State Bureau of Investigation closes criminal proceedings against streaming platform

Other issues Zaporizhzhya region

Complainee:  The Main Investigation Department of the State Bureau of Investigation (MID SBI)
Complaint in brief: The Business Ombudsman Council received a complaint from an American Online Streaming Platform representative office (office). As a result of the audit, the tax office decided to increase the VAT amount to be paid by the company to UAH 9 mn and accrued a fine of UAH 529 k.
Tax officers concluded that the company met the criteria of a “permanent office”, as its actual activities allegedly coincided with the main activities of the parent company, namely production and sales of specialized video broadcasting equipment. The company explained that the representative office in Ukraine provided only technical support: it neither had access to software development, nor generated revenue for the parent company. At the same time, according to the Tax Code, a “permanent office” is defined as fully or partially conducting its economic activity of a non-resident. Despite the fact that after the company’s appeal, the tax authority overturned the decision on audit, the State Bureau of Investigation (SBI) launched criminal proceedings against the company for non-compliance with the tax law for 2016-2018. According to SBI investigators, the company understated the VAT amount and did not submit a software development operations report in 2018. The SBI searched the streaming platform’s office. Disagreeing with such law enforcers’ actions, the company ordered an examination of tax findings from Kyiv Research Institute of Forensic Examinations of the Ministry of Justice of Ukraine. As a result, arguments of the tax service were not documentally supported. Therefore, the office asked the BOC for help.
Actions taken: The investigator examined the case file and found the complaint substantiated. The Council recommended that the Prosecutor General’s Office and the SBI carefully examine the law enforcers’ actions in the pre-trial investigation against the company and take into account the complainant’s evidence as to the absence of a crime. In a letter to the PGO and the SBI, the Council emphasized that investigative actions that caused harm or had negative consequences for the business entity and that were not necessary to solve the crime violated the rule of law.
Result achieved: After the Council’s involvement, the SBI closed criminal proceedings in the case of the office. The case was successfully closed.

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