PwC, a respected international auditing firm, has been accused by Moscow city tax officials of helping the bankrupt Yukos oil company evade taxes, and it may as a result lose its operating license in Russia.
Carlos Gutierrez, who arrived in Moscow Monday to discuss Russia's bid to join the World Trade Organization (WTO) and bilateral investment, said after a meeting with Russia's economics minister, German Gref, that Washington expects any investigation into alleged violations of Russian tax legislation by PwC to be even-handed.
The Moscow Arbitration Court held hearings into the PwC case March 20 and ruled that the company violated professional standards while conducting audits for Yukos in 2002-2004. It ordered the company to pay a $480,000 fine to the federal budget.
The court decision could provide grounds for the Finance Ministry not to renew the auditor's auditing license, which expires May 20.
PricewaterhouseCoopers' press service issued a statement at the time, saying that the audits were conducted "in full conformity with professional standards and current legislation." It said the court ruling was unsubstantiated and based on a fundamentally different understanding of an auditor's role and functions.
In addition, PwC is currently being investigated over its alleged evasion of Russian taxes. Tax authorities claim the company owes 289 million rubles ($11.12 million) in back taxes and an arbitration court has upheld the charges.
The Russian division of PricewaterhouseCoopers has issued a statement saying the issue with back taxes has been settled.
"We have made a full payment [of back taxes] to the budget," PwC press service said.
The current situation around PwC has raised serious concerns among market participants and started to affect the company's business in Russia.
On Tuesday, carmaker AvtoVAZ [RTS: AVAZ], PwC's major Russian client for 13 years, dropped the company in favor of Ernst & Young to conduct its 2007 audit.
Although there are no signs that other clients will follow AvtoVAZ's example and decide not to renew contracts with PwC, the market is largely anticipating a reaction from Gazprom [RTS: GAZP], the company's key client in Russia, which is considering applications for the upcoming tender to choose an auditor for 2007.
The PwC case has already been brought up at the political level. U.S. Secretary of State Condoleezza Rice, U.S. Finance Secretary Henry Paulson and U.S. Ambassador to Russia William Burns relayed Washington's concerns to Russian officials and the Arbitration Court on various occasions.
The U.S. Administration has warned Russia that revoking the operating license from the company that conducts auditing of about 50% of Russian enterprises could seriously affect the country's economy.
Among possible repercussions, the U.S officials warned of reduced foreign investment, complications during Russia's WTO talks, and serious problems Russian companies could face while conducting initial placement of their shares on foreign bourses.
PwC filed a license extension request March 28, and Russia's Finance Ministry should decide by May 20 whether the extension would be granted.