In May-June 2015, the Client met an acquaintance who, during their conversation, mentioned that a mutual friend of theirs needed assistance in running a business.
Later, this acquaintance contacted her, informing her that she needed to open an account at a bank and sign the necessary documents required for conducting business activities. In return, the Client would receive 2000 hryvnias.
When opening a bank account at the specified bank branch, there were approximately 10 people present, all of whom, like the Client, were opening card accounts to engage in operations with a company called "X" for a fee.
After opening the account, the Client handed over her payment card, signed the papers, and received a reward of 2000 hryvnias.
The individual mentioned earlier assured her not to worry, as their activities were completely legal.
Furthermore, the Client's vigilance was dulled by the fact that the card was not a credit card, and there could be no negative consequences, including debt to the bank, for using it.
After handing over the card, the Client had no further contact with any of the individuals involved, was not informed of any operations on the card, and did not provide consent. Consequently, she concluded that her card was no longer needed and closed the account.
But this is only the beginning of the story.
These individuals acted as a conversion center with the aim of evading taxes for businesses in the real sector of the economy and laundering money obtained through criminal means.
Indeed, this center included several individuals, both physical and legal, who used card accounts obtained for a fee to withdraw cash through ATMs and bank branches.
Over several months of their "work," they conducted transactions on the Client's card totaling around 9 million hryvnias.
The State Tax Service (then Fiscal Service) conducted an audit, as a result of which they assessed taxes against the Client in the total amount of 2.8 million hryvnias and filed a lawsuit to recover these taxes.
In November 2017, the Client sought legal assistance from the "Dispute" law firm.
Client's Interests Defense.
The court hearing in the case brought by the Fiscal Service was scheduled to take place in just a week, so time was limited, and the defense strategy needed to be considered as quickly as possible.
Administrative Proceedings.
The first step was to file a lawsuit to declare the tax assessment decisions unlawful and cancel the tax notifications to stop the proceedings in the Fiscal Service's lawsuit. The grounds for challenging the tax assessment decisions were the fact that the Client did not receive any income, as she was not involved in any entrepreneurial activities, particularly investment-related.
Additionally, the lawyer intended to use materials from the criminal investigation as evidence of the lack of grounds for tax assessments. However, the investigator and prosecutor did not provide any documents upon the court's request to obtain evidence.
Considering the insufficient evidence to support the legal position, the decision was made to initiate a criminal case regarding fraud committed against the Client.
Criminal Proceedings.
The criminal proceedings progressed slowly, but the police and the prosecutor's office worked relatively well. They conducted a formal investigation into the individuals who could be suspects in the case, and it was determined that they could not be found, which was documented in a report. Some documents related to the case finally emerged.
During subsequent court hearings at the District Administrative Court in Kyiv, the lawyer pointed out to the judge in their explanations that the contract between the Client and "X" LLC was void and fictitious, aimed at violating public order (Article 228 of the Ukrainian Civil Code). This was because it involved a criminal offense, as defined in Articles 208 and 212 of the Ukrainian Criminal Code.
Transactions aimed at illegally reducing tax obligations or obtaining budgetary compensation violate public order because they are designed to unlawfully appropriate state property (funds that were supposed to go to the budget or were paid from the budget).
The Client could not have carried out this operation since she did not have the funds to buy and sell securities worth 9,869,535.92 hryvnias.
Income certificates, entries in her employment record, and OK-5 certificates indicated that the Client had never earned close to 10 million hryvnias in her life to purchase securities. She had no money to buy and sell securities. Furthermore, she had no previous involvement in the securities market, was not a securities trader, and had no experience in securities trading. She was employed as a sales manager for travel services and a sales consultant. Thus, she had never dealt with securities and had no interest in them. When she signed the disputed contracts, she did not understand their content and did not attempt to understand it because she trusted the person (in fact, a relative) who asked for help and misled her regarding the true nature of these transactions.
However, these arguments were insufficient, and in light of the representative of the Fiscal Service's objections, it was decided to initiate another legal process – a civil one.
During the consideration of the civil case, the administrative proceedings were suspended based on the court's decision.
Civil Proceedings.
Dmytro Chuhuyenko, the lawyer, filed a lawsuit with Shevchenkivsky District Court in Kyiv to declare the contracts that led to tax assessments as void, based on the following grounds:
As a result of a group of individuals committing criminal offenses against the state, as outlined in Articles 205 and 212 of the Ukrainian Criminal Code, and in the case of the Client, Article 190 of the Ukrainian Criminal Code, she was unjustly assessed a tax debt in the amount of 2,858,954.18 hryvnias. This debt included 2,469,200.00 hryvnias for the income tax of individuals, 187,218.77 hryvnias in calculated penalties, 185,177.25 hryvnias for military duty, and 17,358.16 hryvnias in calculated penalties. This tax debt arose from the recalculated tax liabilities according to the tax assessment decisions, causing damage to her property rights.
According to the content of the Fiscal Service's reports, this tax debt arose from profits obtained from trading securities, with a total value of 9,876,120.00 hryvnias based on the disputed securities purchase-sale contracts.
However, the Client did not engage in any securities transactions and could not have done so due to the circumstances outlined below. As a result, her right is violated, and the disputed contracts should be declared void.
The disputed securities purchase-sale contracts were fictitious and, as a result, invalid because they were not intended to create rights and obligations according to the terms of these contracts. The Client never purchased securities worth 9,869,535.92 hryvnias because:
1. She did not have the necessary funds.
2. She had no connection to the securities market, was not a securities trader, and had no experience in securities trading.
3. Her income, as documented in her employment record, OK-5 certificate, and income certificates, showed that she had never earned nearly 10 million hryvnias in her life to purchase securities.
The income obtained from the difference between the alleged purchase price and the subsequent sale of the securities, along with the transaction dates, lacked any logic. According to the Fiscal Service, the Client supposedly purchased securities for approximately 10 million hryvnias on July 6, 2015, with the intent to sell them with a profit of 6,584.08 hryvnias (0.0667%) by October 1, 2015. Such actions indirectly demonstrate the lack of reality in the purchase and sale of securities.
LLC "X" and LLC "Y" are not real sector enterprises; they were established by unknown individuals with the purpose of systematically committing criminal offenses, namely, tax evasion (part of a conversion center) and fictitious entrepreneurship.
These facts are confirmed by the materials of the pre-trial investigation conducted by the Financial Police Department of the State Tax Service.
Yes, according to the official records, "the pre-trial investigation has established that a group of individuals withdrew cash through point-of-sale terminals and ATMs for a total amount of 39.11 million UAH from transactions involving the purchase and sale of securities that were not actually conducted.
As part of the pre-trial investigation, temporary access to the property and documents of LLC "X" was granted, and during the analysis of the cash flow, no relationship was established between LLC "X" and, in particular, the Client."
"Also, during the pre-trial investigation, no office, trading or warehouse premises, production equipment, fixed assets, and other conditions necessary for fulfilling the contractual obligations before counterparties specified in economic documents were identified. LLC "X" is registered at a mass registration address and is not located at the actual address.
In addition, as witnesses in the aforementioned criminal case, individuals were interviewed, from whose bank accounts cash withdrawals were made, and they showed that they had no connection to the purchase or sale of securities involving LLC "X" and LLC "Y," and the accounts at banking institutions were opened by them solely for monetary remuneration, with subsequent granting of power of attorney."
Furthermore, it is noted that the head of LLC "X" in a phone conversation stated that he is not the head and is located in the area of an anti-terrorist operation.
All these pieces of evidence, taken together, indicate that the disputed Contracts were concluded without the intention of their actual execution, as the Client did not acquire and could not acquire securities, and the Respondents did not intend to trade securities but aimed to engage in illegal activities and commit criminal offenses under the guise of legitimate economic activities.
Resolution:
On April 19, 2019, the Shevchenkivskyi District Court of Kyiv fully upheld the claim and declared the disputed contracts null and void.
Only in December 2019, the administrative court resumed proceedings, and in June 2020, it issued a decision that fully satisfied the claim for the cancellation of tax notifications.
In October 2020, the Sixth Administrative Court of Appeals denied the Main Department of the State Tax Service in Kyiv's appeal and left the decision unchanged.
On July 30, 2021, the District Administrative Court of Kyiv issued a decision refusing the Main Department of the State Tax Service in Kyiv in satisfying the claim for the collection of a tax debt in the amount of 2.8 million hryvnias.
The client can now live peacefully and not worry about this episode in her life.
An extremely complex, lengthy, and interesting cross-sectoral case.
A victory that we, the lawyers of the "Dispute" law firm, are rightfully proud of.
