The declared policy of easing the pressure on business is bearing fruit. On September 18, the Verkhovna Rada of Ukraine approved Bill # 1080 in the second reading. Article 205 – Fictitious Entrepreneurship will be excluded from the Criminal Code of Ukraine.
It will be recalled that the plot of the article is formulated as follows: the creation or acquisition of business entities in order to cover up illegal activities or activities that are prohibited.
Interestingly, the first article on fictitious business appeared in 1994 in the 1960 Code, with only a slightly different plot: the creation or acquisition of business entities (legal entities) without the intention to carry out statutory activities, if it caused material damage to the state , bank, credit institution, other legal entities or individuals.
In the Soviet Union, there was also an analogue of this crime – “the activities of a false cooperative that serves the interests of capitalist elements.” Subsequently, entrepreneurial activity was outlawed altogether.
Expert circles have long established the reputation of the fifth wheel in the cart under Article 205, so the question of decriminalization in the agenda of the new parliament did not surprise practitioners.
What motives motivated lawmakers to decriminalize fictitious entrepreneurship?
First, the verdicts under Article 205 of the Criminal Code of Ukraine, the State Tax Service (SFS) were used as a guarantee of bringing a business entity to financial responsibility.
Thus, the fiscal authorities noted that fictitious enterprises helped to aggressively and illegally reduce the tax base of the real enterprise, which distorted the real financial result in the reporting. Thus, the state did not receive the taxes due to it.
For the taxpayer, the verdict against the director of the “fictitious LLC” opened the door for the appointment of inspections to all contractors of this enterprise.
The mechanism is quite simple: the verdict on the 205th allows to question the concluded transactions with the counterparties of the “fictar” as those committed without the intent of real consequences – a bona fide business transaction
Second, open criminal proceedings under Article 205 legalized seizures of documents, searches, and ongoing interrogations of staff, officials, and founders. Which, according to the creators of the bill, completely paralyzes the normal economic activity of the enterprise.
It should be noted that the active pre-trial stage in such cases surprisingly rarely ends with a real indictment. In 80% of cases, the investigation does not find enough evidence and grounds to really argue with business defenders in court. And those 20% of indictments that go to court usually end in plea agreements and a court fine of UAH 8,500 for the director.
What exactly is a fictitious company?
As a rule, such companies are created on fictitious persons who simply “sell” their passport. The purpose of the firm is to create the appearance of real business transactions, although in reality such transactions take place exclusively on paper. Real economic activity, such as the sale of goods, production, provision of services or performance of works, is not carried out.
Such enterprises always exist in the same legal plane with the real legal business. However, the disguise created by a “one-day” or “envelope” allows such firms to effectively wedge into business reality.
Neither the existence of Article 205 of the Criminal Code of Ukraine, nor the actual sentences under it, have eradicated the activities of “fiktars” in Ukraine. But real entrepreneurs continue to suffer from abuse by pre-trial investigation bodies and fiscals.
INSTEAD OF CONCLUSION
We in eq.legal support the decriminalization of Article 205 of the Criminal Code, because in itself a fictitious enterprise is rather a way of committing a crime under Art. 212 of the Criminal Code of Ukraine (tax evasion) than an independent crime.
In practice, Art. 205 served as an instrument of business nightmare, and the verdict on 205 meant a small fine for the “fictar” and millions in surcharges for his counterparties, without the need to prove the invalidity of the business transaction by the tax authorities