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Russian Tax Authorities Move Against Telecoms Firm

by Tatiana Smolenskaya,, Moscow

10 December 2004

The Russian authorities on Wednesday lodged a claim for $158 million in back taxes from VimpelCom, the country's second largest mobile phone company, in a move interpreted by observers as another politically motivated action against Russia’s oligarchs.

The claim, which the firm says relates to the deductibility of a wholly owned subsidiary's expenses for the year 2001, is substantially larger than the $47 million the company made in net profit that year, and the firm has said that it intends to contest the accusation that it has failed to fulfil its tax obligations.

“VimpelCom does not agree with the initial conclusion,” the telecoms company responded.

“In accordance with the prescribed procedures under Russian law, VimpelCom will provide its written responses and objections to this act. In the past, VimpelCom has always been able to resolve issues with the inspectorate in a professional manner and VimpelCom assumes that it will find a mutually acceptable resolution of this issue,” it added.

Observers are suggesting that the government’s action is directed towards Alpha Group, an industrial conglomerate owned by billionaire tycoon Mikhail Fridman, which owns 25% of VimpelCom.

In 2003, Alpha acquired a 25% stake in VimpelCom’s rival, MegaFon, which brought Fridman into conflict with IT Minister Leonid Reiman, who is believed to have links with MegaFon and a related offshore venture.

Analysts fear that the tax claim is further evidence that the Russian authorities are seeking to send a strong signal to anybody in the private sector whose interests clash with those of the state.

“This move will worry everybody who was previously thinking that Yukos was a one-off case,” observed Steven O'Sullivan, head of research at United Financial Group, a Moscow based brokerage, according to the Financial Times.

The news sent shares on the Russian stock exchange tumbling by 5% on Wednesday, while VimpelCom’s New York listed American Depository Receipts fell by 20%.

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