Yukos likely to pay another 100 billion roubles in taxes

The decision by the Moscow Court of Arbitration on recovering 99.375 billion roubles in taxes, fines and penalties from Russia's leading oil company Yukos has come in force as the court Tuesday declined appeals from the companies Yukos and Yukos-Moscow against the ruling on levying this sum. The action brought in by the tax ministry on the additional recovery of 400,000 roubles in taxes was also denied. The court also diminished the sum to be exacted from Yukos by 32 million roubles.

It was on April 14 that the tax ministry passed a decision on charging Yukos extra taxes, fines and penalties and applied to the court the next day to recover from the company this money.

When the trial was underway the tax ministry claimed that the Yukos management had resorted to various stratagems to avoid tax payments (concealment of profits). Yukos subsidiaries used to be registered in regions with favourable taxation and in restricted administrative areas (RAA) with a special tax regime.

In the former case, Yukos subsidiaries signed agreements with regional administration (Mordovia, Kalmykia and Evenkia) with the commitment to invest in the regional economy and to create jobs in exchange for being exempt from profit, property and road fund taxes.

As to RAAs (the cities of the Chelyabinsk, Sverdlovsk and Nizhny Novgorod regions in the Urals and the Volga banks), benefits were granted to companies working in these areas. Yukos concentrated there over 70 percent of its resources with the obligation to employ mainly RAA residents .

But the tax ministry reports that the Yukos network ignored the performance of its investment obligations in the regions and in RAAs. These companies were allegedly dummy firms buying oil from Yukos extracting subsidiaries for cut prices and then selling it to customers on market conditions. The tax ministry claims that it is in this way that Yukos has saved the afore-mentioned sum by tax dodging.

The lower Moscow court of arbitration collected from Yukos on May 26 the underpaid 47.989 billion roubles in taxes, 32.19 billion roubles in penalties and 19.195 billion roubles in fines.

Yukos and Yukos-Moscow desagreed with this decision and turned to the court of appeals.

In the course of a week-long appeals session, Yukos lawyers tried to prove that the tax ministry had failed to provide convincing evidence of a link between Yukos and the structures through which Yukos was avoiding tax payment. They also pointed to the tax ministry's wrong calculus of additional taxes and numerous procedure errors during the hearings in the lower court.

But the court of arbitration came to the conclusion that the tax ministry's arguments was more convincing.

Meanwhile, Yukos lawyers do not rule out the prospect of the company's placing a cassation against the court ruling on charging almost 100 billion roubles.

"I would recommend my client to appeal against today's decision of the court of appeals.," said Sergey Pepelyaev representing Yukos interests.

In his opinion, the court ruling is ungrounded and unlawful. "It is up to the Yukos management whether to submit a cassation or not," said Pepelyaev.

Mikhail Dolomatov, a Yukos-Moscow lawyer, reported that he too would recommend appealing against the court decision.

However, the Yukos shares have showed no anxiety over the Arbitration court decision.

"The market reacted to this decision with a slight drop in quotations which have already returned to their former levels," said a Megatrustoil spokesman.

The Olma trade operations department chief, Alexey Bystrov, is also of the opinion that today's decision of the arbitration court will not affect the general negative share tendency on the oil market. (Quotations of oil companies have been decreasing over the past several days). "It was quite expected news and the market is not going to drop substantially. It is doubtful that one hour will be enough for all to think of a general collapse and send the market down,' said Bystrov.

But if Yukos is granted the right to pay off in reasonable installments, we shall be able to comply with all debt claims, said a source close to the shareholders of the Yukos company.