Foreign Firms Hit By Russian Tax Claim On Pipeline Joint Venture

by Tatiana Smolenskaya, Tax-News.com, Moscow

28 July 2006

A joint venture between the Russian government and foreign oil companies to pipe oil from Kazakhstan to the Black Sea has been hit with a large claim for back taxes by the Russian Federal Tax Service.

While details of the dispute at the moment remain vague, Russian daily Kommersant reported that the Caspian Pipeline Consortium (CPC) has been issued with a back tax bill amounting to 4.7 billion rubles ($175 million). However, a claim by the newspaper that the accounts of the company had been frozen was denied by CPC.

Major shareholders in CPC include Chevron, Exxon Mobil, Royal Dutch Shell, and Russia's OAO Lukoil. The governments of Russia and Kazakhstan are the largest shareholders, with stakes of 24% and 19% respectively. Chevron has the largest stake of the foreign companies at 15%.

According to Kommersant, the irregularities relate to the understated tax base for calculating profit taxes in 2002/3, and were first discovered by the tax inspectorate in May.

CPC exports oil from the oil fields of western Kazakhstan to a terminal near the Russian Black Sea port of Novorossiisk, via a 940 mile pipeline. It is the only oil pipeline in Russia not controlled by the state-owned monopoly, Transeft.

Reports suggest that the Russian government has been disappointed with the return on its stake in the venture, and is using the tax claim to force the company to increase the tariffs it charges for transit of crude oil.

The consortium is challenging the validity of the claim in the Russian courts.

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