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    ECONOMIST SHOKHIN: IMPERTINENT TAX OPTIMIZATION BY YUKOS, SIBNEFT

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    MOSCOW, MARCH 6, 2004. (RIA NOVOSTI) The crack-down of fiscal bodies on the companies Yukos and Sibneft is explained by their tax optimization schemes being too impertinent, claims Alexander Shokhin, Renaissance-Capital supervising council head.

    Neither these, nor other major companies that have been faced with the same inquiries violated any legal formalities. What they actually did was making a deft use of the existing loopholes which allowed them to pay into the budget far less than the government expected from them.

    "When you employ several disabled persons, register them in an internal off-shore branch and export oil through an external off-shore company, benefiting by all manner of tax-dodging schemes, you pay as a result quite an insignificant tax," says the economist.

    This considered, he said, the current references by the Sibneft management to the fact that the Audits Chamber did not find in 2000-2001 any misdoing on the part of the company are quite right as regards the formal side of the matter but wrongful in essence.

    On March 2 this year, the tax ministry charged Sibneft with non-payment of $1billion worth of taxes. Later, the ministry's claims were reduced to $700 million.

    "The Audits Chamber can evaluate the right use or misuse of budgetary funds, check the route of tax payment to the budget but cannot verify all the points and aspects," said Shokhin. "When the Audits Chamber inspected Sibneft in 2000-2001, it proceeded from the letter of law." The economist links the current worries of fiscal bodies and the prosecutor-general's office about major tax-dodgers, above all oil companies, with the spirit of law, an infringement on the spirit of law, rather than with the letter of law.

    According to Shokhin, the government has shifted toward countering formally correct but excessively optimized tax schemes for major tax-payers.

    There is the widespread awareness among economists and experts that most hefty Russian businesses, that is oil companies, monopolists in gas and electricity supply and non-ferrous metallurgy, have been functioning on the basis of former Soviet enterprises they obtained gratis or for a song as a result of massive privatisation in the early 1990s and through privatisation voucher auctions held by the government in the mid and late 1990s.

    "It is being indicated that those tycoons who, in their day, gripped without any effort a large morsel of the state property should pay off their taxes to the full because tax optimization in such conditions is immoral," said Shokhin.

    He noted that lots of tax optimization schemes vary from country to country. The West is fond of financial consulting which helps works out individual schemes for specific companies. "But they have a clear vision of which schemes are proper to use to optimize taxes and which schemes are improper, what volume can be optimized and what volume is improper to be optimized," continued Shokhin. "In some countries, optimization schemes are registered in fiscal bodies even before tax lawyers offer them to their clients." Shokhin made a reminder that YUKOS and Sibneft were not the first businesses to be charged by fiscal agents with too brisk an evasion of taxes. Some two years ago LUKoil and Bashneft were also accused of economizing on tax payment through a formal registration of their business in the Baikonur off-shore zone.

    "The reaction of these two major tax-payers was different," said Shokhin. "LUKoil filled the corresponding gap, admitting that the Baikonur scheme was really somewhat improper. It became the first company to give up "too advanced" optimization schemes.

    According to Shokhin, Bashneft first offered stiff resistance to any kind of repayment but finally gave in and made up for all the funds the government considered to be kept back. He referred to YUKOS-Moskva boss Vassily Shakhnovsky who had reduced his taxes by registering his business as an entrepreneur without the formation of a legal entity, as one who has compensated the sum he had underpaid to the federal budget.

    However, remarked Shokhin, tax-payers should be given some official explanation as to which schemes the government considers to be proper and which schemes cannot be accepted.

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