Court Cuts Tax Bill For British Council

The Moscow Arbitration Court reduced a tax claim against the British Council on Friday, triggering hopes for a resolution to a bitter dispute that has closed several of its offices.

The court made the ruling after the council, the cultural arm of the British Embassy, complained that a claim for unpaid taxes from 2004 to 2006 was too high, the council said in a statement, without providing exact figures.

British Council spokesman Antony Watson would not confirm reports that said the court had thrown out most of the claim.

"The details are incredibly complex, and we are reviewing the judgment with our lawyers," Watson said by telephone from London.

Interfax reported that the court had rejected most of the profit and value-added tax claims and had significantly lowered fines against the council. "The court basically supported the British Council's claims against the Federal Tax Service's 47th Inspectorate," Interfax said, citing court officials.

A court spokeswoman reached on her cell phone refused to comment, explaining that she was on vacation and would only answer questions Monday.

Kommersant reported that tax authorities had sought $8 million.

The claim was filed in May, the British Council said.

It was unclear what Friday's ruling might mean for the council's main headache, a dispute over its legal status in the country that culminated in the forced closure of its offices outside Moscow in January.

Watson said that while he hoped to make progress in reaching an agreement on the status dispute, it was unconnected to the tax ruling.

A British Embassy spokesman also saw no connection between the two issues. "This is too far to link," he said, speaking upon customary condition of anonymity.

He did say, however, that high-level contacts between both governments were ongoing, noting that Foreign Minister Sergei Lavrov had met with his British counterpart, David Miliband, on the sidelines of the United Nation's General Assembly in New York earlier this month.

An official in the Foreign Ministry said both sides have been in contact about the British Council since the onset of the problem. "The issue is being discussed through diplomatic channels," the official said on condition of anonymity, citing the sensitivity of the issue.

The Russian government maintains that the council has been operating in the country illegally because there is no comprehensive treaty that would regulate its activities.

In response, London argues that the council has a sound legal basis but has said it is willing to negotiate a wider agreement.

Both sides have linked the dispute to a diplomatic spat over the 2006 poisoning death of former security services officer Alexander Litvinenko in London, which resulted in Russian-British relations plummeting to post-Cold War lows.

Friday's ruling came just a day after Britain's new ambassador to Russia, Anne Pringle, gave her first news conference and expressed hope that an agreement could be reached about the British Council.