Russian Audit Watchdog Issues Report On Coal Export Transfer Pricing

by Tatiana Smolenska, Tax-News.com, Moscow

15 July 2009

The Accounting Chamber of the Russian Federation, the official audit watchdog, has issued a bulletin on its audit of Russian coal exports and concluded that more than 80% is sold at 30-54% below the world market price. It also revealed an absence of adequate monitoring procedures to calculate export duties accurately.

The bulletin states that as a result of this undercharging, coal export proceeds can accumulate in intermediaries' accounts in offshore centres and the Russian exchequer loses a considerable proportion of the tax revenue. The undercharging amounts to USD30-50 per tonne, and the total revenue stream affected is USD2bn. According to the Russian tax code, the undercharged transfer price is deemed as tax evasion when there is a 20% difference or more between the price of coal declared for export at the Russian border, and the price at which the coal is sold abroad by trading intermediaries, in cases when it can be established that shareholding links exist between exporters and overseas intermediaries.

Individual companies were not named in the report but Vladimir Putin, Prime Minister, has been outspoken in his criticism of the largest coal exporter, Mechel. Mechel's boss and main shareholder, Igor Zyuzin, is a former miner and has always steered clear of politics, shunning publicity.

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