Reimbursement of expenses on disputes as a method of struggle against tax lawlessness (updated as of December 26, 2013)
March 25, 2013
This article considers the issue of the legal nature of the court fee, its place in the tax system and mandatory fees, as well as compliance of the regulation of the court fee with its essence.
The issue in question is about the court fee, which is paid when applying to the court and some further steps in development of the court case.
Rising expenses on the court fee
Due to adoption of the Law of Ukraine “On the Court Fee” the rates of the court fee have been significantly increased. Especially, this “affected” the participants of administrative proceedings, which litigate with the tax authorities 1.
In particular, the maximum amount to be paid in case of submission of a claim against the tax authorities increased by 5.7 times – from UAH 406 to UAH 2294. And this amount will increase further, at least, due to increase of the minimum wage over the years which is connected with the calculation of the maximum amount of the court fee.
Previously, when filing a claim two components of the amount, which by itself was smaller, were paid: the state duty constituted 2/5 (the maximum amount of claims of material nature – UAH 170), and 3/5 of the amount – the cost of information and technical support of litigation (in commercial cases – UAH 236).
It is quite possible that the court fee will increase further and significantly even this year and not because of the increase of the minimum wage. Thus, the Verkhovna Rada of Ukraine considers the draft law that envisages the double increase of the court fee compared with the existing amount. In particular, according to the draft law the size of the court fee by claims against the tax authorities shall be 2 percent of the amount of the proprietary claims, but not less than 1.5 size and not more than 4 minimum wages 2. In the case of passing this draft law in the near future, the maximum amount of the court fee for applying to the court may reach UAH 4588 this year.
Therefore, expenses on the court fee for applying to the court constantly increase.
Possible additional expenses due to vagueness of the order of the fee payment
At present the issue of the procedure of payment of the court fee and tailoring the appropriate payment document remains not regulated:
Since July 7, 2012 the Order of the State Tax Inspection of Ukraine of April 22,1993, No. 15 “On Approval of the Instruction on the Procedure of Calculation and Collection of the State Duty” (hereinafter – “Instruction No.15”), according to which payment of the court fee as a payment for filing complaints, appeal claims and claims of cassation, lost validity due to adoption of the Order of the Ministry of Finance of Ukraine No. 811 as of July 7, 2012 “On Approval of the Instruction on the Procedure of Calculation and Collection of the State Duty “(hereinafter referred to as the “Instruction No. 811”).
In the new Instruction No. 811 nothing is mentioned about the court fee or fees for filing claims, appeal claims and claims of cassation. Therefore, at the present time the only document which regulates the payment of the court fee isthe Code of Administrative Proceedings of Ukraine and the Law of Ukraine “On the Court Fee”. However, the aforementioned regulations do not contain anyrequirements for tailoring the documents on payment of the court fee. In particular, the requirement of affixing the marks of the bank on transfer of fundsto the budget on the back of the payment order, which was previously set byInstruction No. 15, is currently missing.
However, in practice so far it is not clear, how the courts will respond to payment orders without respective marks of the bank. It is quite possible that proceeding from practice and by analogy, the courts will leave the claims (appeal claims and claims of cassation) without consideration.
Receipt of such mark becomes fee-based. Thus, according to the verbal information, which was received in “Raiffeisen Bank Aval”, the bank may put such marks on the request of the clients ,but it is not free (charge for this “service” in “Raiffeisen Bank Aval” is UAH 10).
That is, even here the taxpayer must bear an additional expenses due to the lack of clear regulation of the issue of payment of the court fee and tailoring of the respective payment document so that the claim (appeal or claim of cassation) will not be left without consideration or as an option to try to prove, that such mark is not necessary.
Background: from the state duty to the court fee
Before the Law of Ukraine “On the Court Fee” came into force(November 01, 2011), payment of the state duty and later the court fee, when applying to court, was obligatory but in the order and amounts, established by the laws for the state duty – some procedural codes of Ukraine still contain such transitional provisions.
Thus, for instance, the Code of Administrative Proceedings ( para. 3 of part VII “The Final and Transitional Provisions”):
“3. Before the law which regulates the procedure of payment of the court fee and its size becomes effective:
1) when applying to the administrative court, the court fee shall be paid in the order established by the legislation for the state duty;
2) the amount of the court fee is determined according to sub-para. “b” of para. 1 of Article 3 of the Decree of the Cabinet of Ministers of Ukraine “On the State Duty”3, except for the cases prescribed by sub-para. 3 of this paragraph;
3) the size of the court fee with respect to proprietary claims for the recovery of monetary funds is one percent of the amount of such claims, but not more than UAH 1700″.
That is, the court fee is the follower of the state duty, which was paid when applying to the court.
The legal nature of the court fee:
- in contrast with the previously paid state duty, this is not a tax formally;
- such reshuffle is one of the components of the changes in the number of taxes during the adoption of the Tax Code.
The state duty, which was previously paid when applying to the court, as a compulsory payment was a part of the taxation system (Article 14 of the Law “On System of Taxation”, which lost validity on January 1, 2011 due to the Tax Code coming into force).
Therefore, the procedure of establishing and the mechanism of payment of the state duty were clearly regulated by laws as the other payments that composed the taxation system.
But it was before the Tax Code of Ukraine.
At present, neither the state duty, nor the court fee which has compulsory to be paid when applying to the court with the claim, appeal claim etc., are not included to the taxation system under the Tax Code. In particular, they are not listed in the mandatory taxes and fees, which are prescribed in Article 9 of theTax Code.
Previously (before the Tax Code), the state duty (the follower of which is the court fee) when applying to the court, was the part of the taxation system andwas recognized as a tax (obligatory duty).What has changed with the adoption of the Tax Code: is to ensure that such payment is not tax it was enough to bring it out of the taxation system – not to call the tax (obligatory duty) in the Tax Code (and thus reduce the amount of taxes to be paid in Ukraine – to work on ratings)?
If take into consideration that:
“Establishing the state taxes and duties, which are not envisaged by this Tax Code is prohibited (para. 9.4 of Article 9 of the Tax Code)”;
“State and local taxes and fees, collection of which is not stipulated by this Code, shall not be paid (para. 4.2 of Article 4 of the Tax Code)”; it follows that this fee may not be paid though it is in fact a tax?
In order to provide the answers it is necessary to find out what these payments are.
The state duty and the court fee as the state tax duties
According to para.6.2 of Article 6 of “Definition ofTax andFee” of the Tax Code:
“Fee (payment, contribution) is a compulsory payment to the respective budget, which is collected from payers of duties under condition of acquiring a special benefit, including the legally significant actions provided by state bodies, bodies of local self-governments, other authorized bodies and personsin favor of such persons”.
That is, the tax fee shall contain the following features:
- obligatory of its payment;
- conditionality of the payment by receiving the special benefit, which also consists in execution of legal actions in favor of the taxpayer by the state authorities;
- transfer of the tax to the appropriate budget.
It is seemed that the court fee meets these criteria. So, one may not pay it, since it is not included into the list of taxes and duties under the Tax Code?
However, everything is not quite so simple. Since it may be denied that legality of introduction of the mandatory duties by separate laws (not by the Tax Code actually) is envisaged as the transition procedure of para. 2, sub-section 10 of Section XX “Transitional provisions” of the Tax Code, according to which:
“Fees (payment, contributions), which are not established by this Code as state or local, but prescribed by the legislative acts of Ukraine as mandatory payments prior to this Code coming into force, are collected under the rules established by these legislative acts of Ukraine before the Law on Administrative Services and other laws, that will regulate collection of respective fees (payment, contributions), come into force”.
The Law of Ukraine “On Administrative Services” has already come into force. But the effect of the aforesaid transitional rule has actually been extended: according to para. 5 of Article 20 “Final and Transitional Provisions“ of the Law of Ukraine “On Administrative Services“, which came into force on November 07, 2012 the aforesaid provisions will expire only from January 01, 2014. By that time the Cabinet of Ministers of Ukraine shall file the draft law “on inclusion of the provisions with regards the state duty, other mandatory payments to the Tax Code of Ukraine” as well for consideration to the Verkhovna Rada of Ukraine (sub-para. “d“ of para. 6 of Article 20 “Final and Transitional Provisions” of the Law of Ukraine “On Administrative Services”).
We note that such draft law was published for discussion on the website of the Ministry of Finance of Ukraine on January 18, 2013.This draft law envisages,inter alia, inclusion of the state duty to the state tax and duties and, therefore, addition of new sub-para. 9.1.19 to para. 9.1 of Article 9 of Tax Code.
In other words, the legislator by this acknowledged that (1) had done a “mistake“, envisaging the possibility to set mandatory payments by separate laws, and that (2) the state duty and other mandatory payments shall be included to the taxation system that requires amendments to the Tax Code.
However, this step does not mean the court fee.
Actually, the present court fee consists of the former state duty and expenses on informational and technical support of the court proceedings, so now it is “two in one“.
Pursuant to Article 1 of the Law of Ukraine “On the Court Fee“: “the court fee – is a fee, which is collected on the whole territory of Ukraine for submission of the applications, appeal claims to the court as well as for issuing the documents by the courts and included to the court expenses”.
According to the provisions of the procedural codes of Ukraine, nonpayment of the court fee is a ground for the refusal to accept claims, appeal claims, etc. This means that in case of its nonpayment, the citizens and enterprises are deprived of the right to judicial protection of their interests. In other words, there are all reasons to assert that the court fee is paid for the court proceedings by the claims of citizens and taxpayers, and that the purpose of the court fee is providing of court financing.
The court fee is paid to the special fund of State Budget, the main manager of which, according to Article 142 of the Law “On Judicial System and Judges’ Status“, is the State Court Administration on financial support of the activity of all courts of general jurisdiction.
Therefore, the court fee is obligatory for paying when applying to the court and submitting the appeal claims, etc. (i.e. related to making specific actions by the state authority – by the court – for the benefit of the taxpayer), it is paid to the State Budget and therefore conforms to criteria of tax fee according to the Tax Code.
So, why is the court fee not mentioned in the Tax Code yet?
Removing it from the tax system and fixing it by the special Law of Ukraine “On the Court Fee“ makes precondition for replacing of financing of courts on the citizens and taxpayers, which is a gross violation of the provisions of the Constitution of Ukraine and the Law of Ukraine “On Judicial System and Judges’ Status“, as well as undermines the principles of legal proceedings in Ukraine by limiting the rights of citizens and taxpayers to defend their interests in the courts.
The possibility of increasing “the court fee” may be endless, and since it is not the tax or duty within the system of taxation, it may be done by the simplified procedure, when the need to fill “the holes“ in the State Budget arises. Why then to envisage the expenses of the State Budget for financial support of the courts, if it may be put into the shoulders of that persons, who will apply to the court for the protection of the violated rights, protected interests.
Court fee as a source of financial support of courts
With adoption of the Law “On the Court Fee“ the rates of the court fee have been considerably increased in comparison with court expenses, which the person who appealed to the court experienced.
But the courts are still lack of money. According to the information of State Judicial Administration of Ukraine, current expenses of the courts of general jurisdiction (without taking into consideration the remuneration of labour and public utilities) are financed by only 9,1% of the required 4.
And it is the money that is not enough “for strengthening of the material and technical base of the courts, including establishment and provision of operating the Unified Judicial Informational System, web portal of thejudicial authority, computer local networks, modern systems of fixation of the court proceedings, purchase and servicing of computing machinery and reproducing equipment, implementation of electronic digital signature”. So, the money for informational and technicalsupport of the court proceedings in the context of legislation which was valid before the Law of Ukraine “On the Court Fee“ came into force.
What does the Government do? Instead of “seeking“for money in the State Budget, as it is required by the current legislation, the Government prepares and submits the new draft Law of Ukraine “On Amendments to Some Legislative Acts of Ukraine (re. payment of the court fee“ (draft law No. 11183 of 06.09.2012) to the Verkhovna Rada of Ukraine.
Moreover, in financial and economic motivation of the expediency of its adoption is mentioned that “Adoption of this Law does not require increasing of the budget expenses. Instead, the total amount of additional revenue to the State Budget of Ukraine as a result of respective changes during 7 months in the current year will be 110 mln UAH.”
That is, practically courts financing is shifted from the State Budget to the claimants, including the taxpayers in the disputes against the tax authorities.
This contradicts the provisions of the Constitution of Ukraine and the Law of Ukraine “On Judicial System and Judges’ Status“ prescribes that:
Article 140 of the Law of Ukraine “On Judicial System and Judges’ Status” establishes that:
“1. Financing and proper conditions for functioning of the courts and judges are ensured by the stateaccording to the Constitution of Ukraine.
2. Provision of functioning of the judicial authority envisages the following:
1) determining the expenditures in the State Budget of Ukraine on financing the courts not less than the level which ensures the possibility of full and independent effectuation of justice according to the law”.
Pursuant to Article 142 of the specified Law “1. Funding of all courts of Ukraine is made at the expense of the State Budget of Ukraine”.
In accordance with part 1 of Article 130 of the Constitution of Ukraine: “The State shall ensure financing and proper conditions for functioning of courts and the activity of judges. Expenditures for the maintenance of the courts shall be allocated separately in the State Budget of Ukraine”.
This provision of the first part of Article 130 has an official interpretation according to the Decision of the Constitutional Court of Ukraine dated 11.03.2010 N 7-рп/2010, which includes:
“1. In the aspect of constitutional petitions the provisions of part 1 of Article 130 of the Constitution of Ukraine, namely “The State shall ensure financing and proper conditions for functioning of courts and the activity of judges”, shall be understood in such a way:
– financing of all courts in Ukraine has to be provided by the state exceptionally at the expense of the State Budget of Ukraine;
– on behalf of the state, the ensuring of financing of courts shall be made by the Cabinet of Ministers of Ukraine through elaboration and submission of the draft Law on the State budget of Ukraine to the Verkhovna Rada of Ukraine and by the Verkhovna Rada of Ukraine through approval of the State Budget of Ukraine exceptionally by the Law of Ukraine, control of its execution and taking a decision on the report of its execution;
– expenditures for the maintenance of the courts shall be allocated separately in the State Budget of Ukraine not less than the level that could provide the possibility for independent effectuation of justice with the further ensuring of full and timely allotment of such expenditures;
– executive authorities shall take part in organizational provision of functioning of courts and activity of judges in cases and in the order envisaged by the Constitution of Ukraine and the laws of Ukraine.
2. In the aspect of constitutional petitions the provisions of part 1 of Article 130 of the Constitution of Ukraine, namely: “Expenditures for maintenance of courts shall be allocated separately in the State Budget of Ukraine”, shall be understood in a way that the Cabinet of Ministers of Ukraine is obliged to envisage the expenditures for each court of different jurisdictions and levels by the separate lines in sufficient amount for the administration of justice in the draft Law on the State Budget of Ukraine, and the Verkhovna Rada of Ukraine shall determine such expenditures in the State Budget of Ukraine”.
To sum up the above, current legislation clearly establishes that the courts shall be financed exceptionally by the State Budget of Ukraine but not by the costs of the participants of the proceedings, in particular by the cost of the taxpayers in the disputes against the tax authorities.
From this point of view the substantiation of the draft law looks very interesting, as its adoption will not lead to increase of expenditures of the State Budget since according to the Constitution of Ukraine the respective expenditures shall be financed by the by the State Budget of Ukraine.
As regards the contradiction of the said draft law to the provisions of the current legislation, the Conclusion of the Chief Scientific and Expert Administration of the Verkhovna Rada of Ukraine, states that:
“1. The main idea of the draft law is to raise the level of funding current expenditures of general jurisdiction courts by means of increase of the amount of the court fees from the participants in a trail, widening of the circle of the court fees payers, etc.
According to the Chief Administration the selective exemption of the state authorities from payment of the court fee does not completely comply with para. 2 of Part 3 of Article 129 of the Constitution of Ukraine which stipulates that the fundamental principles of Ukrainian legislation is “equality of all participants in a trial before the law and the court”, that is fixed in the Law of Ukraine “On Judicial Systemand Judges’ Status” as well as in the Code of Administrative Court Procedure of Ukraine (Article 7), the Code of Civil Procedure and the Code of Commercial Procedure of Ukraine (Article 422). Therefore, currently the exemption of the state authorities from payment of the court fee shall be considered as giving them procedural preferences to other participants in a trial-legal entities and natural persons which are obliged to pay the respective fee, and practically this will narrow their rights to apply to the court.
Therefore, the issue regarding increase of financing the courts at the costs of the court fee would be reasonable to decide by ordering the provisions which provide the privilege on its payment by the proper state authority instead of increase the rate of this fee.
The issue of violation of the basic principles of financing the courts by the legislative and executive authorities was raised on the Plenary Session of the Supreme Court of Ukraine which took place on November 12, 2012. At this session the decision to appeal to the Constitutional Court of Ukraine with the constitutional petition as to official interpretation of the first and the second parts of Article 9 of the Law of Ukraine “On the Court Fee“ was made. The aforementioned constitutional petition of the Supreme Court of Ukraine as of January 14, 2013 is on the stage of studying by the panel of judges of the Constitutional Court of Ukraine.
According to the press service of the Supreme Court of Ukraine, the constitutional petition emphasizes, inter alia, that in fact financing of courts, including remuneration of judges, is carried out by means of the court fee, which is contrary to the legislation in force:
Thus, the Letter of the Ministry of Finance of Ukraine No. 31-07220-2-4/1735 dated March 21, 2012, which was addressed to the Committee of the Verkhovna Rada of Ukraine on the Issues of the Budget and to the State Court Administration of Ukraine in the part regarding the court fee costs directed at realization of justice, stipulates that the expenditures on justice realization include not only expenses directly related to consideration of the cases (paper, postage fees, fixing of the court trial) but also the remuneration of labour of judges for direct realization of justice by them.
However, according to the Supreme Court of Ukraine, such approach of the Ministry of Finance of Ukraine is mistaken since it contradicts to the provisions of the Main Law of Ukraine and does not correspond to the respective decisions of the Constitutional Court of Ukraine.
As it was mentioned on the Plenary Session, the courts as the body of state authority a priori may not be subjects of income and do not have any othersources of funds other than the State Budget of Ukraine since they operate exceptionally by means ofgovernment funding within limits provided by law on the State Budget of Ukraine for the respective year.
The constitutional petition emphasizes that violation of the basic principles of funding of the courts by the legislative and executive authorities may cause negative public response. A stable social illusion is formed on the issue, that the implementation of power by judges is aimed at obtaining of respective incomes by means of the court fee from its payers and that the judges have a corporate interest in increasing the rates of the mentioned obligatory payment.”5
But in fact it is not “an illusion“ anymore, the draft law “On Amendments to Some Legislative Acts of Ukraine (regarding payment of the court fee)“ No. 11183 dated September 06, 2012 – is a vivid conformation of this.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.
1 At the beginning of 2012 the Supreme Administrative Courtissued the explanation (the Letter No. 165/11/13-12 as of January 18,2012)according to which the claims on cancellation of the tax notification-assessments are referred to administrative claims of material nature.Accordingly, applying to the court the taxpayer shall pay 1% of the size of the proprietary claims, but not more than 2 minimum wages, established as of January 1 of the current year (UAH 2294 in 2013).
2 At the present time the court fee constitutes 1 % of the size of the proprietary claims but not less than 0,1 size and not more than 2 sizesofthe minimum wages.
3 Hereinafter – “the Decree”
4 The article “A costly luxury”, the edition “Delovaia Stolitsa” No 41/595 dated 08.10.2012
5 Court Determination of the Panel of Judges of the Constitutional Court of Ukraine No. 8-u/2013 dated February 27, 2013 in the case No. 2-9/2013 denied in opening constitutional proceeding, since justification and analysis of provisions of the Law, which was provided in constitutional petition and which the author of the petition asked to interpret, give grounds for a conclusion about legislative irregularity of the questions raised in the constitutional petition. Pursuant to the legal position of the Constitutional Court of Ukraine, which was stated in a Determination No. 9-u/2002 dated March 21, 2002, the absence of the legislative regulation cannot be a ground for a consideration of the constitutional petition since this is an exclusive right of the Verkhovna Rada of Ukraine.