16 June 2004 00:00
Case watched by rivals and tax advisers
ByLine: Andrew Jack
The outcome of Yukos's court hearing on Friday against an additional $3.4bn tax bill for 2000 will be closely
watched by domestic and foreign business groups as well as their financial advisers.
Yukos argues that, like its peers, it respected the laws in force at the time of its tax returns in 2000, and that it
has been the victim of retroactive evalu ation by the tax ministry. "The allegations . . . are illegal, unfounded
and selectively applied," the company said recently.
A ruling that upholds the tax ministry's demands would set an unwelcome precedent for other companies, as well
as their local and international tax advisers who helped them use tax-avoidance schemes and auditors who approved
them.
But the court action against Yukos mirrors intensifying rhetoric from Russian politicians, including President
Vladimir Putin, who stressed the need to prevent "tax dodging" in his state of the nation address last
month.
Such comments reflect the government's frustration at the ability of companies to exploit legal loopholes by
hiring experienced consultants to advise them on tax is sues and to manipulate civil servants and judges in
Russia's fragile post-Soviet institutions to their own advantage. In reality, the state often failed to draft
effective laws and inst ead relied on the tax authorities and judiciary to interpret laws in the "right
way".
Nevertheless, the taxes paid by Russian companies have been modest, although the benefits the state provides in
return have also been small. And Yukos was not the worst offender - at least on paper - in effectively paying a lower
rate of tax than the statutory rate. Sibneft, which has strong connections to the Kremlin, was singled out by the
finance ministry's own analysis in 2000 as being worse.
Yukos paid 12 per cent of profits in taxes in 2000, 15 per cent in 2001 and 13 per cent in 2002, compared with a
statutory rate of 30 per cent, 35 per cent and 24 per cent respectively. For Sibneft, the figures were 12 per cent, 10
per cent and 14 per cent. TNK has also been aggressive in the past, paying 10 per cent, 21 per cent and 14 per cent
respectively.
Even so, Yukos was singled out last year by Alexei Kudrin, the finance minister, as the "most aggressive"
company in its use of tax avoidance schemes. Mr Kudrin rejected suggestions Yukos was the victim of a selective
application of justice. He pointed to the heavy penalties and back-taxes levied against Lukoil and Bashneft since 200
2.
Whether Yukos interpreted the tax laws more or less effectively than its rivals is open to debate, particularly given
the secrecy surrounding the financial structures Russian oil companies use. But some analysts say the company was more
aggressive, employing and maintaining a network of companies in domestic low-tax zones, such as Mordovia, while rivals
created and dissolved such companies every year, or consolidated their transactions abroad.
BP, the British oil company, is believed to have negotiated indemnity with its Russian partner TNK for additional tax
bills for the years up to and including 2003. It says it has also paved the way for a more transparent financial
structure in the company.
The case against Yukos has certainly pushed other Russian companies to pledge to pay taxes at a level closer to the
official rate. What remains unclear, however, is whether Yukos will be the last to pay the price for its previous
stance.
[FT.com site] |
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