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. Last Updated: 07/27/2016

Publisher Takes Tax Ruling to Court

The parent company of The Moscow Times has fought off all but about $500,000 of an unexpected $9 million tax bill it was handed last year, and after a setback this week it now intends to appeal the rest to the highest court in the nation for tax disputes.

In addition to The Moscow Times, the Independent Media publishing house puts out glossy magazines that include Cosmopolitan, Men's Health and Good Housekeeping.

Such glossies were targeted last year by officials at Moscow Tax Inspectorate No. 29.

Among other things, the tax authorities argued that the company owed $9 million for 1999 because some of its articles were actually ads - since they dealt with things that could be purchased, such as books or perfumes - and some of its ads were being sold at what tax authorities judged to be below market prices.

Independent Media rejected the reasoning behind the bill and went to court. It had little alternative: Had it been forced to pay the bill, the company would have had to shut down all of its operations, said Tatyana Bakunina, the Independent Media chief financial officer.

"We honestly pay all our taxes, and by doing so we contribute to the Russian budget and the economy as a whole," said Bakunina. "We also always believed that we could argue our case in a court of law and receive a fair judgment, and we did."

In December 1999, a city court struck down the bill. Tax authorities appealed, and in February the Moscow arbitration court rejected their appeal.

Tax authorities appealed again to the Moscow arbitration court, and at a hearing this Monday they gained back a little ground: The majority of the bill, some $8.5 million, was again struck - but $500,000 of the tax bill based on a different line of reasoning was upheld.

The $500,000 tax bill was based on the argument that Independent Media could not record encountered costs and expenses until a financial transaction was officially complete - and not just when it had been agreed upon, as in a contract.

As that suggests, the tax bill can be liquidated simply by consummating those transactions - which has been happening on its own anyway. Moreover, the exact sum of $500,000 was calculated based on the now-rejected argument that some articles are ads, putting the publications into a higher tax bracket, Bakunina said.

Sergei Pepelyayev, a lawyer from the Financial and Accounting Constancy who has been representing Independent Media in court, said he would appeal against the $500,000 bill to the Presidium of the Supreme Arbitration Court, the highest body likely to hear a tax dispute. He said he has high hopes.

"There are plenty of legal precedents when in similar situations the rulings were not in favor of the tax authorities," Pepelyayev said in a telephone interview Thursday.

The tax authorities can also appeal their cases regarding the $8.5 million to the Supreme Arbitration Court.

But Pepelyayev said that such an appeal would be unlikely to succeed at that legal level, where the facts and details of the case are no longer reconsidered - only whether all legal norms were applied correctly.

"I don't think the tax inspectorate will be able to appeal the decision on [the $8.5 million] because their appeal will have to be motivated on the facts of the case," Pepelyayev said.

No one at the Moscow Tax Inspectorate No. 29 could be reached for comment Thursday.