Article 212 of the Criminal Code of Ukraine: When Tax Becomes a Criminal Matter

In modern Ukrainian tax practice, tax-related risks increasingly extend beyond financial penalties and administrative disputes. Article 212 of the Criminal Code of Ukraine, which criminalizes deliberate tax evasion, has become a powerful instrument — not only for combating malicious non-compliance but also, at times, for applying pressure on businesses operating in grey legal areas.

The difficulty lies in the blurred line between legitimate tax planning and actions that can be qualified as criminal evasion. It is no longer sufficient to meet formal tax reporting obligations; authorities now assess the economic substance of transactions, the actual activities of counterparties, and the taxpayer’s due diligence in business decisions.

What once appeared to be a standard contractual relationship may now attract the attention of investigators — especially in the absence of business rationale or when dealing with counterparties lacking real operational capacity. The presence of supporting documentation alone is no longer a shield. Courts increasingly evaluate context and intent.

Certain patterns repeatedly emerge in criminal investigations and can be considered red flags for businesses and their executives.

Typical scenarios that trigger criminal tax risks:

• Involvement with fictitious counterparties, including so-called “technical” companies that lack real business activity.
• Use of tax optimization schemes lacking economic rationale, which fail to meet standards of reasonable business behavior.
• Signing of primary documentation without proper due diligence — courts often treat lack of verification as evidence of potential intent.
• Formal inclusion of expenses without substantiation — e.g., inflated cost of goods sold or questionable depreciation strategies.
• Intentional understatement in tax filings — such as undeclared revenue, dual accounting systems, or “carousel” fraud.

Presence of one or more of these indicators, combined with quantifiable losses to the state budget, may result in a criminal investigation. Liability extends not only to signatories of tax returns but also to those influencing financial decisions — including chief accountants, financial officers, department heads, and beneficial owners.

A crucial feature of Article 212 is the requirement to prove intent. This shifts the legal strategy from purely procedural defense to demonstrating the economic logic behind transactions, the taxpayer's bona fide behavior, and internal compliance efforts.

Investigations are primarily carried out by the Bureau of Economic Security of Ukraine (BES), though the Tax Police (in transition) and National Police may be involved in complex or multi-offense cases, such as fraud or money laundering.

Sanctions under Article 212 vary based on severity — from fines and disqualification from certain roles, to imprisonment and asset confiscation in the most serious cases. However, the law provides an important opportunity: if damages to the state are fully compensated before the verdict is issued, the individual may be released from criminal liability.

This context requires a shift in how legal support is perceived. The tax advisor’s role is not only reactive but preventive. Building internal policies, conducting legal audits, and performing partner due diligence are no longer “best practices” — they are necessities. Legal preparedness is often what separates an operational issue from a criminal charge.