TNK-BP Braced For New Back Tax Claim

by Tatiana Smolenskaya, Tax-News.com, Moscow

23 May 2006

Joint Russian-British oil company TNK-BP has set aside $1.3 billion to settle a claim for back taxes by the Russian tax authorities, a British newspaper has reported.

According to The Times, the back tax bill, which has not yet been issued, relates to the tax years 2002 and 2003, and the company has said that it expects the final bill to be a "reasonable amount".

Like much of the oil sector operating in Russia, TNK-BP is no stranger to demands for back taxes. Last year, the company successfully managed to reduce a 22 billion ruble demand ($813 million) for the 2001 tax year down to 6.98 billion rubles ($245 million).

The Times quoted one analyst as observing that TNK-BP could negotiate the latest back tax bill to less than $600 million.

BP itself has previously stated that it was indemnified by its partners against any historical tax claims when it bought into TNK.

Last month, the company revealed a 1.7% rise in its first quarter net income to $418 million. However, the firm also reported that profits would have been much higher if it hadn't been for a tax provision that sees over 95 percent of the benefit of prices above $35 accrue to the government.

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