Moscow Court Upholds Back Tax Claim Against PwC

by Tatiana Smolenskaya, Tax-News.com, Moscow

17 April 2008

A Moscow court ruled earlier this week that the Russian tax authorities were entitled to claim RUB260mn (USD11.1mn) in back taxes from audit firm PricewaterhouseCoopers.

The Moscow District Arbitration Court rejected PwC's second appeal against a ruling by tax inspectors, who have accused the firm of understating its income for the year 2002 by about RUB500mn.

According to tax inspectors, PwC illegitimately claimed that payments were made to a PwC company in the Netherlands for audit services provided to Russian clients, when in fact the payments were made to staff employed at the company's Russian subsidiary.

In addition to the RUB260mn tax claim, the authorities also ordered the company to pay RUB120mn in penalties and fines.

This sum was paid in full after the company's initial appeal against the claim was rejected. After PwC lost its first appeal, it filed another law suit in the Higher Arbitration Court, which ordered a retrial. The tax claim was however, upheld.

Fellow big four accounting firm, Ernst & Young is currently contesting in the courts a similar claim that it evaded millions of dollars in taxes, by illegitimately channeling profits through Cyprus.

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