The article examines the nature of suspension of debit transactions as a measure of tax enforcement. Based on the analysis conducted, the author establishes that suspension of debit transactions is an incentive-based measure of tax enforcement aimed not directly at collecting tax debt, but at encouraging the taxpayer to enable the controlling authorities to exercise their powers to apply other enforcement measures.
Keywords: enforcement, tax enforcement, tax enforcement measures, incentives in tax law, suspension of debit transactions.
Introduction
The Tax Code of Ukraine (hereinafter – the Tax Code of Ukraine) [1] establishes a number of enforcement measures, the application of which is invariably associated with restrictions on taxpayers’ rights. At the same time, despite numerous scholarly studies of enforcement in tax law, there is still no comprehensive understanding of its concept and nature. In addition, tax law scholarship currently recognizes established approaches under which tax enforcement measures are divided into three groups: securing measures, tax debt collection (restoration of rights), and liability; or into two groups: restorative and punitive measures.
At the same time, scholars classify particular enforcement measures differently, meaning that there is no comprehensive and unified understanding of the system of enforcement measures in the field of taxation. This is undoubtedly a shortcoming, since without such an understanding the effective implementation and improvement of Ukrainian tax legislation is impossible. The same problem arises with respect to suspension of debit transactions as a tax enforcement measure, since scholars consider this measure to be a form of seizure of property, whereas we are convinced that it is a specific measure distinct from seizure of property.
Certain issues of tax enforcement have been addressed in dissertations and monographic studies by scholars such as N. A. Sattarova [2], Yu. O. Rovynskyi [3], O. M. Duvanskyi [4], A. M. Tymchenko [5], and others. Despite the particular scholarly and practical interest in this subject, scholars take a rather one-sided approach to the classification of enforcement measures without distinguishing the specific characteristics of some of them.
Statement of the Objective
The purpose of this article is to demonstrate the need to distinguish suspension of debit transactions as a specific measure of tax-law enforcement.
Research Results
Tax-law enforcement measures are distinguished within the system of state legal enforcement in the field of taxation by the fact that their application is aimed at settling tax arrears. However, they are not homogeneous in terms of their purpose. Thus, according to the direction of their adverse impact, we classify them as (1) burdensome (property-related) measures, which are directly aimed at reducing the taxpayer’s assets, and (2) incentive-based measures:
(a) suspension of debit transactions (Articles 89.4 and 91.4 of the Tax Code of Ukraine);
(b) seizure of funds and other valuables held in a bank (Articles 20.1.32 and 20.1.33 of the Tax Code of Ukraine).
Traditionally, incentives in tax law are associated with tax benefits, inducements, and immunity. A tax incentive is a complex phenomenon embodying methods of influencing taxpayers through legal rules in order to encourage them to engage in lawful conduct both in the field of taxation and in other areas of activity, including economic, production, investment, and social activities [6, p. 20].
The purpose of legal incentives is not so much to prevent the possibility of offenses – crimes and other violations – as to create motivation aimed at effective lawful conduct and achieving a high level of performance.
A legal incentive in tax law is a complex legal phenomenon expressed as a particular form of interrelationship among legal rules governing tax control, the granting of tax benefits, and rules establishing a scientifically justified tax burden, as well as a means of creating a legal regime that encourages active and positive conduct in the interests of the individual, society, and the state [7, p. 140].
It should be noted that any form of enforcement is, by its very nature, an incentive to act, since enforcement, by its nature and purpose, encourages the taxpayer to act as required – to fulfill its tax obligation to the state. Therefore, distinguishing incentive-based measures as a separate type of tax-law enforcement measure is based on a fully justified rationale.
Incentive-based measures of tax-law enforcement are aimed not directly at collecting tax debt, but at encouraging taxpayers to enable tax authorities to exercise their powers to apply other enforcement measures. We believe that incentive-based measures in tax law are similar in their purpose to provisional measures in civil proceedings. Thus, provisional measures comprise a set of procedural actions intended to ensure enforcement of a court judgment if the claim is granted. Provisional measures are temporary and remain in effect until the judgment resolving the case on the merits is enforced. The types of provisional measures are provided for in Article 152 of the Civil Procedure Code of Ukraine. A claim may therefore be secured by:
seizure of property or funds belonging to the defendant and held by the defendant or other persons;
prohibition against performing certain actions;
imposition of an obligation to perform certain actions;
prohibition against other persons making payments or transferring property to the defendant or performing other obligations owed to the defendant;
suspension of the sale of seized property where an action has been filed seeking release of the property from seizure;
suspension of enforcement under an enforcement document challenged by the debtor in court;
transfer of the item that is the subject of the dispute to other persons for safekeeping. Where necessary, the court may apply other types of provisional measures. The court may apply several types of provisional measures.
A prerequisite for applying provisional measures is a sufficiently substantiated assumption that property – including funds, securities, etc. – held by the defendant when the claim is brought may disappear, decrease in quantity, or deteriorate in quality by the time the judgment is enforced. This legal mechanism is an element of the right to judicial protection and is intended to prevent certain consequences of actions aimed at restoring a violated right from becoming irreversible. It forms part of the mechanism for protecting human rights and freedoms, including through judicial proceedings, constitutes a guarantee of their protection and restoration, and therefore is an element of the administration of justice. Provisional measures apply at all stages of judicial proceedings – preparation, scheduling, consideration of the case, and enforcement of the judgment – and form part of a set of measures aimed at protecting public-law and substantive-law interests in administrative proceedings, as well as one of the guarantees of actual enforcement of a potential judgment favorable to an individual, since they enable the court, before rendering a judgment in an administrative case, to take measures to ensure the effective realization of the claims. The application of provisional measures should not be subject to exceptions with respect to acts, actions, or omissions of particular parties to judicial proceedings, because:
it is a discretionary power of the court rather than an obligation and is exercised depending on the circumstances of the case;
it is an element of judicial protection;
this legal mechanism is widely applied by European courts.
Incentive-based measures of tax-law enforcement may be applied when taxpayers obstruct the exercise of lawful powers by controlling authorities in order to stop such conduct. Thus, like provisional measures in civil proceedings, they are aimed at eliminating or preventing obstacles that may arise when controlling authorities exercise their direct powers to collect tax arrears.
For example, if a taxpayer refuses to allow a tax administrator to inventory the taxpayer’s property for purposes of a tax lien and/or fails to provide the documents required for such inventory, the tax administrator draws up a report documenting the taxpayer’s refusal to permit the inventory of property subject to the tax lien. The controlling authority applies to the court for suspension of debit transactions on the taxpayer’s accounts, prohibition against the taxpayer disposing of property, and an order requiring the taxpayer to allow the tax administrator to inventory the property subject to the tax lien. The suspension of debit transactions on the taxpayer’s accounts and the prohibition against disposal of the taxpayer’s property remain in effect until the date on which the tax administrator draws up an inventory report for the taxpayer’s property subject to the tax lien, a report confirming the absence of property that may be subject to a tax lien, or until the tax debt is paid in full. No later than the business day following the date on which these reports are drawn up, the tax administrator must send banks, other financial institutions, and the taxpayer a decision concerning the preparation of the reports, which constitutes the basis for resuming debit transactions and lifting the prohibition against disposal of property (Article 89.4 of the Tax Code of Ukraine).
If a taxpayer with tax debt obstructs the tax administrator in exercising the powers established by this Code, the tax administrator draws up a report documenting the taxpayer’s obstruction of the exercise of such powers in accordance with the procedure and form established by the central executive authority responsible for formulating and implementing state tax and customs policy. The controlling authority applies to the court for suspension of debit transactions on the taxpayer’s accounts and an order requiring the taxpayer to comply with the lawful requirements of the tax administrator established by this Code. The period for which debit transactions may be suspended is determined by the court but may not exceed two months. The suspension of debit transactions on the taxpayer’s accounts may be terminated early by decision of the tax administrator or the court (Article 91.4 of the Tax Code of Ukraine).
Pursuant to Article 20.1.33 of the Tax Code of Ukraine, the controlling authority has the right to apply to the court for seizure of funds and other valuables held in a bank belonging to a taxpayer with tax debt if the taxpayer (1) has no property and/or (2) the book value of its property is less than the amount of the tax debt and/or (3) such property cannot serve as a source for repayment of the tax debt. Pursuant to Article 20.1.32 of the Tax Code of Ukraine, the controlling authority has the right to apply to the court, where the taxpayer obstructs the tax administrator in exercising its powers, for suspension of debit transactions on the taxpayer’s accounts by imposing a seizure on securities and/or funds and other valuables of that taxpayer held in a bank – except for transactions involving payment of wages and taxes, fees, the unified social contribution, monetary obligations of the taxpayer determined by the controlling authority, and repayment of tax debt – and for an order requiring the taxpayer to comply with the lawful requirements of the tax administrator.
Conclusions
Accordingly, suspension of debit transactions is an incentive-based measure of tax-law enforcement aimed not directly at collecting tax debt, but at encouraging the taxpayer to enable controlling authorities to exercise their powers to apply other enforcement measures. In other words, when taxpayers create obstacles to the exercise of lawful powers by controlling authorities, incentive-based measures of tax-law enforcement may be applied in order to stop the taxpayer from creating such obstacles.
References and Sources:
- Tax Code of Ukraine: Law of Ukraine No. 2755-VI dated December 2, 2010 // Bulletin of the Verkhovna Rada of Ukraine. – 2011. – Nos. 13, 13–14, 15–16, 17. – Art. 112.
- Sattarova N. A. Coercion in Financial Law: Dissertation for the Degree of Doctor of Legal Sciences: Specialty 12.00.14 / N. A. Sattarova; All-Russian State Tax Academy. – Moscow, 2006. – 493 p.
- Rovynskyi Yu. O. State Coercion in the System of Financial Law of Ukraine: Monograph / Yu. O. Rovynskyi; Classical Private University. – Zaporizhzhia, 2011. – 404 p.
- Duvanskyi O. M. Coercive Measures Related to Failure to Fulfill the Obligation to Pay Taxes and Fees: Dissertation for the Degree of Candidate of Legal Sciences: Specialty 12.00.07 / O. M. Duvanskyi; Yaroslav Mudryi National Law Academy. – Kharkiv, 2012. – 206 p.
- Tymchenko A. M. Types of Coercive Measures in Tax Law: Dissertation for the Degree of Candidate of Legal Sciences: Specialty 12.00.07 / A. M. Tymchenko; National University of the State Tax Service of Ukraine. – Irpin, 2011. – 210 p.
- Laichenkova N. N. Incentives in Tax Law / N. N. Laichenkova. – Saratov, 2009. – 144 p.
- Miroshnik S. V. Legal Incentives in Russian Legislation: Dissertation for the Degree of Candidate of Legal Sciences: Specialty 12.00.01 / S. V. Miroshnik; North Caucasus Academy of Public Administration. – Rostov-on-Don, 1997. – 167 p.