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14 April 2017 How Taxes Unpaid by Companies Are Recovered from Individuals

Legal update No 595

Goltsblat BLP advises that the practice of recovering unpaid corporate taxes from individuals is gaining momentum.

In 2015 (Goltsblat BLP's Legal Update No. 527 of 8 September 2015 (http://www.gblplaw.com/news/legal/81406/), we advised that the Supreme Court of the Russian Federation, in the Zagurskiy (No. 3-UDp14-2) and Ivkin (No. 81-KG14-19) cases, had secured that a company's tax arrears may be recovered from individuals found guilty of tax crimes.

This triggered an escalation of similar cases. At the same time, in 2016, courts rolled out, on a huge scale, the practice of making not only formal but also actual heads of companies, in many instances business founders and beneficiaries, accountable for tax offences. Within the scope of such cases, tax authorities successfully recovered from individuals taxes that should have been paid by companies.

The Constitutional Court has repeatedly recognised this general jurisdiction court approach as complying fully with the Constitution of the Russian Federation (Rulings of the Constitutional Court of the Russian Federation No. 2731-О dated 19 November 2015, No. 1580-О dated 19 July 2016 and No. 2316-О dated 25 October 2016).

In its new Ruling No. 396-O dated 28 February 2017, the Constitutional Court expressly confirms that absence of any economic benefits (embezzlement of funds) for an individual found guilty of non-payment of corporate tax (Article 199 of the Russian Criminal Code) does not preclude recovering the organisation's arrears from them to compensate for the damage caused by such crimes.

It is important to note that, in practice, an organisation's tax arrears may currently be recovered from its management by different methods: as a result of criminal offence investigations with or without subsequent filing of claims for damages. For example, in the Sunrise Tour case, corporate tax arrears of over RUB 1 bn are to be recovered, as secondary liability within the company’s bankruptcy proceedings, from its General Director, who is also to be held criminally liable (No. А40-89736/2013).

So we may say with certainty that a new era has come of manager and business owner personal liability for company’s’ tax arrears.

In view of these developments, when planning operations and developing defence tactics, we recommend considering the potential adverse consequences in terms of both criminal-law prosecution and personal material liability of business managers and owners. For this purpose, a comprehensive approach and defence of the business as a whole, together with its management, should be structured from when an audit of the company's tax liabilities is launched by tax or law enforcement authorities.

Goltsblat BLP's Tax Crime Defence Group has accumulated a wealth of experience in providing clients with tax dispute support and white collar crime defence and they will be happy to provide comprehensive legal support in relation to criminal and other responsibility of managers and beneficiaries.

Should you have any questions or require additional information, please contact Tax Crime Defence Group associates:



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