instance, for payment of interest or charges for intra-group services to foreign persons. 

The Law modifies Criminal Code Article 210 (Creation of or participation in a criminal association (criminal organisation)), whereby founders, members, officers, members of governing bodies and employees of an organisation will not be recognised as a criminal association by virtue of its organisation and staff structure alone (unless the organisation is known to have been deliberately set up for committing a grave or particularly grave crime). The aim here is to prevent investigators from making further unjustified use of Criminal Code Article 210 with respect to businessmen not involved in organised crime. Meanwhile, the modified wording still offers some leeway for law enforcers to interpret the Article at their own discretion and initiate criminal prosecution for creating and participating in a criminal association by referring to the organisation having been set up for criminal purposes. So, unless the modifications are properly applied, the current law enforcement trends might remain unfavourable for businesses without the modifications achieving any material improvement.

The changes introduced by the Law take effect ten days after their official publication.

Significantly, the draft Law initially submitted for the first reading could have engendered much graver risks for businesses. For instance, the draft Law originally cancelled the three-year restriction on calculating arrears in tax crimes, which, in many instances, would have increased the calculation period to ten years (the limitation period). Leading business associations developed suggestions for improving the bill and submitted them to the State Duma and the Executive Office of the Russian President. The proactive approach and position taken by the business community resulted in a more favourable version of the Law being passed.

Bryan Cave Leighton Paisner (Russia) LLP lawyers, in particular, Alexander Erasov, who heads the AEB tax crime working group and chairs the business protection working party at the German Chamber of Commerce Abroad (AHK) in Russia, have taken an active part in developing the improvements.

Should you have any questions or your interests need to be defended during investigations into tax and other economic crimes, Bryan Cave Leighton Paisner (Russia) LLP associates will be glad to provide the necessary legal support. For over five years, our firm has been successfully operating a cross-departmental Tax Crime Defence Group based on the Tax Practice and White Collar Criminal Defence team. Our Tax Crime Defence Group holds a unique position on the Russian legal market, joining the efforts of tax dispute resolution specialists and white collar crime defence lawyers to defend our clients.

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