BP’s Russian Venture Facing Fresh Claims Of Tax Evasion

by Tatiana Smolenskaya, Tax-News.com, Moscow

08 August 2005

Despite assurances from President Vladimir Putin that BP's Russian venture, TNK-BP, has the approval of the Russian authorities, it has emerged that the firm is the subject of further allegations of tax evasion by the Russian government.

The new claims come from the Public Audit Chamber, which is accusing the company of engaging in tax minimisation schemes similar to those which ultimately did for the ill-fated Yukos oil firm and its former chief executive Mikhail Khodorkovsky. Yukos was landed with a back tax bill of around $27.5 billion last year.

According to reports in the media, Vladimir Panskov, a member of the Audit Chamber, has 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 these 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," he told the Russian media.

The firm is also accused of leaving an unacceptably high number of its oil wells redundant, and may be investigated by both the tax service and the Ministry for National Resources. BP-TNK, which is currently contesting a $1 billion claim for back taxes relating to 2001, has denied the new charges leveled against it.

The timing of the allegations has surprised many observers given President Vladimir Putin's assurances to BP chairman Lord Browne of Madingley earlier this year that the oil producer's £3.6 billion investment in the country is safe. "We made no mistake when we supported the decision [by BP to invest] that was taken two years ago," Putin remarked at the time of the meeting.

However, some analysts have suggested that the Audit Chamber's findings will not result in fresh claims for back taxes or revocation of licences.

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