Medvedev Urges Russian Authorities To Stop 'Terrifying' Business

by Tatiana Smolenskaya, Tax-News.com, Moscow

06 August 2008

Russian President Dmitry Medvedev has urged state institutions to stop "terrifying" private business with unwarranted inspections and unnecessary bureaucracy in what is being seen by some observers as a sign of a split between the President and Prime Minister Vladimir Putin.

In a meeting with senior government figures last week, Medvedev expressed a measure of exasperation at "all sorts of checks and harassment" initiated against some businesses by government agencies.

"In general, our law enforcement and state institutions should stop terrifying business," he remarked.

Political analysts have concluded that the timing of Medvedev's comments was no accident, with the battle for control of joint Russo-British oil venture TNK-BP currently being played out in the courts and Russian steel maker Mechel having recently been chastised by Prime Minister Putin for using alleged transfer pricing abuses to reduce its tax bill.

The President's plea also concluded with an OECD report which found that while Russia attracted USD52bn in foreign direct investment last year, government policy remained "the biggest obstacle to further domestic and foreign investment."

According to the UK's Daily Telegraph, Robert Dudley, TNK-BP's chief executive, left Russia last week to run the company from a "secret location" elsewhere in Europe after citing "sustained harassment" at the hands of the Russian authorities. TNK-BP's foreign staff have also been forced to leave the country after officials failed to renew their visas.

Medvedev's remarks are also being interpreted as a sign that the government will be less likely to use the country's tax authorities as an instrument of political power to punish dissent, as it appeared to do under the Putin presidency. The most visible case of this policy was the crushing of Russia's former largest private oil form Yukos, the remnants of which were sold off last year when it was presented with a series of back tax bills eventually totalling USD30bn. In reality though, Putin still wields considerable power.

However, the President also told ministers that aggressive tax avoidance by companies is unacceptable and that businesses should "act responsibly and pay taxes."

"Of course no one likes paying taxes...but it is unacceptable when the optimization results in tax responsibilities being decreased by four or five times as they do here," he said.

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