Bauman Kondratyuk Attorneys | Case from our practice
A case from the practice of Bauman Kondratyuk Attorneys Association showing how an accounting inaccuracy in tax reporting turned into criminal charges that carried up to 12 years in prison — and why, in matters like these, the facts, the documents and the precise legal classification are what ultimately decide the outcome.
When a Tax Inaccuracy Crosses Into Criminal Territory
In a tax dispute, businesses usually expect a familiar sequence of events: an audit report, written objections, and then an administrative or court appeal. Every so often, though, an accounting slip lands somewhere far more serious — in the realm of criminal law. When that happens, the cost of getting the legal classification wrong is measured in far more than the size of any additional assessment. It reaches a company’s reputation, the way it is run, and the personal freedom of the person at the top.
One such matter handled by Bauman Kondratyuk Attorneys Association concerned a VAT return for February 2022. On the surface, it looked like a narrow question about the order in which tax invoices were recorded in the return’s appendices. It ended as a criminal case in which the company’s director was accused of forgery in office and of misappropriating budget funds under martial law.
What Actually Happened
While preparing Appendix 3 to the VAT return, the company’s accountant entered the date on which the tax invoices were registered in the Unified Register of Tax Invoices — December 2021 — rather than the date on which they were actually included in the return, January 2022. That single choice created a discrepancy between the figures in Appendices 2 and 3. The amount of that discrepancy was then factored into the VAT refund that was paid out to the company.
Context mattered enormously here. A desk audit by the State Tax Service in September 2022 found no violations. A later scheduled on-site documentary audit, carried out in May 2024, reached a telling conclusion: the rules governing the completion and filing of VAT reporting, approved by Order No. 21 of the Ministry of Finance of Ukraine dated 28 January 2016, set no specific sequence for reflecting a negative VAT balance across Appendices 2 and 3. In other words, the taxpayer is entitled to decide that sequence independently.
The Supreme Court had already taken the same view in its ruling of 27 January 2022 in case No. 640/23180/19. For the defence, this was no minor footnote — it was the key to reading the whole episode correctly. What had occurred was not a hidden scheme but an accounting and methodological situation arising from a sequence the regulations simply never spelled out.
Where the Criminal Risk Lay
In May 2025, the initial legal classification was extraordinarily severe:
- Part 1 of Article 366 of the Criminal Code of Ukraine — forgery in office, meaning the entry by an official of knowingly false information into official documents;
- Part 4 of Article 191 of the Criminal Code of Ukraine — misappropriation of another’s property by an official abusing their position, committed under martial law.
It was the second of these that exposed the director to the greatest danger. The sanction under Part 4 of Article 191 carries from 7 to 12 years’ imprisonment, an additional ban on holding certain positions or engaging in certain activities, and confiscation of property.
The dispute, therefore, was no longer a conversation about tax reporting. It had become a question about the very limits of criminal liability: can a technical or methodological inaccuracy in a return automatically be recast as the deliberate theft of public funds?
How the Defence Was Built
The defence strategy deliberately set aside any emotional response to the charges and focused on three fundamental legal questions: was there intent, what was the true nature of the discrepancy, and was there harm to state interests in the form that Article 191 actually requires?
First, the absence of intent. Forgery in office requires an awareness that the information is false and a deliberate wish to enter precisely that information into an official document. Article 191, in turn, requires direct intent to misappropriate another’s property, an awareness that the conduct is unlawful, and a desire for the resulting consequences. The defence consistently showed that none of these elements was borne out by the case file.
Second, the methodological nature of the discrepancy. The defence relied, among other things, on expert opinion No. 3866 of 7 February 2024 from the Bokarius National Scientific Centre of Forensic Expertise. It confirmed that the inconsistencies identified in the reporting were technical and methodological in character, stemming from the absence of any clearly defined sequence for reflecting the negative balance in Appendices 2 and 3 of the return.
Third, the lack of any proper factual basis for a finding of misappropriation. In cases of this kind it is not enough to point arithmetically to the amount of a discrepancy. The prosecution must prove harm, a causal link, the method of misappropriation, a self-interested motive and direct intent. These are precisely the elements that separate a tax or bookkeeping error from a criminal offence against property.
The Turning Point
After the documentary evidence had been examined, the expert opinions reviewed and the defendant questioned, the prosecutor drew up a revised indictment in April 2026. In it, the prosecution effectively conceded the absence of the very elements on which the original classification had rested:
“There is no evidence that the defendant was aware that the information entered into the VAT return was false, or that he acted with the aim of unlawfully misappropriating budget funds and desired such consequences. Instead, it has been established that… he improperly performed his official duties through a careless attitude towards them.”
The prosecution reclassified the charges from Part 1 of Article 366 and Part 4 of Article 191 of the Criminal Code to Part 1 of Article 367 — official negligence. For the defence this mattered not as a formal change of label, but as confirmation of the central point: without proven intent, a self-interested motive and properly established harm, a charge of misappropriating public funds cannot hold.
How the Case Ended
More than three years had passed since the events the prosecution tied to June 2022. To save time, the client decided to seek the closure of the criminal proceedings.
On 11 May 2026, the Sviatoshynskyi District Court of Kyiv granted the defence’s motion and closed the case. The costs of the expert examinations were charged to the state. The prosecutor’s civil claim for damages had already been returned back in July 2025.
What This Case Tells Businesses
This case should not be read as a universal recipe. Every matter turns on its own documents, facts, chronology and on how the parties conduct themselves procedurally. Even so, it illustrates a few practical points that matter for any business.
Legal classification is not a formality. The gap between a charge under Part 4 of Article 191 and one under Part 1 of Article 367 is a gap between entirely different legal regimes, different risks and different procedural consequences. That is why work on classification has to begin on day one — not once a case is already drifting toward a verdict.
A tax inaccuracy is not, in itself, a deliberate crime. Where the issue is accounting methodology, vague regulation or a technical slip, the defence has to demonstrate exactly that in the language of evidence: audit reports, expert findings, tax data, witness testimony and the internal logic of the bookkeeping.
A tax audit report can prove decisive in criminal proceedings. Where the competent supervisory authority finds no unlawful overstatement or loss to the budget, that does not automatically close the criminal question, but it weighs heavily on any assessment of the objective elements and of the alleged harm.
Time in the criminal process can cut both ways — against the defence and in its favour. The institution of limitation periods under Article 49 of the Criminal Code is procedurally important, but using it effectively depends on first getting the classification right.
The View of Bauman Kondratyuk Attorneys Association
For us, this case is no occasion for loud statements. It is an example of something we see often: in criminal-tax matters, the outcome is rarely shaped by a single procedural document. It is shaped by patient, sustained work with the facts, the law and the evidence.
A strong defence begins with a careful reading of the return, the audit report, the expert opinion and the indictment. It is usually in those documents that you can see where tax methodology ends and criminal law, properly speaking, begins.
When the charges against a business or its director look out of all proportion to the actual circumstances, the first place to look is the legal classification: has intent been proven, has harm been established, has a causal link been shown, and has the method of misappropriation been identified? It is often in these details that the future of a case is decided.
This material has been prepared on the basis of one of the cases from the practice of Bauman Kondratyuk Attorneys Association. The circumstances are described in general terms and without disclosing any information that may be protected by attorney-client privilege.