IMPLICATIONS OF UKRAINE’S MEMBERSHIP OF THE EUROPEAN UNION

IMPLICATIONS OF UKRAINE’S MEMBERSHIP OF THE EUROPEAN UNION

Dr. Olumide K.
Obayemi*
I.          Introduction
The
Eastern Partnership signifies the western industrialized Europe’s use of
economic empowerment as a tool to infiltrate the splinter ex-communist states
of the east. Presently, the European Union (“EU”) is targeting Ukraine,
Moldova, Armenia, and Georgia.
 Sandwiched between Poland and Russia, Ukraine
is the second largest member of the old Union of soviet Socialist Republic

(“USSR”).
With the collapse of the old USSR, Ukraine has been pulled –ideologically both
ways –, i.e., towards the capitalist west and the highly conservative Russia.
On
November 21st, 2013, Victor Yanukovich, the present Ukrainian
president suspended Ukraine’s assent to the European Union (“EU”) Agreement.
This
thesis identifies the three (3) major factors that will determine whether or
not Ukraine would join the EU: (a) Ukraine’s readiness to adopt democratic
measures within its political process; (b) Ukraine’s readiness to adopt much
more competitive economic and political policies (“Rule of Law”); and (c) Ukraine’s
adoption of an open market/economy.
II.        The Dilemma.
The
soft competition between the richest western nation—Germany and Russia should
not be underrated. With the image of the big brother—Russia, looming larger than
before, there is a very steep uphill task before Kiev-based government and the
EU, as well
If
EU relaxes its rules and admits Ukraine, EU will be legitimizing half-hearted
reforms by an authoritarian government—which is both unpopular and uncooperative
at home. An antithesis of the principles that the EU stands for.
No
doubt, the full admission of the present-day Ukraine may infuriate an upheaval that
may arise from selective rules of admission and the selective application of
the Free Trade Rules
Yet,
on the other hand, a non-admission of Ukraine, will definitely rob the Western
Europe of its leverage to influence Ukraine into making more reforms and may
allow Russia to take over.
III.       Admission into the EU
On
October 21, 2013, in Luxembourg, at the meeting of the EU Foreign Ministers, it
was clear that the EU was placed in the middle of the devil of the Devil and
Deep Blue Sea concerning Ukraine. One option was to relax the rules governing
admission into the EU. Strict adherence for democratic principles, rule of law
and open market would freeze out Ukraine. On the other hand, Russia with nits
Eurasian Customs Union was waiting with open hands. To deny Ukraine admission
outright would reduce the impetus for reforms that had already began and also drive
Ukraine into further authoritarianism and overt dependence on Russia.
Below
are the issues for consideration
a.         Requirement for Democratic measures
Prior
to recent ascendance of Yanukovich, Ukraine’s former prime minister was Yulia
Tymoshenko. In 2004, the Orange revolution forced Yanukovich out of office and
enthroned Tymoshenko. Curiously, in 2010, Yanukovich was re-elected and soon
after, Tymoshenko was jailed for abuse of power and for negotiating natural gas
with Russia while in power.
Tymoshenko
remained jailed despite plea for pardon and for temporary release under
supervision for medical treatment in Germany. Cases against Tymoshenko are
frozen. She is also barred from participating in electoral process towards the
2015 elections.
Nevertheless,
towards being accepted by the west, Yanukovich has released some high profile
political detainees who were being punished via selective justice. In addition,
travel bans have been lifted against these detainees and opponents as well.
These
minute improvements n the social justice system are what the EU wants to be
developed upon rather than stultified by Ukraine’s leaning towards Russia
If
Ukraine can sustain its electoral reforms and conducts a free and fair election
in 2015, even if Yanukovich loses out of office, its admission into the EU
would be smooth
b.         Rule of Law
Earlier
on, in December 2012, the EU had accepted Ukraine conditionally upon making
necessary reforms in three (3) areas (a) Justice; (b) the electoral system; and
(c) institution reform—i.e., a demand that Ukraine separate politics, business
and organized crime from each other.
In
the western parlance, the Rule of Law entails the equality of all persons
before the law and processes. In Ukraine, demand is being made towards that the
tax service, the interior ministry and the prosecutor’s office be sanitized. Both
the criminal code and the criminal procedure rules should be reformed. The appointment
and ratification of officials into government positions must be democratized.
The
trial and prosecution of citizens and opponents must be transparent. Justice must
not only be done but must be seen to be done.
c.         Open Market.
Capitalism
is bases on laissez faire –open market, competition and lack of monopoly
and/or manipulation.
Ukraine
must sign the Deep and Comprehensive Free Trade Agreement that will create a
Free Trade Area. Ukraine must curb abuses of predatory and deprofessionalized
state that discourages entrepreneurship which in turn turns away commercially oriented
citizens.
IV.       Tempting Eurasian Customs Union
Sensing
the lure of the western world towards Ukraine, Vladimir Putin and Kremlin have
coerced Armenia to jettison the EU. Putin’s Eurasian Union is a neutralizing
factor against the EU. Formed as political bloc, the Eurasian Union aims to
provide an umbrella force for all former USSR splinter states, without
requiring major economic or political reforms as the EU does.
In
contrast to EU’s demand that Ukraine lower its tariffs, Putin’s Eurasian Union
has countered with protective measures which may include subtle economic and
political coercive measures. For instance, against Armenia, Russia threatened
to withdraw security guarantees, and, against Moldova, Russia increased the
cost of energy supply and blocked the workers influx into Russia.
V.        Conclusion
With
its attenuated political position at home, with opponents gaining grounds
against Yanukovich and with Russia breathing trade blockages and/or sanctions
against Ukraine, Ukraine would probably maintain a middle ground by refusing to
bow either to the west or east.
Yet,
the EU is more determined to get Ukraine to institute free trade and political
reforms. We must heed German Chancellor Angela Merkel:
Eastern European
countries must decide themselves on their future direction…Third parties cannot
have the right to veto.
The EU must
counter Russian pressure on Eastern Europe, be it in the form of additional
sales opportunities for products from our partner countries, which for instance
may not be exported to Russia, or in the form of assistance to diversify their
energy supply.
Perhaps
the time has come for the EU to be as proactive as it was during the 2004
orange revolution by engaging the Ukranian government and the opposition in
dialogues towards resolving the impasse.
The
EU must also provide political, financial, and institutional support as it had
given to new democracies in the past—e.g., the Marshall Plan.
The
EU must mobilize, directly and indirectly—through the IMF, the resources for
Ukraine to weather the imminent financial collapse.
Further,
the EU must shield Ukraine from likely Russian retaliation, coming through
economic sanctions, trade blockages and political intervention.
Dr. Olumide K.
Obayemi is of the Bars of the State of California and Nigeria.
PLEA OF INSANITY BY CORPORATIONS TO CHARGES OF TAX EVASION

PLEA OF INSANITY BY CORPORATIONS TO CHARGES OF TAX EVASION



PLEA OF INSANITY BY CORPORATIONS TO CHARGES OF TAX EVASION: A REJOINDER TO PROFESSOR TAOFEEQ ABDULRAZAQ

Dr. Olumide K. Obayemi, LL.M. in Taxation Law*

I.          Introduction

No doubt, Professor Taofeeq Abdulrazaq is an authority on Nigerian
Taxation Law. He ranks along with Leye Adebiyi, Professor Oluwole
Akanle, Afolabi Elebiju, Wole Obayomi, Taiwo Oyedele and others.But, we respectfully disagree with Professor Taofeeq Abdulrazaq’s
novel attempt to extend the defense of insanity to corporations.
Insanity, like Driving under the Influence of Alcohol and Alibi—legal
terms that specifically apply to human beings and/or natural persons
can not be asserted by an artificial person. A corporation can not get drunk with alcohol, and, similarly, a corporation cannot assert the defense of alibi. We see no factual
and/or legal basis to avance a novel argument that a corporation can be
legally insane. The common law rules laid down in the 2 cases of MacNaghten (British) and Durham (American) do not extend to corporations.

II.        Tax Fraud: Distinguishing Between “Tax Evasion” and “Tax Avoidance”

Tax Fraud is the general term used to cover all sorts of tax
shenanigans by tax practitioners and taxpayers alike. While undefined in
most Tax Codes, tax fraud generally refers to a willful attempt to
reduce or to eliminate tax liability by paying less tax than that which
is known to be due. The controlling term is “willful.”

Subjective intention to circumvent the tax laws is required for a conviction. Yet, we must note that “Tax Avoidance” differs from “Tax Evasion. Tax Avoidance is an attempt to diminish taxation in a manner which the taxpayer/tax practitioner believes to be legal Tax Evasion occurs where the taxpayer/tax practitioner attempts to do
evade payment of tax in a manner which he knows to be illegal.

Therefore, tax evasion charges always require proof of an intentional (willful/subjective
intention) factual misrepresentation, while a tax avoidance
characterization merely denotes an attempt to construe the facts so as
to minimize tax liability. We must note that this distinction between avoidance and tax evasion
is critical because different consequences attach to each, respectively. Therefore, to tax practitioners, an honest but unsuccessful evasion
scheme will subject the taxpayer to various civil fraud and criminal
evasion penalties.

III.       Insanity Defense By Corporations

Coming back to the thesis of this paper, the question is: To what extent can corporations claim the defense of insanity against charges of tax evasion in Nigeria? We answer in the negative: The novel attempt to extend the defense of insanity to corporations is untenable in fact nor in law.This issue was examined by foremost Nigerian taxation scholar,
Professor Taofeeq Abdulrazaq, in his presentation “Tax Evasion,
Divination and Corporate Insanity” at the 50th Birthday Lecture in honor
of the President of West African Union of Tax Institutes (WAUTI),
Prince Razak Quadri in Lagos, held in October 4, 2011. According to
Abdulrazaq:

“Tax evasion is a crime that can be committed by individuals and
companies. As a crime, insanity is available as a legitimate defense
open to individual persons and companies accused of tax evasion and
companies can and do suffer from insanity.  Using the process of
divination, corporate insanity like any other ailment can be predictably
diagnosed.”

This is practically impossible. A natural person’s acts may be
observed by those close to him/her, just as a person’s competence in the
making of a will may be decided by witnesses to the execution of a
will. For corporations, accountants, auditors and solicitors may continue
to churn out necessary complying documents, it may take years for the
unhealthy situation within the corporate structure to be discovered.

Second, while insanity symptoms in natural persons may be diagnosed
and treated, for corporations, by the rot is discovered, it is always
too late. The cases of American Enron and Nigerian collapsed/failed banks are still fresh in our minds. On these empirical factual bases, Abdulrazaq’s novel attempt to
extend the defense of insanity to corporations is fatally flawed.

IV.       Psychoanalysis of Corporate Insanity.

Novel as it may be that a corporation can be diagnosed of insanity,
treated, and surgically operated on to cure it of insanity, Abdulrazaq
further pontificated that, as a tax practitioner, he had, in the past,
assumed the roles of a “tax psychoanalyst” in handling “corporate
insanity, and using a tripod, Abdulrazaq maintained that insanity is a
defense for both individuals and corporations faced with tax evasion
charges.

Abdulrazaq then cited Lord Denning, MR thus: “…Directors and
managers represent the directing mind and will of the company and
control what it does.  The state of mind of these managers is the state
of mind of the company and is treated by the law as such
”. Therefore, Abdulrazaq submitted:

“Clearly then some officials of the company are identified with
the company y or are the company and not merely agents of it.  It is
regarded sometimes difficult to decide which official can be so regarded
but once the facts are ascertained, it is a question of law whether an
official can be regarded as the company or merely as its servant or
agent,

a.         Large Than Life Image Affliction of the Corporation and the Directors

Continuing with his “Psychoanalysis of Corporate Insanity” Abdulrazaq stated that corporate insanity manifests where a large than life image is
painted of some people in an organisation such that any affliction
affecting such persons affects the organisation indirectly.

Stated otherwise, a company that has only Nigerian-trained scientists
and with an income of $100,000 may publish Prospectuses stating that it
has Harvard-trained nuclear scientists coupled with an income of
$2billion.  To Abdulrazaq, this large than life imagesyndrome is an evidence of insanity and such may be a defense in a court of law.

b.         Corporate Alter Egos

Further, Abdulrazaq also argued that insanity could also manifest in
the presence of alter egos in an organisation and where superior orders
emanate from persons like centres of consciousness in an organisation
such that whatever afflicts the superior officers, including insanity,
affects the organisation as well, he added. This is easily
understandable, for instance, where the founde of a company res to
resign and shows signs of senility.

Based on the above, since insanity negates means rea—guilty intent, then
it would be difficult to obtain convictions under present Nigerian tax
laws which did not define tax evasion outside of “intent” Thus, from the
prescribed penalties in various statutes, it could be deduced that tax
evasion could only mean “failure to make returns for income tax or
capital gains tax, failure to make returns for corporation tax and
incorrect returns or accounts”. Such acts, to Abdulrazaq, to underlie a
conviction must be fraught with “fraud, willful default or neglect and
knowingly” for them to constitute an offence under tax evasion.

V.        The Defense of Insanity in the United States: The Requirement for Collateral Relationship

Tax practice and tax litigation is centered around two (2) issues:
(a) Determining the Realization of Income and/or (b) the Deductibility
of Losses or Expenditures. Stated otherwise, has the corporation realized an income that is not disclosed, or, has the corporation deducted a loss or expenditure that is not allowed by the law.

Upon ascertaining either of the above issues, legal issues of
knowledge, intent, insanity or incompetence of the taxpayer must be
ordinarily be collateral to the question presented in each case:

“Save in those instances where the statute itself turns on intent,
a matter so real as taxation must depend on objective realities, not on
the varying subjective beliefs of individual taxpayers.

Lynch v. Commissioner, 273 F.2d 867, 872 (2d Cir. 1959).

Generally, in tax litigation, where the determination of fraud is at
issue, the burden of proof with respect to fraud is placed upon the
government by statute and by the rules of practice before the Tax Court.

(a).       Standard of Proof

In the United States, the standard of proof required of the
government is that the taxpayer’s fraud must be proven to the
satisfaction of the court by “clear and convincing evidence.” In case law, this burden can not be lightly regarded.

Further, there is an essential element at the very heart of the fraud issue, namely, “the intent to defraud the Government by calculated tax evasion.”

The element of fraud entails the actual “intent to evade,”—the same willful intent that then brings up the plea of insanity or incompetency by the taxpayer.

(b).      The British MacNaghten Case: Mental Defect and Mental
Disease Leading to the Inability to Understand the Nature and the
Quality of the Act Being Committed.

R. vs Macnaghten, 10 Clark & Fin. 200, 8 Eng.
Rep. 718 (H.L. 1843) involved a murder case. There, the English House of
Lords held that even though everyone is considered to be sane and
responsible for his acts, a successful defense of insanity could clearly
prove that, at the time of the commission of the act, the defendant was
laboring under such a defect of reason, due to a mental disease, that
he did not know the nature and the quality of the act he was committing.

The House of Lords further went on to hold that even if a defendant
was aware of the nature of his act, he may not have known that the act
was wrong.

However, if the defendant was aware that the act was one which he
should not have committed, and if the act was simultaneously contrary to
established law, he was then subject to punishment.

Concluding, the House of Lords held that the question of whether the
defendant’s reason was sufficient to enable him to know that the act was
wrong was for the jury’s determination based upon explanations and
observations.

It remains a matter of conjecture and speculation as to how the jury
can observe the actions of an artificial person as a corporation.

(c).       The American Durham Rule and Its Progenitors: the
Overwhelming of a Defendant’s Reasoning—Unlawful Act that is the Product
of Mental Disease or Defect.

The early 1900’s and the end of the Second World War witnessed a
great influx of European Psychoanalysts and Social Scientists, such as
Sigmund Freud, Albert Einstein, etc, into the United States. Thus, the
MacNaghten rule was modified in Durham v. United States,
214 F.2d 62 (D.C. Cir. 1954), where Hon. Judge Bazelon’s instructive and
erudite opinion replaced and supplemented the right-wrong criteria with
the irresistible impulse standard. The Court recognized that reason is
only one element of man’s integrated personality and that it is not the sole determinant of his conduct

A successful plea of insanity must show an urge to act which is
overwhelming, so overriding over the defendant’s reason and judgment
that he could no longer choose between right and wrong. A defendant
acting under irresistible impulse was still required to remain capable
of distinguishing right from wrong. Thus, an accused is not criminally
responsible if his unlawful act is the “product of mental disease or
defect.

The Durham test was later expanded in McDonald v. United States,
312 F.2d 847 (D.C. Cir. 1962), where the court held that, in a trial
involving the plea of insanity, the jury must be instructed that a
mental disease or defect includes any abnormal condition of the mind
which substantially affects mental or emotional processes and which
substantially impairs behavioral controls.

Further, the jury was required to evaluate all expert and lay testimony in arriving at its decision.

Finally, the McDonald court excluded the possibility that specific disease might constitute insanity per se.

(d).      A Corporation Can Not Be Held Liable for Offenses That Can Only Be Committed by a Natural Person

Even at common law, it is trite law that a company is a separate
legal person subject to criminal law and is capable of committing an
offence except for offences that require a natural person such as
bigamy, sexual offences and perjury.  Lennard’s Carrying Co Ltd v. Asiatic Petroleum Co [1915 AC] 713

Clearly, as stated herein, since bigamy, sexual offences and perjury
are not crimes that can be committed by a corporation, it follows that
insanity, mental disease, mental defect, irresistible impulse and
abnormal condition of the mind can not afflict an artificial person as a
corporation.

VI.       Conclusion

Insanity is innately an affliction that affects a natural person—it
is inconceivable that a corporation can successfully claim insanity as a
defense.

Cases that might evince complete domination by a controlling
shareholder/director such as to render the corporation a mere tool or
shell in the hands of the shareholder/director will entail piercing the
veil of the corporation and for holding the dominating
shareholder/director personally liable. Such can never avail the
corporation itself an insanity defense.

* Dr. Olumide K. Obayemi, LL.M. in Taxation Law is admitted to practice before the United States Tax Court in Washington, DC