Sibneft shares plummeted after the Russian Tax Ministry said the oil company owed $1bn in back taxes. Sibneft is in the process of reversing its merger with YUKOS, and the situation was favorable for Sibneft for some time. As a result, Sibneft stocks performed better than expected, analysts say. According to them, a downward correction will continue on the Russian stock market on Wednesday.

Sibneft’s problems began after the Tax Ministry had sent a letter to the oil company saying that it owed almost $1bn in back taxes for the years 2000-2001. However, Sibneft denies the claim. “The company’s tax payments were checked many times over this period, including by the Audit Chamber. But they showed that we acted in full compliance with financial laws. In view of this, Sibneft insists that its tax policy is in accordance with the law,” a Sibneft spokesman said.

The demand mirrors a $3bn tax demand faced by Sibneft’s rival YUKOS, with which Sibneft was due to merge last year. YUKOS has a 92 percent stake in Sibneft, and the former Sibneft owners have a 26.01 percent stake in YUKOS. But Sibneft demands that the merger be reversed.

Quoting a source in the Tax Ministry, the Vedomosti newspaper reports that the tax claim against Sibneft is similar to the tax demand faced by YUKOS. “It is about evading regional and local taxes,” he said. Back in December 2002, the Audit Chamber said Sibneft owed RUR 10bn in unpaid taxes for the year 2001, but its experts came to the conclusion that the oil company used legal methods.

Noyabrskneftegaz, Sibneft’s subsidiary producing 98.4 percent of the company’s oil output, was selling its oil to companies in offshore centers in the far eastern republic of Chukotka and the Kalmyk Republic near the Caspian Sea. In their turn, these companies sold Sibneft’s oil at a price 2-3 times higher. The companies in the offshore centers were exempt from part of the profit tax. They did not have to make profit tax payments to regional and local budgets (24 percent of the 35 percent tax). In order to reduce the remaining 11 percent, smart managers hired invalids and received a 50-percent tax relief.

Analysts believe that Sibneft, like YUKOS, will try to reach an out-of-court agreement with the Tax Ministry.