British Council Forced To Close Russian Offices In Tax Dispute

by Tatiana Smolenskaya, Tax-News.com, Moscow

18 January 2008

The temperature of Russo-British relations dropped another several degrees earlier this week, after the Russian tax authorities accused the British Council, a non-profit cultural organisation, of operating illegally in the country.

In what is being seen by the British government as the next step in a tit-for-tat diplomatic row between the two nations, the British Council reported on Tuesday that 10 members of staff from its St Petersburg office were interviewed late at night in their homes after calls by the Russian tax police.

The Russians claim that the British Council's activities run counter to the Vienna Convention on Diplomatic Relations because they provide educational services for a profit, and have been doing so for a number of years.

"The misunderstandings did not arise today. Similar things happened in the past as well," Mikhail Margelov, the head of the Russian Federation Council's international affairs committee, told Interfax in an interview.

Margelov added that: "The British Council and its regional branches have been actively engaged in commercial activities for years. For instance, they were providing paid educational services without a license. These activities were stopped only after the intervention of Russian tax agencies."

The British Council has strenuously denied the Russian allegations, claiming that it is being used by the Kremlin as a political football in a growing diplomatic row. It said that the interviews by Russian tax police "had little to do with their work and were clearly aimed at exerting undue pressure on innocent individuals".

"We are dismayed that we have been embroiled in what is evidently a political dispute," the Council stated on Thursday. "The British Council is registered for tax in Russia, its name and logo are registered, and it has complied with all the requests of the Russian authorities in respect of tax and other legislation. We are a not for profit organisation and do not carry out any income generating activity in Russia."

It is not the first time that the British Council's operations have featured in a diplomatic stand-off between Moscow and London. In 2005, against the backdrop of talks between then Prime Minister Tony Blair and Russian President Vladimir Putin, prosecutors in St Petersburg claimed that the British Council owed "millions" in back taxes, telling Interfax at the time that a criminal case regarding "illegal entrepreneurship" was being pursued in connection with the offering of commercial English language courses. "Also, over the past four years, the British Council has not paid a single kopeck in tax from its commercial activity," the directorate alleged.

In a statement to the House of Commons on Thursday, UK Foreign Secretary David Miliband confirmed the closure of the Council's offices in St Petersburg and Ekaterinburg, due to "the threat of a series of administrative measures against the British Council, including tax measures...and visa restrictions against British Council".

Miliband told the House that Russia, however, has "failed to substantiate its claims that the British Council is avoiding paying tax" and that the Council has "complied with all requests of the tax authorities in respect of its activities".

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