Nestle's Russian Investment Threatened By Local Tax Officials

by Tatiana Smolenskaya, Tax-News.com, Moscow

27 November 2009

The Russian Federal Tax Service in the Samara region has petitioned the Samara courts for liquidation of the Nestle owned confectionery factory, "Rossiya".

Rossiya was founded in 1969 as the only chocolate producer in the USSR. In 1992 it became a publicly quoted company, and since 1995, the majority of shares have been owned by Nestle. Rossiya employs more than 280,000 people and continues to be one of Russia's largest chocolate producers.

According to official figures, the company made a loss of RUB237.9m in its latest year's accounts and there is a negative value of net assets amounting to RUB112.4m. Its profits for the first half of this year also fell by 2.8%.

Comments by Rossiya director Pavel Rudas reported by the Moscow Times suggest that the tax officials are demanding the company's liquidation because in 2008 the value of its net assets fell below the minimum size of the company's charter capital.

Negative financial results for a year cannot reasonably be used to force liquidation. According to the law on joint-stock companies, liquidation is only possible after the value of a company's net assets is less than the size of its minimum charter capital for several consecutive fiscal years, Rudas told the Moscow Times in a statement released by Nestle.

According to Vedomosti, an unnamed Samara government official has expressed the government's concern over events at Rossiya, and has stated that no-one is interested in the elimination of the factory.

However, it would seem that this is not the first time that Samaran authorities have clashed with foreign investors. Earlier this year Ikea made public complaints on Swedish radio, reported by Handelsblatt and Business Week, about irregularities in its dealings with the authorities in Samara that caused a delay of more than a year in the opening of its 12th Russian outlet within a Samara shopping mall; in June Ikea announced it was putting its Russian investments on hold.

At that time, Business Week reported that Samara's authorities rejected the notion that the delays were linked to corruption.

"To say the government is creating artificial barriers is an invention," Gigibulla Khasaev, economic development minister for Samara was reported by Business Week as stating. "Ikea has refused to correct numerous defects and has gone public with its complaints to distract attention from its own poor work."

The court hearing relating to Rossiya has been adjourned until December 18.

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