Lufthansa Accounts Frozen in Tax Spat

Lufthansa is facing a fresh spat with the Russian authorities, after tax inspectors froze several of the German carrier's accounts in the country in a disagreement over outstanding payments, an industry source familiar with the situation said Thursday.

The tax authorities froze the accounts Tuesday over demands that the airline pay between $7.4 million and $10.3 million, the source said, requesting anonymity because of the issue's sensitivity. "There is disagreement about the interpretation of tax regulations," he said.

Officials at Lufthansa neither confirmed nor denied the information, explaining that it was not company policy to comment on ongoing cases.

A spokeswoman at the Moscow branch of the Federal Tax Service said she knew nothing about the case and referred inquiries to the service's head office. No one answered repeated calls to the head office Thursday. An e-mailed request for comment to the Finance Ministry, which oversees the tax service, went unanswered Thursday.

The source said that the frozen accounts were used to make payments for aircraft fuel and for other day-to-day transactions, but that the airline's operations were not affected, as the cash flow could be handled through other accounts, some of them abroad.

It was unclear how much money had been frozen, but the amounts were not very significant, the source said. "These aren't very big sums," he said.

Lufthansa, which operates more than 200 flights per week to 18 destinations in Russia and the CIS, has had difficulties with the country's tax authorities before. In 2002, it refused to pay a 20 percent value-added tax on ground handling services, arguing that this amounted to a violation of international agreements Russia was party to.

The industry source said that the current difficulties were similar, and that the 2002 case had been settled by a court ruling in Lufthansa's favor.

In another spat, the Transportation Ministry last October temporarily imposed a ban on Lufthansa's cargo division over disagreements about overflight fees.

Germany reacted by briefly barring Aeroflot cargo planes from flying to the Frankfurt-Hahn airport, but the dispute was patched up with a November deal that runs until the end of this month. German media reported last week that the deal had been extended until the end of March.

Lufthansa is moving its Moscow operations across town from Sheremetyevo Airport to Domodedovo Airport by April 1.

It was unclear Thursday whether there was any connection between the overflight dispute and the current tax case.

"It is generally difficult to tell about the links between such cases in Russia," the industry source said.