Yukos - Tax Claims

Tax Claims

In July 2004, Yukos was charged with tax evasion, for an amount of over US7 billion. The Russian government accused the company of misusing tax havens inside Russia in the 1990s so as to reduce its tax burden; havens were set up by most major oil producers in outlying areas of Russia which had been granted special tax status to assist in their economic development; such "onshore-offshore" were used to evade profit taxes, resulting in Yukos having an effective tax rate of 11%, vs a statutory rate of 30% at the time. Yukos claims its actions were legal at the time and that the company used the same tax optimisation schemes as other Russian oil companies, such as Lukoil, TNK-BP and Sibneft. However, Yukos was the only one to be charged with tax evasion and penalised by the authorities. Yukos subsidiaries also declared the oil they produced to be "oil-containing liquids" to avoid paying full taxes. A general crackdown on such tax evasion practices began with Putin's presidency, with numerous companies closing or purchasing their trading vehicles. It is widely believed that Yukos severe treatment at the hands of the tax authorities was due to its attempt to purchase a large block of Duma deputies so as to block oil tax reform legislation.

In a move to prevent bankruptcy, management made a friendly offer to the government to pay US$8 billion in a period of three years.

A management presentation from December 2004 shows that the tax claims put the "total tax burden" for 2000, 2001, 2002, and 2003 at 67%, 105%, 111%, and 83% of the company's declared revenue during those years. As a comparison, the annual tax bill of Gazprom is about US$4 billion on 2003 revenues of US$28.867 billion.

Yukos parent company, the Menatep group, lobbied extensively and successfully to influence Western public opinion, retaining Margery Kraus of APCO who successfully pushed through resolutions inter alia before the US House of Representatives and the Council of Europe.

According to a resolution of the Council of Europe,

"Intimidating action by different law-enforcement agencies against Yukos and its business partners and other institutions linked to Mr Khodorkovsky and his associates and the careful preparation of this action in terms of public relations, taken together, give a picture of a co-ordinated attack by the state."

This "raises serious issues pertaining to the principle of nullum crimen, nulla poena sine lege laid down in Article 7 of the ECHR and also to the right to the protection of property laid down in Article 1 of the Additional Protocol to the ECHR."

"The circumstances of the sale by auction of Yuganskneftegaz to “Baikal Finance Group” and the swift takeover of the latter by state-owned Rosneft raises additional issues related to the protection of property (ECHR, Additional Protocol, Article 1). This concerns both the circumstances of the auction itself, resulting in a price far below the fair market-value, and the way Yukos was forced to sell off its principal asset, by way of trumped-up tax reassessments leading to a total tax burden far exceeding that of Yukos’s competitors, and for 2002 even exceeding Yukos’ total revenue for that year."