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. Last Updated: 07/27/2016

Dalsvyaz Hit With $25.6M Tax Bill

Authorities on Wednesday hit a small telecom firm with a back tax bill equaling a quarter of its market capitalization, just as the government is preparing to rein in the powers of the country's tax inspectors.

Regional telecom company Dalsvyaz said it had received a 718 million ruble ($25.48 million) tax claim for 2001 to 2002, but that it did not agree with the claim and would take it to court.

"Dalsvyaz is an honest and law-abiding taxpayer and it is the first time that controlling bodies have presented the company with such claims," Dalsvyaz said in a statement.

"In 2001, the Tax Inspectorate of Russia sent Dalsvyaz, as an honest taxpayer, a letter of gratitude."

At noon, Dalsvyaz shares were down 1.9 percent at 36.7 rubles on MICEX, after falling as far as 35 rubles, and were down 8.8 percent at $1.25 on the less liquid RTS.

Back tax claims have become a feature of business life in Russia under President Vladimir Putin, striking terror in the hearts of company executives and market players who fear a rerun of the calamity at Yukos, a major oil company ruined by a $27 billion tax claim.

Putin has charged Deputy Prime Minister Alexander Zhukov, widely seen as a liberal, to draw up proposals to simplify the tax system.

Dalsvyaz is the smallest of Russia's seven regional telecom firms, servicing Russia's Far East. It is part of national telecom holding Svyazinvest, which the government wants to privatize this year.

"It is a state holding. Such companies always pay all taxes," MDM-Bank analyst Sergei Reznik said.

"This case only shows that if there is a wish there will always be a back-tax claim which can easily be annulled. It is difficult to predict how the situation will evolve."

In December, Russia's second-biggest mobile phone company, VimpelCom, received a $158 million tax claim for 2001, but later the bill was cut to $17.6 million. VimpelCom has also, however, received a $20.9 million tax claim for 2002.

Also in December, Europe's biggest river-shipping company, Volgotanker, received a $23 million back tax claim and warned earlier this week that it may default on $120 million worth of credit-linked notes.

Analysts have said that tax checks are arbitrary and disruptive and have badly damaged the country's investment climate, triggering billions of dollars of capital flight and raising serious questions about the rule of law.

Reznik said that one reason for the claim could be the forthcoming privatization of Svyazinvest. Analysts have said that some government officials were interested in buying Svyazinvest and were moving to push down its price, which IT and Communications Minister Leonid Reiman valued at $2 billion.

"It is possible that other firms would receive similar claims which will be restructured after privatization," Reznik said. Dalsvyaz has 1.1 million subscribers on its fixed-line network. Its pretax profit was 197.8 million rubles ($7.02 million) in 2001 and 285.9 million rubles in 2002.

Dalsvyaz said that the bulk of back tax claims were for profit tax and value- added tax.

Company spokeswoman Natalya Dudko said Dalsvyaz had undergone tax checks every year and had never before received any claims.