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The Criminally Punishable Champion of the Budget


If a taxpayer is not guilty of non-payment of taxes, he may still be charged with a criminal offence.

Legislation on taxation and collections is being perfected: both at the cost of increasing the normative base, and in connection with its qualitative changes. The number of civil and criminal cases before various courts is increasing every year in geometric progression which, naturally, is aimed at ensuring a uniform application of taxation law.

But Russian tax authorities, by the looks of it, shall remain the “champions of brain benders” for a long time to come. In order to carry out their duties to ensure income into the long-suffering Russian state budget, the tax authorities have to keep devising new solutions to their problems.

And who are the best targets for extracting additional funds in order to fulfill (or, better still, exceed) the budgetary demands? But of course, those who are richer! Bankers, for instance.

The most tried and true method is to bring criminal charges against violators of the constitutional obligation to pay legally determined taxes and dues. Finding a reason to bring charges is not at all difficult. A body of the taxation police only needs to obtain a notice from the taxation authorities or a non-budgetary fund concerning arrears by our bank. If there is a debt, even a temporary one, on all taxes and other payments that amounts to more than 83490 rubles (a negligible amount for a bank) then things look grim.

The only thing left to do is find a foundation on which to build. But that’s a trifling matter by comparison with the coffers of the state! After all, should something be not quite right, the court will make any necessary corrections to any mistakes in the investigation.

The administration of the taxation police instituted criminal proceedings under art. 199 of the Penal Code of the RF against the managers of a commercial bank, charging them with evasion of payment of insurance contributions by organizations into state non-budgetary organs.

The materials of the criminal case show that the accused, in the situation where the bank they managed had arrears of payment into the Russian Pension Fund, spent the monetary resources of the bank on the payment of monetary deposits and interest on deposit accounts of natural persons, the bank’s customers.

Investigation revealed the reason why the pension contributions did not reach the accounts of the Pension Fund: all the means received on the correspondents’ accounts of the bank were written off by the territorial administration of the Central bank in order to settle arrears to the Obligatory Reserve Fund (ORF) and penalties thereof (any banker will probably shudder at the very mention of these terrible words).

But this was of no concern to the taxation police. So, the Bank of Russia wrote off the insurance contributions to the ORF. That is the bank’s problem, and its officials are accountable.

Let us try to argue against this position.

The employer, which was the relationship of our bank with its staff, pays pension contributions for its employees on the basis of the Resolution of the Administration of the Pension Fund of the RF of 11 November 1994 No. 258 “On the affirmation of the Instruction on the order of payment of pension contributions by employers and citizens into the Pension Fund of the RF.”

Clause 43 of this document states: employers pay monthly contributions at set times of reception by banks of means for payment of salaries for the past (for payers, issuing wages per calendar month – at the end of that month, - current) month, but no later than the fifteenth day following the month for which contributions are levied.

Taxation investigation showed that the bank carried out all payments of insurance contributions to the PF of the RF in time and to the full amount, that is, in the order designated by Resolution No.258.

According to p.9.2 of the Resolution concerning cashless transfers by crediting organizations in the Russian Federation, that was affirmed by the Central Bank of the RF on 25 November 1997 No.5-P, crediting organizations and their branches that have correspondents’ accounts (sub-accounts) in branches of the clearing network of the Central Bank, do not have the right to transfer taxes and other obligatory payments into the budgets of any level of state non-budgetary funds through correspondents’ accounts opened in other crediting organizations.

The investigation showed that the relevant orders for transfer of insurance contributions were carried out by the bank on time for execution to the branch of the Central Bank of the RF.

In accordance with art.45 (part 2) of the Taxation Code of the RF, obligations of paying tax are considered discharged by the taxpayer from the moment he orders the bank to pay the relevant tax on condition of there being sufficient funds on his account to do so.

At the time of the receipt of payment orders by the Bank of Russia concerning the transfer of insurance contributions, it had sufficient funds on its correspondent’s account for the transfer of the insurance contributions directly on to the accounts of the Pension Fund of the RF.

Art. 45 (part 2) of the Taxation Code of the RF also establishes that tax is considered unpaid if the taxpayer cancels his instructions or the bank returns the taxpayer’s order to transfer his taxes into the budget (non-budgetary fund), and also if at the time the taxpayer issues his order to the bank to pay the tax he has other undischarged obligations against that account and which, according to Russian civil legislation have priority, and the taxpayer has insufficient sums on the account to cover all demands.

Let us take a look at civil legislation.

In accordance with art. 855 (p.2) CC RF, if there are insufficient means on account to cover all documented payment demands into the budget and non-budgetary funds are rated third priority.

Materials of taxation investigations show that first and second priority unfulfilled obligations related to the correspondent’s account of the bank in the branch of the CB RF, that, in accordance with art. 85 CC RF are to be given priority, the bank had no outstanding orders for payment of insurance contributions at the time of submission of payment demands to the branch of the CB RF.

Thus, the bank had fulfilled its obligations concerning payment to the PF RF in complete accordance with taxation and legislative requirements.

In p.3 of the well-known Resolution of 17 December No.20-P “On inquiry into the constitutionality of points 2 and 3 of art. 11 of RF Law of 24 June 1993 “On federal organs of taxation police”, the Constitutional Court of the RF noted: in accordance with art.57 of the Constitution of the RF, everyone is obliged to pay legally established taxes and collections. The given constitutional obligation has a specific – namely, public and legal, and not private and legal (civil-legal) nature, that is conditioned by the public-legal nature of the state and state power, in the meaning of arts. 1 (part 1), 3, 4 and 7 of the Constitution of the RF.

The process of execution of this obligation includes, as well as the taxpayer, such credit organizations and state bodies that are charged with the public-legal duty of ensuring the transfer of the relevant payments into the budget.

Within the framework of the constitutional obligation of paying taxes, the taxpayer (in this instance – the bank) is charged with the public-legal obligation to pay legally established taxes and collections, and the CB RF with the public-legal duty to transfer the relevant payments into the budget and non-budgetary funds.

As indicated above, p. 9.2 of the “Resolution on the conduct of cashless transactions by credit organizations in the Russian Federation” provides that credit organizations and their branches are obliged to transfer taxes and other mandatory payments into budgets at all levels of state non-budgetary funds through correspondents’ accounts, opened in branches of the clearing network of the Bank of Russia.

Therefore, it is specifically the CB RF that bears the (self-assumed) responsibility for the public-legal requirement to ensure the transfer of insurance contributions onto the account of the PF RF.

Furthermore, execution of orders by any taxpayer for transfer of the tax (insurance contribution) into the budget (funds) must be carried out by the CB RF in the order of priorities established by civil legislation, in the course of one working day following the issue of such an order.

Moreover, art.53 of the Instruction on the order of payment of insurance contributions by employers and citizens into the Pension Fund of the RF, affirmed by the Resolution of the Administration of the Russian Pension Fund, on 11 November 1994 No.258, it is established that payment orders by employers for transfer of insurance contributions for their employees are to be executed as a first priority in accordance with the legislation of the Russian Federation.

However, as we have already mentioned, the branch of the CB RF , unacceptably used all means coming into the correspondent’s account of the bank for liquidating shortfalls of the bank and fines to the ORF.

Such actions by the CB RF constituted a gross violation of the priorities determined by civil legislation of the Russian Federation (art.855 CC RF), as extraction of means from the bank’s correspondent’s account according to documents relating to payments into non-budgetary funds and ORF (main debt and penalties), are rated sixth priority.

In another Resolution of 2 October 1998 No.24-P “On checking of the constitutionality of p.3 art. 11 of the RF Law of 27 December 1991 “On the fundamentals of the taxation system in the Russian Federation”, the Constitutional Court of the RF indicated the following: interpretation of art. 57 of the Constitution of the RF in systematic connection with its other provisions does not permit the conclusion that the taxpayer bears responsibility for the actions of all organizations taking part in the many staged process of payment and transfer of taxes into the budget.

According to part 2 art. 79 of the Federal constitutional law of 21 July 1994 No.1-FKZ “On the Constitutional Court of the Russian Federation,” a decision of the Constitutional Court of the RF acts directly and requires no confirmation by other state bodies or executive officers.

Thus, the taxpayer bears no responsibility for the actions of all the organizations involved in the process of payment and transfer of taxes into the budget. Confirmation of this is the principle of personal liability for committing a taxation-related offence , affirmed in art. 109 of the Taxation Code of the RF, according to which a person may not be brought to book for committing such an offence in the absence of personal culpability.

Insofar as the bank, as the payer of insurance contributions, carried out all the necessary actions to ensure the transfer of the relevant sums into non-budgetary funds that it was bound to do in accordance with the duties laid upon it by taxation legislation (it sent the branch of the CB RF transfers of contributions to non-budgetary funds on time and with sufficient means on its correspondent’s account to effect the transfer), the responsibilities established by taxation law cannot be applied to the bank, nor the criminal legislation of the Russian Federation.

Furthermore, as the insurance contributions into non-budgetary funds did not reach the PF RF as a result of violations committed by the administration of the Central Bank of the Russian Federation, with which the bank has a correspondent’s account (among other things, as a result of the bank’s payment orders not being executed), the responsibility for the factual non-receipt of the insurance contributions onto the accounts of the PF RF is borne by the CB RF in accordance with art. 133 of the Taxation Code of the RF, that prescribes the imposition of a fine to the amount of 1/150 of the refinancing rate of the CB RF, but no more than 0,2 percent for every day of delay.

Implementation of measures of responsibility does not release the CB RF from the duty of carrying out its responsibilities in transferring the insurance contributions onto the accounts of the PF RF.

Therefore, insofar as the insurance contributions did not actually reach the PF RF as a result of violations committed by the Bank of Russia, calling the bank’s executive officer’s to book on criminal charges under art. 199 CC RF is illegal.

The most interesting aspect is that the investigation seems to agree that it is not the fault of the bank’s officers that the insurance contributions did not reach the Pension Fund, and understands that the shortfall to the budget is due to illegal actions of the Central Bank of Russia and even promises to deal with the Central bank accordingly.

So, it would appear that the guilty parties have been identified. Therefore, can the case be closed?

By no means! The human imagination knows no bounds.

It appears that the bank officials should have employed cunning against the impregnable Bank of Russia: instead of at least returning the depositors their contributions (now depositors of commercial banks know whom they have to thank if they are unable to receive funds that have become “stuck” in banks), they should have paid all the taxes in cash on a monthly basis through the Sberbank.

Just imagine, dear reader: how much one must love the budget in order to ensure its well-being by repeating, over and over, unsuccessful attempts to pay taxes not in accordance with the law – that is, through an account with the Bank of Russia – but, even in violation of the law, by cash through the Sberbank. Surely the time has come to found a “club of ardent champions of the budget” !

But the problem is that no matter how one may desire it, the management of the bank would have still been unable to make a repaet payment of the insurance contributions in cash.

Firstly, the managers of the bank did not have the right to pay contributions for their employees in cash, because this was the direct responsibility of the bank.

Secondly, due to imperative provisions of legislation relating to taxes and collections, insurance contributions to the PF RF on behalf of employed citizens are paid by juridical persons – employers, only by cashless transfer.

These conclusions must be quite obvious to the staff of taxation policing bodies.

However, in accordance with the sad tradition entrenched in our country, investigators are, as a rule, unable to make courageous decisions and admit the unreasonable nature of their accusations, even in cases when these accusations are patently absurd.

We have touched on a very serious problem. But it is not the problem of the management of just one specific bank. Further development of the situation could, in the case of a one-sided, purely accusative approach to it by investigative organs, result in the institution of an enormous number of criminal cases against hundreds of people and professional bank managers, who have never evaded timely and full payment of taxes due. Such an “outlook” cannot but cause grave misgivings.

A.V. Popov, V.A. Sobolev

Source publication: Business lawyer [Biznes-advokat] 2000, No.6

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