Russian Court Orders Review Of PwC Tax Case

by Tatiana Smolenskaya, Tax-News.com, Moscow

12 July 2007

Moscow's Higher Court of Arbitration has partly upheld an appeal by audit firm PricewaterhouseCoopers, which stands accused of evading Russian taxes.

While the court upheld charges that PwC failed to pay 8 million rubles worth of tax on auditing services, it sent back to the lower courts an additional charge that it underpaid taxes on the hiring of expatriate workers.

PwC has denied allegations by the Russian tax authorities that it evaded 243 million rubles in tax by falsely declaring the employment of foreign workers and under-reporting auditing services for non-residents.

The judgment comes a fortnight after PwC announced the withdrawal of its audits of the oil firm Yukos, after apparently learning that the bankrupt company had withheld certain information that it said should have come to light earlier.

"PwC believes information and representations ... provided to PwC by Yukos’s former management may not have been accurate," the audit firm said in a statement at the time.

The timing of PwC's announcement has aroused suspicion that political pressure was brought to bear on the company, as the government prepares fresh money laundering charges against former Yukos chief executive Mikhail Khodorkovsky, who is serving an eight-year prison term.

PwC's involvement with Yukos has already landed it in hot water with the Russian authorities, and in March 2007 it was fined 16.8 million rubles (US$647,000) because of supposed irregularities in its audits of company between 2002 and 2004, when it supposedly completed two separate audit reports - one intended for the oil firm's shareholders, and another allegedly for internal use, warning of illegal actions undertaken by Yukos - charges that PwC vehemently denies.

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