Moscow Times
July 18, 2005
Uncertainty Lingers Despite Tax Ruling
By Alex Fak
Staff Writer
The investment community is divided over last week's Constitutional Court ruling on back tax inspections, saying its impact will depend on how the tax authorities and lower courts choose to interpret the decision.
On Thursday the court upheld the three-year statute of limitations on back tax claims but opened up a loophole by allowing tax authorities to pursue claims indefinitely if they can prove "obstruction" on the part of the taxpayer.
Some analysts saw a victory for businesses in the decision, as the tax authorities had originally sought to have the statute of limitations on tax cases struck down as unconstitutional. Others said the wording of the ruling opened the way for arbitrary persecution.
The only point of agreement was that the full impact of the ruling will hinge on how individual courts and the government interpret what constitutes proof of obstruction. In Russia, government agencies often interpret opinions by the Constitutional Court as they fit.
"The language of the rule that the obstruction of tax audits can provide grounds for new claims is too vague, and given the weakness of the judicial system, courts may treat it 'too widely,'" Trust investment bank said in its morning note on Friday.
"Tax inspections could become even more ruthless and court decisions could depend on the subjective definition of a [obstructive] taxpayer," said UralSib economist Vladimir Tikhomirov in a note to clients.
Other analysts, however, noted that in his state-of-the-nation speech in April, President Vladimir Putin said that the tax authorities had "no right to terrorize businesses by revisiting the same problems time and again."
Last week's court decision was "perhaps the single most important test for repairing the damage from the Yukos affair," United Financial Group brokerage said in its morning note, referring to the $28 billion tax case that all but crushed Yukos oil firm. "It looks like this test has been passed, which is a good outcome for the investment climate."
When the State Duma reconvenes in September, it is due to vote on amendmening the Tax Code. UFG said that changes would include "detailed time limits for tax checks and, especially, exhaustive lists of documents which the tax authorities will be allowed to demand when conducting tax checks."
"Granted, for the time being the tax authorities can theoretically take advantage of the vague wording," Alfa Bank strategist Erik DePoy wrote in his Friday morning comment.
"But the better question to ask is whether they are liable to actually do so given the Kremlin's clear view on the matter. We believe the answer is, 'rather unlikely.'"
[] Several members of the 19-member Constitutional Court dissented from the majority ruling and wanted to rule the three-year statute of limitations unconstitutional, a judge from the high court said Friday.
A blanket statute of limitations, regardless of the amount of the back tax claim, violates the principle of equality in Russia's Constitution, Judge Gadis Gadzhiyev said by telephone.
Gadzhiyev also denied a report that he had commented on the outcome of the case in May, before the court had had time to review all the evidence.
Alfa Bank also played down the threat of new massive tax claims.