Delineation of Tax Militsia’s investigative competences in the Draft Regulation on State Tax Service of Ukraine

EUAM, 11 February 2019

State of play with regard to the Tax Militia:

Given that a chapter on Tax militia was excluded from the Tax Code of Ukraine by the Verkhovna Rada two years ago, this agency continues to operate within a legal “grey zone” with dubious legal status. In 2018, Tax militia investigated almost 2 600 criminal proceedings. The biggest share (38%, 983 cases) of pre-trial investigations pertain to tax evasion, which is in exclusive investigative jurisdiction of the Tax Militia. However, the judiciary statistics show that only 12 convictions resulted from those proceedings and came into force in 2018, which testifies to the poor effectiveness of the agency. This poor efficiency serves as one of the arguments for establishing a specialized LEA to combat economic, financial and tax crimes efficiently.

Another problem is the detrimental effect that the unreformed Tax Militsia continues to have on the business climate in Ukraine, as there is a continuing trend for abuse committed by Tax Militsia’s employees in its ongoing criminal cases. According to the Business Ombudsman Council’s report for Q4 2018, at least two major cases addressed to the BOC pertained to violations on the part of the Tax Militsia (among the total of 11 cases pertaining to State Fiscal Service as a whole). In one of those cases, the Tax Militsia did not react to the BOC-proposed settlement measures, and in the other one the criminal case was eventually closed.

Specific remarks and suggestions with regard to the draft Regulation

1. The tax militia is only mentioned once in the draft Regulation (in para 7). This is not sufficient, as the draft Regulation is supposed to be the only legal document regulating the activities of the tax militia (given the lack of specific reference to Tax Militsia proper in the Criminal Procedure Code and the removed section on Tax Militsia in the Tax Code). Considering the ongoing discussions of the expected reform of the Tax Militsia into a financial investigation service, it is advisable to include a specific provision into the regulation that the tax militia continues to exist before the new specialized LEA to tackle economic, financial and tax crimes is established.

2. The definition of the Service’s functions in para 1 (“…state policy in the field of combating offenses in the course of enforcement of tax legislation…”) does not match the relevant definition of investigative competences in Article 216 para 3 of the Criminal Procedure Code of Ukraine (“bodies …supervising compliance with tax laws…”). Given that the tax militia does not currently have any other legal grounds for its continuing functioning, this regulatory discrepancy is likely to lead to further court decisions excluding the Tax Militsia from conducting pre-trial investigations.

3. The provision in paragraph 3 point 2 (“submission of proposals to the MoF”) appears to give the State Tax Agency a lead role in submitting proposals for changing state policy in countering tax offences and budget revenue policy. However, the policy-formation process should be in the exclusive remit of the Ministry of Finance, and allocating responsibility to the executive agency for de facto reforming itself – especially when it is established in the Regulation – creates a conflict of interest. The role of the State Tax Service in the upcoming process of reforming the Tax Militsia should be – at best – an advisory one.

4. The provision on analytical capacities in point 40 of para 3 of the draft Regulation (“…offenses in taxation, customs and budget areas…”) does not match the competences outlined in para 1 of the draft Regulation and include the issues beyond their competence. It is not completely clear from this provision what the role of the tax militia with regard to customs and budget spheres is.

5. The point 43 of para 3 of the draft Regulation (“ensure the security of activities”) appears to preserve the SWAT units as part of the Tax Militia. Such a provision is contrary to the current expectations of shifting the focus from a highly-militarised body to a law enforcement agency with a predominant analytical capacity.

6. The provisions regarding the competences of the Tax Militsia are scattered among the 76 tasks in the draft regulation, which may create an impression of trying to conceal these some core functions among the more technical ones. For example, points 35 and 36 of the paragraph 3 outline the core investigative competences of the Tax Militsia among the service functions. It is advisable to group the tasks of the tax militia under para 3 of the draft Regulation to ensure that it does not step beyond its legally defined mandate.

7. The managerial subordination of the chief of Tax Militsia remains rather unclear, as it is limited to point 11 of para 11 (“Head of STS… appoints and dismisses the chiefs and deputy chiefs” [of structural units]). However, this provision seems to provide no legal requirement for holding a competitive selection for the chief of Tax Militsia.

8. In terms of internal managerial procedures, some provisions of para 13 appear to be vague: “…collegium may be formed…; decisions of the Collegium may be implemented…”). The provision does not elaborate on the cases in which the establishment of the Collegium is required and how its decisions are enforced.