According to Russian media reports, the company submitted a statement to a Moscow arbitration court on April 7th, appealing against the decision of Moscow's number five tax office. The tax claim was the result of an inspection by tax officials on December 29th, 2007, and relates to the 2004 tax year.

Court papers cited by Russian business daily Kommersant have revealed that the authorities are seeking a total of RUB390mn(approximately USD16.5mn), including claims of RUB151.26mn in unpaid taxes on revenue, RUB116.6mn in VAT, and RUB128mn in fines.

Tax inspectors claim that the RUB10.5mn of income declared by E&Y in 2004 fell short by RUB630.3mn. It is understood that the dispute centres on payments made to Ernst & Young Limited, which is registered in Cyprus, and is the parent company of E&Y's Russian operation, for services rendered to Russian clients.

The charges against E&Y are similar to those recently levelled by tax inspectors against another Big Four auditor, PricewaterhouseCoopers, which stands accused of understating its income for 2002 by about RUB500mn. This dispute is focusing on payments made to a PwC company in the Netherlands, also for services provided to Russian clients.

Alexander Ivlev, a partner with Ernst & Young, confirmed the lawsuit on Wednesday in an emailed statement quoted by the Moscow Times, although he played down the significance of the case, expecting it to be resolved amicably in due course.

"Tax disputes between companies and tax authorities are not unusual, and we are cooperating with the investigation by the tax authorities," the spokesman stated.

"We trust in the ability of the arbitration court to resolve in a fair manner any differences we have with the tax authorities," he added.