BP's Russian Tax Claim Reduced

by Tatania Smolenskaya, Tax-News.com, Moscow

12 August 2005

Just days after Russia's Pulic Audit Chamber accused Russian joint venture TNK-BP of using improper transfer-pricing techniques to minimize tax, the firm said that it had agreed a back-tax claim for 2001 at a level substantially reduced from the original demand for 22 bn rubles.

TNK-BP, said the final assessment was for 6.98 bn rubles ($245m), down sharply from the original claim, and that it would pay the bill later this month.

"We're very pleased that we managed to negotiate this number down," TNK-BP spokeswoman Marina Dracheva said. "This is a positive outcome for the tax check, and gives us some closure for 2001," she said.

Other Russian companies such as telco VimpelCom and oil company Sibneft have also seen their back-tax claims scaled down.

Last week, Vladimir Panskov, a member of the Audit Chamber, expressed concern over TNK-BP's use of a transfer-pricing scheme which, he believes, is being used for the purpose of avoiding taxation. Under this scheme, TNK-BP, which is owned 50/50 by BP and Russian investors, is alleged to have used two companies it controlled in Western Siberia to purchase oil at low prices before selling it on to refineries at market rates.

"When we audited TNK-BP it turned out that the company was continuing to use a price-transfer system while all the (other) oil companies, according to our information, have stopped doing so," said Panskov.

However, TNK-BP has received public support from President Vladimir Putin, and many doubt whether the Audit Chamber's findings will lead to fresh tax claims.

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