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McDonalds Contests Russian Tax Bill

by Tatiana Smolenskaya,, Moscow

05 December 2007

McDonalds has reportedly become the latest company suspected of tax offences by the Russian tax authorities after tax inspectors landed the global fast food chain's Russian arm with a multi-million dollar back tax bill.

Citing court documents, Russian daily Kommersant reported that McDonalds stands accused of buying various products such as meat and packaging materials from unlicensed companies, in contravention of Russian tax laws.

The company has also been accused of improperly obtaining value-added tax relief on milk and meat purchases, and selling items including milkshakes and ice creams at the discounted 10% rate of VAT, without possessing the necessary health certificates.

In August, McDonalds received a bill for back taxes of more than $6 million, according to the court papers seen by Kommersant. The company has said that all its products comply with European quality standards, but has declined to comment on the specifics of the tax case while the court considers the tax authority's claims.

Reports in the national and international media suggest that McDonalds is not the only company in the food and beverages sector to have been targeted by the Russian tax authorities in recent weeks. Sun InBev, part of the Belgian brewer InBev was reportedly raided by tax police last month in connection with allegations of tax evasion, and Nidan, a manufacturer of fruit juices, has been accused of illegally classifying its products as baby food to gain tax deductions.

This pattern suggests that the Federal Tax Service may be carrying out a coordinated crackdown against food and drink companies in order to raise rates of compliance in the area of tax deductions and VAT. However, in a country where legal boundaries are often unclear, these seemingly arbitrary tax investigations have been a frequent feature of the administration of President Putin, and have been used in the past to send a warning to companies and business people that may have fallen out of favour with the government just where power lies in Russia, with the case of Yukos being the prime example.

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