In a Word

Mediation of Tax Disputes

Sep 28, 2011:

Courts are swamped with tax cases. And taxmen lose most of them. The Chairman of the Supreme Commercial Court Anton Ivanov thinks that it is time to induce tax authorities to settle ‘doubtful’ claims out of court. The problem, of course, is trust. How to make sure that a matter settled without litigation did not involve corruption? Anton Ivanov’s answer is mediation: when three know it, all know it.

Switzerland-Russia Double Tax Treaty

Sep 26, 2011:

The ‘how-not-to-pay-tax’ industry has grown so much that when governments make new agreements to fight it their anti-avoidance efforts do not always appear to be moving in this direction. Instead they seem to be seeking to advance own countries on this lucrative market.

Russia is one of the most promising sources of clients for the global tax planning and wealth management business. Negotiating double tax treaties is often not so different from negotiating good old trade agreements.

On September 24, Switzerland’s Federal Councillor Eveline Widmer-Schlumpf and Russia's Deputy Prime Minister Alexei Kudrin signed a protocol amending the double taxation agreement between the two countries. The revised DTA slashes taxation of interest from 10% to zero. Thus, Switzerland becomes one of the most attractive destinations to set up a conduit company for business in Russia. Why it is so important to have low taxes on profits repatriated in the form of interests we wrote here.

The agreement contains provisions on the exchange of information ‘in line with the internationally applicable standards’. In practice the arrangement, restrained by numerous buts and ifs, will have limited effect.

Stop Them

Sep 21, 2011:

No other organisation apart from the Federal Tax Service will be allowed to start criminal investigations of tax evasion. This tiny amendment to the Code of Criminal Procedure – the whole law does not even fill two pages – could make a significant change to the business climate in Russia. In all notable cases of prosecution for tax infringement, from Yukos to Sergey Magnitsky, taxmen did not start the trouble themselves but joined someone else’s show.

For instance, the police charged Platon Lebedev and Mikhail Khodorkovsky with tax evasion in July and October 2003, even though claims from the tax authorities had cropped up only a few months later at the end of December. The case against Sergey Magnitsky was also started by the police and this time documents from tax collectors did not emerge at all.

It is clear that an investigation against a company like Yukos would have probably been started no matter what. The idea behind Dmitry Medvedev’s law is to protect small and medium business from petty disturbances created by people who should be busy fighting crimes they understand. Yet Sergey Magnitsky died in detention. Perhaps we should take the word ‘petty’ back.

picture: © vectorosaur -

Domodedovo to Set Aside the Rules on Airport Security

Sep 15, 2011:

Moscow airport Domodedovo has applied to the Supreme Commercial Court to set aside the regulations on airport security which were imposed by the Ministry of Transport earlier this year. The airport management claims that these regulations are unlawful because they shift the responsibilities of the state on to a private company.

The regulations were adopted in February this year, two weeks after a suicide bomber killed 36 people and injured about 140 others.

Airports are expected to carry out investigative activities to prevent terrorist attacks, something, the applicants claim, the police or the Federal Security Service should do. According to the regulations, airports are responsible for illegal activity on their territory and management can be subject to criminal prosecution.'

On Symbolism

Sep 14, 2011:

The Supreme Court of Russia has ruled that the decision to keep Mikhail Khodorkovsky and Platon Lebedev in a detention centre from 17 May to 17 August 2010 was illegal. The court has also issued the special statement, a kind of official reprimand, to Moscow City Court Chairwoman Olga Yegorova pointing out ‘gross violations’ of law by Moscow courts when they handled the case.

Khodorkovsky and Lebedev were ‘arrested’ during their second trial when they were accused of stealing Yukos’s oil and money laundering. Last year, President Medvedev’s amendments to the Code of Criminal Procedure prohibiting the arrest of suspects in economic crimes came into effect. Moscow courts, however, refused to apply them to ex-leaders of Yukos.

Khodorkovsky and Lebedev were in prison at the time of their trial and, of course, there was no question of release. What they asked for, simply, was to leave them where they were, in prison, as conditions for convicted criminals are much better than for those who are in detention centres awaiting trial (and, strictly speaking, are not criminals).

The Supreme Court’s decision has a symbolic meaning. It will not directly affect Khodorkovsky and Lebedev, who are serving their 13 year sentences. However, the Supreme Court will shortly hear their appeals and yesterday’s decision may well be a useful piece of evidence of miscarriage of justice.

How Things Work

Sep 13, 2011:

David Cameron went to Russia for a reason. After his visit a court in Siberia overruled the court’s earlier decision on the seizure of BP’s documents at the suit of TNK-BP Holding.

The Commercial Court of Tyumen Region abolished the court order authorizing searches in the offices of BP Exploration Operating Company Limited (BP EOC). These searches took place on August 31 and September 1 and provoked an international scandal.

Technically, the decision to cancel the seizure was taken at the request of Rosneft. The state-owned oil leviathan said it did not want its confidential correspondence to be disclosed. Although Rosneft filed its objections on September 5, the court reached a decision only after David Cameron’s meeting with Dmitry Medvedev and Vladimir Putin. Robert Dudley, the executive director of BP, also took part in the consultations.

Rosneft planned a share-swap deal with BP and the joint exploration of the Arctic. However, this joint venture was wrecked by the consortium AAR (Alfa group, Access Industries, Renova), Russian shareholders of TNK-BP. They claimed that the agreement violated the shareholders’ agreement with TNK-BP. According to the agreement BP must conduct all its activities in Russia exclusively through TNK-BP.

In July, the minority shareholders of TNK-BP Holding filed a lawsuit against two board members, Peter Anthony Cherow and Richard Scott and the parent companies BP Plc and BP Russian Investments Limited. The plaintiffs claim that these individuals and legal entities are responsible for the fact that TNK-BP Holding was not able to close the share-swap and hence incurred losses of $3 billion.

The first court session over a lawsuit against Cherow and Sloan is set for October 12. The hearings of the case against BP and BP Investments Russia will begin on September 21. We expect to see David Cameron back in Moscow next week then.

picture: © Bello -

In the Innovative Future Officials will Speak Foreign Languages

Sep 13, 2011:

From 2014 all senior officials will be required to know a foreign language at a level sufficient to communicate without an interpreter. This requirement is included in the draft of the document called ‘Strategy of Innovative Development of Russia until 2020’.

By 2012, all state bodies will create ‘full English versions’ of their Internet sites, so that foreign internet users will be provided with ‘relevant information about the [state] policy’. All federal laws governing business activities in Russia will be translated into English.

‘Strategy - 2020’ was developed at the request of Prime Minister Vladimir Putin and was considered at the Cabinet meeting on September 7, 2011.

The document is not a legal act. It is merely ‘the strategy of innovative development is designed to respond to the challenges facing Russia and threats in the sphere of innovation development, seeking to build a clear agenda of goals, priorities and instruments of the state innovation policy’.

Volodya and the bears

Sep 12, 2011:

Those who say that Russian leaders aren’t popular at home are damn liars. Where else, if not in Russia, can you find vodka named after the Prime Minister or the President?

A Moscow Court has declared illegal the refusal to register the vodka brand ‘Volodya i Medvedi’ ('Volodya and the bears’). The trademark is an allusion to Vladimir (Volodya) Putin and Dmitry Medvedev (medved means ‘bear’ in Russian).

In December 2009, a Moscow company applied for registration of the brand. The decision, almost a year later, was to refuse registration because such a trademark would be ‘detrimental to the image and interests of the state and contradictory to the public interest’.

The company approached the Chamber for Patent Disputes which stated that ‘Vladimir Putin was President of Russia in 2000-2008 and now holds the post of Prime Minister and Chairman of the party ‘United Russia’, while Dmitry Medvedev has been President since 2008. Thus, the consumer could interpret this phrase as a pun on the names of the leaders of the state and the party ‘United Russia’, the symbol of which is a bear’. Recently, this decision was overruled by court.

'Volodya and the bears' is not the only brand capitalizing on the national leaders. The same company owns vodka called PUTINka, which literary means ‘a little fishing season’.

Two Hours Short

Sep 1, 2011:

As of today Russia occupies nine time zones, ranging from UTC+03 to UTC+12 - two zones less than yesterday. The furthest from Moscow are, eight hours ahead of Moscow time, Kamchatka, Magadan and Sakhalin.

The country extends 171°21’ longitudinally, or approximately 11.4 hours according to 'solar time' – a matter of concealed pride for many Russians. In November 2009 President Dmitry Medvedev proposed to reduce the number of time zones: ‘We’ve got used to being proud [of the number of time zones], but we should stop and think, isn’t it too expensive?’

So now Russia is divided into Kaliningrad (UTC+3), Moscow (UTC+04), Yekaterinburg (UTC+6), Omsk (UTC+7), Krasnoyarsk (UTC+8), Irkutsk (UTC+9), Yakutsk (UTC+10), Vladivostok (UTC+11) and Magadan (UTC+12) time zones.

Time zones in Russia came in after the October Revolution of 1917. Astronomer Otto Struve, who represented the Russian Empire at the International Meridian Conference in Washington in 1884, had a negative view of the idea of universal time zones and the Russian government did not join the international system.

In 1919, the Council of People's Commissars divided the country into 11 time zones mostly by the meridians. Subsequently, these boundaries were revised taking into account local topography and administrative borders.

On June 9, 2011 President Dmitry Medvedev signed the Federal Law ‘On Time Keeping’ which introduced the term ‘time zone’ instead of ‘time belt’.

Intimate Matter

Sep 1, 2011:

A commercial court in Moscow has ruled that MegaFon, the second largest mobile phone operator in Russia, violated the law when thousands of SMS-messages leaked to the Internet. For 3,000 personal messages made public the company will pay a fine of 30,000 roubles ($1,000) or 33 cents per message.

The penalty may seem ludicrous, yet the decision opens the gate to a barrage of civil lawsuits against the company. As Russian law stands, facts established by a court cannot be reconsidered. So the only matter left for debate is the amount of compensation.

The leak was discovered on July 18th. Internet users could read SMS-messages: thousands of intimate whispers plus passwords to accounts in social networks were open to all. It was a scandal. Russian telecommunications regulator Roskomnadzor, the Investigative Committee and the Federal Security Service launched investigations. MegaFon accused Yandex, the largest search engine in Russia of the leak. The latter claimed that when their spiders visited the MegaFon’s site the file, robot.txt, limiting the data indexing was not there.

The company’s spokeswomen said to this magazine that ‘regardless of the court’s decision the main issue for us is to protect the affected customers and to compensate them out of court’.

With over 30 million subscribers MegaFon, previously known as North-West GSM, generates more than $6 billion in revenues.